The Advantages of a Human and a Robo-Adviser

The Advantages of a Human and a Robo-Adviser

Automated financial platforms like Betterment and Wealthfront have increased in popularity due to low-priced automated investment management services.

Are we witnessing the end of an era that involves human financial advisors as more and more people turn to robo-advisor platforms?

LendEDU, a start-up company in Delaware that refinances student loans counters this line of thought by stating that this isn’t true. According to LendEDU, Millennials still favor in-person advisor services as compared to the automated and cheaper Robo-advisors.

LendEDU organized a poll that involved 502 Millennials who were actively saving up for retirement to find out which services they preferred to use – traditional financial advisors or robo-advisors? The results revealed that Millennials were two times more likely to use traditional advisors than Robo-advisors; high fees that come with the former notwithstanding.

To a great extent, the relationship formed between the Millennials and their financial advisor is the reason why Millennials choose in-person advisors. A human, financial advisor takes their client through the financial process by helping them create, prioritize and track goals. This is in addition to helping them adjust as they go through different phases in their lives. Naturally, this is a relationship that can only happen among human beings.

What is a Robo-Advisor?

How do robo advisors work?

Robo advisor performance is automated online service created with the intention of providing investment advice. It asks a series of questions regarding your individual financial goals and from the answers that you give the robo-advisor will develop the right investment advice for you.

For example, a person who’s comfortable and willing to tie up their funds for a long time will get a different recommendation than a person who needs to access their resources in a short period of time. Your risk appetite is also determined. People who are relying on their invested funds for their future wellbeing will not carry risky investments even though there’s a potential for higher returns.

The Advantages of a Human and a Robo-Adviser

When the robo-advisor figures out your investment style, it gives you advice by using the same software that traditional human advisors use, but it’s cheaper. Unlike a human advisor, the robo-advisor will not provide any additional services that affect financial planning like for example tax strategies, estate planning or retirement advice.

Advantages of Using Robo-Advisors

The need for a financial advisor that’s committed to the client wellbeing is one of the greatest advantages of a robo-advisor. Unfortunately, there are human advisors, who, driven by the conflict of interest or at the very worst greed, mishandle or misrepresent their clients. It’s for this reason that robo-advisors were created – to protect the undiscerning and unsophisticated investors. Robo-advisors handle the labor-intensive aspect of portfolio management thereby reducing your costs and granting you continuous access to the markets. This creates a more hands-on approach, and with a few clicks, you can get investment advice at any hour of the day (and night). Furthermore, automated platforms don’t charge you for unsolicited services rather only for the advice you seek.

Advantages of Traditional Human Advisor

Listed below are four advantages that traditional human advisors have over robo-advisors

  1. Human Emotions

Without delving into a deep philosophical debate, it’s true that a life without emotions carries with it no substance and no meaning beyond its bare physical existence. Emotions define human beings and emotions almost always impact the decisions we make on a daily basis, especially our financial decisions. We all have an emotional relationship with money; that explains how you feel when you experience a cash windfall or when you are completely broke. Looking back at that time, what emotional response did you have to those events? Did those emotions spur you to make the decisions you made? Were the decisions rational?

This is where traditional financial advisors come in – they handle the emotional part of financial investments and wealth. Whether the client is in the middle of a critical financial event or the markets have declined, a human advisor will be there to hold their hand and prevent them from making emotionally charged decisions that will see them lose. This is something that a robo-advisor has no idea of and cannot do. A robo-advisor is only designed to use its algorithms to run your portfolio.

  1. Accountability

While there are those who can stay accountable on their own, many of us left with our own devices, will fail miserably. To quote Bob Proctor, “Accountability is the glue that ties commitment to results.” Accountability is what gets the job done. A traditional human advisor will keep you accountable to your financial commitments, and one of the ways they will do so is by helping you come up with a workable and customized accountability system that will see you achieve your goals. Unfortunately, the best that computers can do is to create tasks and send you reminders; all of which you can turn off or ignore.

  1. Flexibility

Life happens – we change jobs, lose jobs, get married, inherit money, have children, or we buy a house. So many things happen in the course of one’s life, and it’s during these scenarios that discussions with a human advisor can make all the difference in your financial goals. These events create what’s referred to as ‘money in motion’ and when money is in motion, a lot of thoughtful planning, adjusting and action is required to ensure the outcome is positive. Having a human advisor on hand to advise you and help you adjust and adapt certainly helps. The algorithm-operated, robo-advisor is fundamentally limited in its ability to carry out these roles.

  1. Customized Service

Robo-advisors are somewhat cookie-cutter and one-size-fits-all in their offerings which would explain why they are so much cheaper than human advisors. Since robo-advisors are streamlined, automated services intended to serve the masses, their ability to customize solutions to fit your current financial situation is limited. On the other hand, a human advisor will customize their services and the portfolio management styles they provide to suit your financial situation.

Human Advisor

The debate on traditional human advisors versus robo-advisors may never be settled. If anything, it’s bound to accelerate as the financial services sector embraces more advanced forms of technology. When all is said and done, both the robo-advisor and the human advisors offer financial advice, and they cater to different groups. Each has a client base and caters to their specific needs.

Is a Robo-Advisor the Right Fit for You?

