The Personal Financial Advisor vs. Robo Alternatives

Investors today can choose between human advisors and low-cost, automated alternatives. These newer “robo” options use technology to develop a portfolio based on a questionnaire the client completes online. While robo offerings are getting increasingly sophisticated, research shows that human advisors remain in high demand. Deciding which offering is right for you depends on a number of factors, including your stage of life and the complexity of your financial circumstances.

Financial Planning

Robo offers a less-expensive start

Clients of robo advice platforms answer multiple-choice questions that categorize them by life-stage, basic goals, and risk tolerance. The robo advisor then recommends a portfolio that typically includes a selection of exchange traded funds (ETFs) to meet client needs in the most cost-efficient manner. For investors who are just starting out, robo alternatives can make sense as a way to save on fees, giving a boost to savings that will compound over time.

Human advisors add value through customization

A human advisor offers the advantage of customized planning. They have the ability to see the whole picture of a client’s circumstances, including qualitative factors that should influence investment decisions such as family relationships and a client’s concerns and hopes for the future. Unlike digital platforms, a human advisor can delve into important areas like retirement, tax, and estate planning. Human advisors can also consider a broader array of risks that threaten long-term goals, and can create a plan to either reduce or eliminate those risks.

Investment Options

Robo platforms typically invest in passive funds

To keep fees low, most robo providers offer portfolios of ETFs, which mimic the performance of stock and bond market indices. ETFs have lower management fees than actively managed funds, and provide valuable diversification benefits. However, ETFs have some disadvantages, too: Because they are not risk-managed, ETFs will participate fully in market volatility. In addition, ETFs that operate in less-liquid markets may experience pricing disadvantages that erode their profitability.

Human advisors offer active and passive options

There is sometimes a misconception that human advisors don’t ever recommend passive investment strategies. Though human advisors actively create customized nancial plans for their clients, those plans can and often do include allocations to passively managed investments like ETFs. In addition, human advisors have the flexibility to point clients to actively managed funds and alternative investments that may be better suited to their short- and long-term financial goals. Human advisors can also offer tax strategies that go beyond basics like tax harvesting. In larger portfolios especially, tax efficiency can more than pay for the added fees that accompany traditional advisory accounts.


Robo fees are lower, but aren’t always transparent

By offering a simplified, streamlined version of the financial planning process, robo forms have been able to cut the cost of human intervention and pass those savings on to clients. Online platforms still profit from their customers, but sometimes in ways that are less than obvious. For example, some robo advisors make money by steering customers into funds where they receive a greater compensation. These funds may or may not be the best choice for the client. Robo providers may also require customers to hold cash positions from which they profit on the difference between the return they get for investing that cash and the below-market interest rate they pay out to clients.

Human advisors charge more, but offer more value

Human advisors typically charge higher fees, but also offer more in terms of portfolio customization and strategy. For larger accounts especially, a higher level of service can result in efficiencies that more than pay for the added fees. For this reason, most investors still prefer using a human advisor for matters relating to estate and tax planning, elder care, and the purchase of a home.1

As with robo alternatives, conflicts of interest may occur when advisors receive greater compensation for some investment options than others. Be sure to ask about fund selection, and choose advice that’s founded on a personal relationship rooted in the fiduciary commitment of the advisor.

1 Financial Planning Association and Investopedia, “High-Tech and High-Touch: Investors Make the Case for Converging Automated Investing Platforms and Financial Planning,”Journal of Financial Planning, 2016, 

Time Savings

Robo saves time in less complex financial circumstances

Clients with simpler financial situations will likely save time with a robo advisor since there’s no need for face-to-face meetings. The client relationship is handled entirely online, with questions handled by online chat, text, phone, or email with a human or automated response system.

Human advisors save time in more complex financial situations

Investors with larger portfolios and more complex circumstances will likely find that going through a human advisor saves them a significant amount of time. That’s because the advisor offers experience and expertise that can more quickly shed light on the best path forward. Areas that may benefit from a higher level of service include retirement planning, tax strategy, college savings, divorce, career changes, estate planning, and/or decisions about a family business and paying down a mortgage.

Coaching and Guidance

Robo is not designed to give personal advice

The robo advisory industry was never designed to offer personal financial coaching, but rather low-cost portfolio management targeted to specific monetary goals. This makes the robo industry significantly different from its human counterpart. Robo’s strengths lie in its low fees, which can make a difference in terms of portfolio performance. For this reason, robo advisors often appeal to do-it-yourself investors who love a bargain.

Human advisors trump automated coaching abilities, especially in market downturns

Investing is often less about the numbers and more about a client’s hopes for the future as they relate to family, friends, and lifestyle. A human advisor can explain not only the what but the why of each investment decision, and can coach clients through life changes like career moves, divorce, inheritance, and paying off a mortgage. By contrast, a robo advisor doesn’t know the client’s family, their history, their values, or their personal goals.

Perhaps the greatest value a human advisor can offer is advice when markets become volatile. Research shows that most investors make the wrong investment decisions during times of market turmoil.2 A human advisor can help clients plan for the possibility of a down market by making sure their investment plan is aligned with their tolerance for risk, and by suggesting ways to reduce or eliminate the risks that threaten their plan. He or she can offer perspective and judgment that might prevent bad choices, such as panicked selling in a down market.

2 “The Proof that Most Investors Are Their Own Worst Enemy,” Brian Portnoy, June 13, 2016, Forbes, 

The Movement Toward Hybrid Solutions

Not surprisingly, both sides of the discussion are making efforts to adopt the best practices of the other side. For an added fee, more robo forms are offering the ability to interact with a human, but this may be with a planning team as opposed to an individual who knows the client personally. Human advisors have responded to the robo industry by lowering fees for asset management, but raising fees for financial planning, which is where they often add the most value. Through advances in technology, human advisors are also offering 24/7 online access to accounts, and are embracing digital channels of communication.

It’s clear that a robo approach is not as well suited to complex financial situations that require human guidance. That said, robo may be right for investors who are starting out, who have simpler financial circumstances, and who want to save on fees. Robo may also be a good choice for part of an investor’s portfolio, with the majority of funds under the guidance of a human advisor.

Weighing the Pros and Cons of Automated Advice

Investing involves risk, including possible loss of principal.

AMG Distributors, Inc., is a member of FINRA/SIPC.

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