Robo-Advisors vs. Human Financial Advisors: Which One Is Best for You

Investing imposes various challenges for beginners. Investment strategies and economic concepts sound familiar to those with experience, but they can sound like a totally new language to newbies.

While investing might seem daunting for beginners, it can still be highly rewarding with the right approach. They should start by finding great resources for guidance. Financial advisors and robo-advisors are ideal for newbie investors who need help.

This article covers both human advisors and robo-advisors so you can understand what both offer and which one suits your needs better.

Robo-advisor explained

A robo-advisor uses algorithms and programs to make investments and manage portfolios. Users can access the guidance through digital platforms or brokerage accounts that provide services for individuals.

Users will answer some questions regarding their investment goals, such as risk tolerance and time horizon. With the help of automation, the platform will take this data into consideration to create a custom investment plan. Many of the robo-advisors will create plans for your different financial goals.

For example, they can offer guidance for home down payment or retirement fund savings. Robo-advisors are regulated by the Securities and Exchange Commission, just like regular financial advisors. Robo-advisors have a fiduciary duty and have to act to meet the client's interests.

The advantages

• Cost efficiency: Getting help from your robo advisor costs less than the financial advisor.
• Convenience: While mobile investing apps have already simplified the process, robo-advisors also eliminate the tedious paperwork and meetings. Users will answer a few questions that reflect their investment needs.
• Hands-off management: Once you establish your account and define your goals, the automation will take care of everything. As an investor, you don't have to actively participate in making financial decisions.
• 24/7 access: You can access your portfolio anytime from your mobile device.
• Transparency: Users have insights about the investment process.

Disadvantages:

• No personalization: The robo-advisors won't consider the financial situation and unique goals of the client.
• No human interaction: Investors rely on automation throughout the investment process. The lack of human element can be an issue for some, especially during market turbulence.
• Cyber security: The platforms store sensitive data, which might be a target for malicious practices.

Human financial advisor explained

A human financial advisor is an expert who provides financial advice services. They work closely with their clients to get a better understanding of their financial situation, suggesting financial decisions that will help them achieve their goals.

They work with individuals, families, and companies and can do everything that a robo-advisor does. Their duties expand to more than just portfolio management and investment advice.

They will do financial planning, retirement planning, estate planning, wealth management, cash flow management, budgeting, and debt management.

They will understand your goals, income, lifestyle, assets, and liabilities to create a financial plan that works toward your goals. The process consists of a personal meeting and a discussion where they will understand your unique situation.

Advantages

• Expertise: The financial advisor has the education and experience to provide advice and planning services. Also, their work reflects the current market situation.
• Personalization: The advisors understand the unique aspects of their client's situation.
• Taking the work: Your advisor takes care of tax planning, retirement planning, real estate planning and other aspects.
• Peace of mind: Knowing that a trusted professional takes care of your financial planning will free you up from stress.

Disadvantages:

• Cost: Hiring a professional advisor with experience will cost more. 
• Conflict of interest: Advisers might highlight the products that bring them more commission.
• No control: Clients don't have direct control over the decision, so they might find some actions by the advisor not matching their preference.