Should I use a robo advisor? Are robo advisors worth it? Many young people feel comfortable with robo-advisor because many of them may already be used to carrying out their financial life online. U.S. News reports that up to 58 percent of Millennials conduct their own financial research online and robo-advisors facilitate this research. Robo-advisors have made it possible for modest investors to gain access to financial guidance and markets, a situation that wouldn’t be possible through traditional channels. These automated platforms present efficient services that come at a fraction of the price charged by human advisors.

best robo-advisor

Then again, working with a human advisor proves helpful if you need to ask questions and seek clarification as you make financial decisions. The relationship between you and your human advisor will prove invaluable during rocky times when the market takes a turn for the worse, and you’re tempted to sell unwisely in a moment of panic. Furthermore, a human advisor can provide you with decades of facts on exchange-traded funds and a more nuanced view compared to robo-advisors which many consider only the past 10 years or so and present a narrower view. Also, the robo-advisor questionnaire may omit questions that would address important, unique and personal factors that may affect your particular investment needs.

The novelty that came with robo-advisors is one that has opened up exciting cash-saving opportunities for small investors, and this is set to rise and revolutionize financial markets all over the world. It’s wise to properly research and weigh in the options available to you before you settle on either a human advisor or a robo-advisor. At the end of the day, the advice you receive doesn’t come with a one hundred percent guarantee, and it’s in your best interest to be careful before you purchase any financial product.

What Robo-Advisors Don’t Provide

Even though there are investors who fit the robo profile, these automated platforms don’t come without drawbacks and issues.

Some disadvantages of robo advisors include:

  • The fact that robots have limited power and this limitation means that there’s only so much they can do for you. Robo-advisors generally focus on IRAs and taxable accounts.
  • There’s a price to be paid for human help. In an attempt to bridge this gap, some robo-advisor companies have now included the option of contacting human, financial advisors. Unfortunately, access to human help in this ‘hybrid’ or ‘cyborg’ model is limited, and the financial advice a person receives is not as comprehensive as what you would get from a traditional financial advisor. Also, the extra human help comes at an additional cost.
  • Robo-advisor platforms are still new, and because they have only hard a brief track record in financial markets, it becomes very hard to predict their behavior in a bear market.

Robo Advisor vs Traditional Human Advisor in an Unstable Market

Which types of investors might be interested in using a robo advisor? who might not be interested?

The events of Monday, Feb 5 in the U.S. financial markets are a clear indication that human, financial advisors are essential, especially in a time of severe market volatility. On this day, the equity markets went through the steepest decline experienced in years, and this caused tremendous chaos for robo-advisor companies. Websites belonging to two of the leading robo-advisor companies crashed while robo-advising products attached to three of the major U.S. investment firms experienced problems on their website.

According to a mid-January 2018 survey carried out by Capital One Investing on 1,003 people, 74 percent of investors would rather use a human advisor when markets are unstable.

Robo-Advisors Can’t Give Life Guidance

Most of Generation X have teenage children by now, and aside from all they have to deal with, they are also faced with complex financial questions regarding saving for college, paying down their mortgages as well as planning for retirement. A financial tool simply cannot work for these people.

They need someone to ask all the tough questions like:

  • Where do you want your kids to go to college?
  • What would become of you and your family if you became physically impaired?
  • What legacy do you want to leave behind?

All these are questions, discussions and intimate conversations that a person can have with a human advisor. A robo-advising tool can’t ask critical financial or life questions. Furthermore, a human advisor will understand your goals and customize financial solutions that will work for you.

Human Advisor

Candid conversations about money aren’t always easy or comfortable but working through them gives clients a peace of mind because they know that all the big and important topics are covered. It’s not just money you are talking about in these conversations; you are coming into people’s dreams and aspirations. It’s that trip you want to go on for your 10-year anniversary, that house by the lake you want to live in, and knowing that your loved ones are well taken care of. These are aspirations and dreams that only a good financial advisor can help you turn into reality.

Top and Best Robo-Advisor Investing Sites

Choosing an automated investing site can be an overwhelming task because there are a list of robo advisor sites available.

Based on different criteria, as you will see below, we have analyzed the best robo advisor 2018 sites:

  • Best Overall Robo-Advisor – Trade King Advisors

TradeKing offers a wide range of options in auto-investing making it the most appealing platform. There are no trading fees, and unlike other automated investment platforms, no individual investing fees are charged. A core portfolio requires a minimum deposit and balance of $500. $1 a month is charged for portfolios with less than $5,000 balance while an annual fee of 0.25% is charged for portfolios with a balance of more than $5,000.


  • Best Robo-Advisor for Beginners – Betterment

No minimum investment amount is required, and pricing options are determined by the amount of money in your account. Betterment offers incentives to encourage you to contribute more money. They also have great investment options for your portfolio diversification, and its varied pricing options give you the feeling of being in control despite the investments being automated.


  • Best Robo-Advisor for Big Investors – Personal Capital

Personal Capital is a great investment option for the more wealthy clients. It offers very limited options for anyone who doesn’t have a stash of money to invest and may not be suitable for small investors. The operating minimum is $25,000, and the fees fluctuate depending on how much a person is investing.

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