As a financial planner my first instinct towards the newfound robo-advisor is to hate them and discourage all clients from using them. However upon further reflection I have come to reason and decided that not all robo-advisors are bad.
The truth is not everyone needs a financial planner, just as not everyone needs a personal trainer. Sometimes a DVD at home or a group class at the gym will suffice without paying for and putting the time in to get into shape with a personal trainer. The exact same thing is true for a financial planner and a robo-advisor.
If you want to buy stocks you may not need a full service stock broker (to whom you pay fees), you may just need to open an online discount broker such as eTrade or Ameritrade. If you don’t need full service customized financial advice then a financial planner may not be best for you.
According to Investopedia a robo-advisor is defined as “an online wealth management service that provides automated, algorithm-based portfolio management advice without the use of human financial planners. Robo-advisors (or robo-advisers) use the same software as traditional advisors, but usually only offer portfolio management and do not get involved in more personal aspects of wealth management.”
I can’t believe I’m about to say this because I make a living by giving financial advice, but here are four reasons why a robo-advisor may be just what you (and your investment portfolio) need:
Lower management fees
It’s no secret that automated services are cheaper than human interaction. Some may say that’s a step backwards when it comes to customer service, but others may say it’s just a natural evolution of technology. The truth is there’s no point in paying for a service that you don’t need because that’s just a waste of money. If you need personal advice then you need to be willing to pay for it. However if automation is what suits you best then you can save a few bucks and hire a robo-advisor.
There are no account minimums
Most financial planners only accept wealthy clients with a minimum net worth threshold. If you have less than $1 million or $500,000 to invest you may not qualify for the services of a financial planner or wealth management team.
If your total net worth is less that the required account minimum a robo-advisor may be the way to start seeking investment advice. As you grow your assets you can look into whether a financial planner is the next best step.
Simple advice for simple goals
Sometimes investors don’t need extensive financial advice with an elaborate financial plan that includes tax deductions, estate planning and asset transfers between generations. Sometimes investors just need help getting started in the stock market because they don’t know where to start. Sometimes elaborate goals don’t exist and basic financial advice will do just fine.
If you don’t want to (or need to) pay for a full service financial planner then why do it? It’s extra work, time and money that you just don’t need to spend.
There’s no time to go to the bank
Having a financial planner is a time commitment. You need to sit down and talk about your current financial situation as well as your goals. In this day and age of multiple jobs, work from home flexible arrangements and modern blended families people may not have time to invest with a financial planner.
If you prefer to get your financial advice from the comfort of your own home at a time that’s convenient then a robo-advisor is the way to go because they keep working after the stock market closes.
Would you use a robo-advisor to invest your money?
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