When you're planning a vacation, are you the type that looks for the most efficient route using a reliable GPS? Or are you working with a travel agent who tailors every detail to your specific needs?
Deciding between a robo advisor and a financial advisor can be somewhat similar. One offers high-tech automation that aligns with what you input into the system, while the other provides human expertise for a more customized experience. Here’s how to compare the two when deciding which one — or combination of both — makes sense for you.
Comparing robo advisors vs. financial advisors at a glance
Feature | Robo advisor | Financial advisor |
|---|---|---|
Cost | Typically lower, even as low as $0 | Typically higher, either a flat rate or a percentage of assets under management |
Interaction | Digital-first; minimal human contact | Direct, one-on-one human consultation |
Personalization | Based on an algorithm and online survey | Tailored to complex, nuanced life goals |
Starting point | Low minimums ($100 minimum with an Ally Invest Robo Portfolio) | Higher minimums ($100,000 minimum assets under management for Ally Invest Personal Advice) |
Best for | Low maintenance or beginner investors | Complex planning (estates, taxes, etc.) |
Read more: Which investment account is right for you?
A robo advisor offers high-tech automation that aligns with what you input into the system, while a financial advisor provides human expertise for a more customized experience.
What's a robo advisor?
A robo advisor is a digital service that manages your investments using computer algorithms, sometimes with an element of human supervision. Typically, it's considered a more hands-off approach to investing (though any portfolio should be monitored regularly). The algorithms are designed by behind-the-scenes experts, but your day-to-day experience likely happens through an app or website.
How do robo advisors work?
With an Ally Invest Robo Portfolio, it starts with a quick assessment. You’ll answer a few questions about your goals (for instance, if you're looking for an income stream or tax efficiency) and how you feel about risk. From there, the algorithm builds a diversified portfolio — usually made of low-cost funds, such as exchange-traded funds — that align with your answers. The robo advisor also handles the "maintenance" by automatically rebalancing your accounts to keep everything on track. Your main task is to check in regularly and make updates based on changes to your timeline, risk tolerance or goals.
Pros and cons of using a robo advisor
Let's dive into a few of the benefits and drawbacks of robo advisors.
Pros of a robo advisor:
Lower cost: Because robo advisors are automated, they likely charge much less than a human advisor
Low barrier to entry: With an Ally Invest Robo Portfolio, you can start with as little as $100
Automation: Features like automatic transfers and tax-loss harvesting could save you time and stress
Cons of a robo advisor:
Less flexibility: An algorithm might struggle with the messiness that often comes with personal finances, particularly when juggling multiple goals with different timelines. You might find it to be more efficient to focus your robo advisor on one particular investment goal
Limited categories: You’re usually limited to a handful of pre-set portfolio types
What's a financial advisor?
A financial advisor is a licensed professional who helps you manage your money for your specific circumstances. Unlike a robo advisor, this is a real person or team of people you can call, email or meet with to discuss your financial life in depth.
Take quiz: Should you consider hiring a financial advisor?
Services offered by financial advisors
A financial advisor does a lot more than just pick stocks. A good advisor looks at your entire financial picture to offer:
Customized planning: Advisors help you strategize based on your unique risk tolerance and long-term goals
Guidance on life changes: Advisors can help with complex situations, such as navigating different life events (such as moving, job loss or marital changes)
Big-picture advice: Depending on their certification, advisors might offer guidance on things like tax strategies and how much you should be putting toward retirement versus spending on your regular expenses
Tip: When looking for a financial advisor, check for one that is a fiduciary, meaning they are obligated to act in your best interest.
Pros and cons of using a financial advisor
Let's dive into a few of the benefits and drawbacks of financial advisors.
The pros of financial advisors:
Personalized strategy: Your plan is built specifically for you, not a generic "investor profile"
Emotional support: When the stock market gets bumpy, an advisor can help you stay calm and avoid making panic-driven decisions
Tax efficiency: An advisor who is tax-certified can help you find ways to minimize your tax bill
The cons of financial advisors:
Higher prices: All that personal time and expertise comes at a cost (literally)
Finding the "one": It can take some time and effort to find an advisor or service you really trust and click with
Read more: Important questions to ask when choosing a financial advisor
Costs of using a financial advisor
Typically, you’ll pay around 1% of the assets they manage for you. So, if they’re managing $100,000, you’d pay $1,000 a year. Fees often drop as your assets grow, but it’s almost certainly a bigger investment than a robo advisor.
How to decide which is right for you
So, which one wins? It really comes down to your personal style and where you are in your financial journey.
Consider a robo advisor if: You’re just starting out; you love a digital-first experience; or you want the lowest possible fees while you work on your nest egg
Consider a financial advisor if: Your circumstances are complicated (think business ownership, inheritance or complex taxes); you have a significant amount to invest; or you just feel better having a person you can call to chat through questions that come up
Consider a combination if: You want to track a certain goal via an automated portfolio, but you'd also like to work with an advisor for other guidance or broader strategizing
Ultimately, whether you decide on a robo advisor, a financial advisor or a hybrid of both, the key takeaway is this: By understanding your own needs today, you’re taking an important step as you pursue a financial future that fits your unique life.
