Every adult, regardless of financial standing, encounters numerous financial decisions annually. Balancing staying afloat, preparing for the future, and enjoying life can be daunting.
Increasingly, low-cost digital and human advisory options are available in the growing robo-advisory industry. These services now extend beyond automated investment management to comprehensive financial planning tools.
Preference: Digital first or human first?
For those who are digital natives or at ease with online banking and investing, a robo-advisory service may be an optimal choice. However, those who prefer direct interaction with a professional for tailored, expert guidance might lean towards traditional human advisers. According to Paul Brahim, president-elect of the Financial Planning Association, experienced human advisers provide perspective, judgment, and coaching that automated systems cannot.
Costs
Working one-on-one with a certified financial planner can be quite costly. Initial comprehensive financial plans may cost thousands of dollars, followed by either an annual fee or a percentage of managed assets. Yet, many planners are now adopting subscription-based models, making financial planning more accessible.
Robo-advisors, on the other hand, offer a more economical solution. For example, some services charge a low annual fee relative to the amount invested, making them a viable option for those with limited funds. Vanguard’s Digital Advisor service, for instance, requires only $100 to start, with minimal annual fees.
Your needs and goals
When considering a robo-advisor, it is crucial to evaluate your specific financial goals, comfort with risk, and primary financial concerns. These factors will help determine whether a particular service meets your needs.
For many, a major life event often triggers the decision to seek financial advice. These events could range from having children, buying a house, or planning for retirement, to receiving a first steady paycheck.
Reducing financial stress is another significant motivator. Identifying what you want from the service will guide you towards the advisor that best addresses your financial requirements.
Room to grow
Robo-advisors can be an excellent starting point for individuals with limited assets. They offer simple, low-cost solutions for asset allocation and management based on your goals.
However, as your assets grow and your financial situation becomes more complex, you may require more comprehensive services. For instance, tax and estate planning issues may necessitate additional support beyond what a basic robo-advisor can offer.
Ben Johnson, Morningstar’s head of client solutions in asset management, advises considering whether the platform offers room for growth, including more advanced financial services as needed.
Identifying the best from the rest
Choosing the right robo-advisory service involves selecting a company that is financially stable, well-reputed, and offers a diverse range of investment options.
Consulting ‘best of’ lists from reputable sources like Morningstar can be beneficial. These lists evaluate services based on price, portfolio quality, parent company credibility, and the breadth of services offered.
Among the top picks are Vanguard, Fidelity Go, Schwab Intelligent Portfolios, Betterment, and Wealthfront. These companies are recognized for their competitive pricing and comprehensive service offerings.
Determining whether a robo-advisor is right for you depends on your comfort with digital tools, financial objectives, and willingness to incur costs.
As financial needs evolve, the accessibility, cost-effectiveness, and range of services offered by robo-advisors make them a worthy consideration. Choose wisely based on your personal financial situation.
