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Is it better to use a robo advisor or a traditional financial advisor? The answer depends on your financial situation, as well as your personal preferences.
Money is complicated, and saving money is especially so. Once you’ve mastered your finances and built a budget that leaves some extra cash each month, what are you supposed to do with it?

Both robo advisors and financial advisors can help you put your extra cash to good use and make plans to achieve your financial goals.

What is a Robo Advisor?

A robo advisor is an automatic investing service that manages your money for you. With most robo advisory services, you’ll be given a short questionnaire after you sign up for an account. This questionnaire asks for information about your financial goals, your risk tolerance, and your current financial situation.

Once you’ve set up your account, all you have to do is make deposits. Robo advisors use advanced algorithms and software to invest your money for you. Most robo advisors use a variety of ETFs to diversify your investments across the market, to produce strong returns while minimizing losses. If you want to withdraw cash, the robo advisor will handle selling shares for you. You just have to wait for the money to arrive in your checking account.

Because it’s all done by computers, robo advisors can work for people with hundreds of dollars or hundreds of thousands of dollars. Most charge percentage-based fees rather than flat-rate fees that only make sense for clients with huge portfolios.

Many robo advisors also offer additional services, like tax-loss harvesting, which they claim can increase overall returns.

Pros

  • Easy to manage: make deposits and let the computer work
  • Works for large and small portfolios
  • Low fees
  • Services like tax-loss harvesting can increase returns

Cons

  • Works best when the robo advisor holds all of your investments
  • Hard to customize your investments
  • More expensive than DIY investing

Who Are Robo Advisors Best For?

Robo advisors are designed for people who don’t want to manage their own investments. You don’t have to talk to an advisor or think about what mutual funds or stocks to buy. Just let the computer know what your goals are and hand over your money. It will take care of the rest.

If you like to take a more active hand in choosing investments or want to make regular trades, a robo advisor probably isn’t the right service for you.

Read More: Best Robo Advisors

What is a Financial Advisor?

Financial advisors are professionals whose job is helping people manage their money and invest for the future. They can do everything from helping you build a budget to investing your money on your behalf. They can even help design your estate to help you pass as much money as possible to your heirs.

You’ll meet with your financial advisor regularly, usually once or twice a year. This will allow them to update you on the performance of your investments and for you to discuss whether you’re on track to meet your goals.

One thing to note is that financial advisors are compensated in many different ways. Some charge an hourly fee to provide you with advice. Others charge a percentage of the assets that you have invested with them. Many receive commissions when they get you to invest in certain mutual funds to buy products like annuities. If possible, make sure that your financial advisor is a fiduciary. That means they are obligated to act in your best interest rather than increasing their earnings.

Pros

  • Meet face-to-face with a real human
  • More flexible than robo advisors
  • Can provide services like budgeting or estate planning in addition to investment management

Cons

  • Many do not have a fiduciary responsibility to act in your best interest
  • Can be more expensive than robo advisors

Learn More: Pros and Cons of Hiring an Investment Specialist

Who Are Financial Advisors Best For?

Financial advisors are great for people who want the comfort of working with a real person rather than a computer program. They also provide a more comprehensive range of services than robo advisors, so if you need help with more than just your investing, a financial advisor can help.

Finally, people with very complex financial situations, or who expect to have a large estate that they want to manage as tax-efficiently as possible, will get a lot of out of working financial advisors.

Learn More:  Do You Need a Financial Advisor?

Which Robo Advisor Should I Use?

If you’re thinking about working with a robo advisor, these are some of the companies that we recommend.

Betterment

Betterment is a robo advisory service that offers checking and savings accounts on top of its investing service. That makes it easy to keep all of your money in the same place. It also gives you some options to customize your portfolio, such as focusing on companies with good corporate social responsibility or smart beta strategies.

Betterment can also connect you to a human, financial advisor for an advising session.

Visit Betterment or Read our full review of Betterment.

M1 Finance

M1 Finance is a highly flexible robo advisor that has very low minimum balance requirements and no fees.

M1 Finance uses its investing pie model to help you look at and choose your preferred asset allocation. Once you set the size of each slice of your investing pie, M1 Finance will automatically rebalance your portfolio to maintain that allocation.

The robo advisor also lets customers borrow up to 35% of the value of their portfolio at very low interest rates. That makes it easy for you to get a cheap loan or leverage your investments.

Visit M1 Finance or Read our full review of M1 Finance.

Wealthfront

Wealthfront is a robo advisor that offers a variety of account types, including taxable accounts, traditional, Roth, and SEP IRAs, trusts, and 529 accounts.

Wealthfront builds your portfolio from a selection of ETFs that cover ten different asset classes. Wealthfront manages your investments and rebalances for you. It also does tax-loss harvesting on your behalf, regardless of your account balance. Many competitors have minimum balance requirements if you want to be eligible for tax-loss harvesting.

The company does offer additional services to customers who have a significant balance in their account. If you have at least $500,000, you can take advantage of Wealthfront’s smart beta program. A $100,000 investment will get you into Wealthfront’s Risk Parity fund, an actively-managed mutual fund that aims to beat the market.

Visit Wealthfront  or Read our full review of Wealthfront.

Where Can I Find a Financial Advisor?

If you’d rather work with a human, you can find a financial advisor to work with. We recommend the following services if you’re looking for a financial advisor.

Smart Asset

Smart Asset is a website that matches you to financial advisors who are experienced at giving precisely the type of advice that you need.

When you first visit the site, you’ll fill out a questionnaire that asks about your investing and retirement goals, your current income and savings, and your family situation. You can ask the program to match you to local advisors that you can visit in-person or an advisor that you can work with over the phone or by video chat.

The site also has calculators and guides that you can use to get a sense of your progress toward your financial goals.

Visit Smart Asset

Paladin

Paladin is a web-based service that helps people find fiduciary financial advisors. Fiduciaries have a legal obligation to act solely in your best interest. Some advisors are not fiduciaries, meaning they can offer advice but also recommend less than optimal investments that earn them a commission.

Paladin matches you with financial advisors based on both your and the advisor’s goals and requirements. You fill out a questionnaire providing information about your financial situation, assets to invest, and goals. Paladin will give you a list of advisors that want to help you within 48 hours.

Paladin doesn’t charge for its services, so there’s little reason not to use it when researching financial advisors.

Visit Paladin or Read the full Paladin Review

Personal Capital – a Hybrid Option

If you want the ease of working with a robo advisor, the but confidence of knowing that you can get help from a real human when you need it, Personal Capital is a solid hybrid option of robo advisor and human financial advisor.

Like a robo advisor, Personal Capital uses algorithms to manage and rebalance your investments. Just tell it your financial goals, and it can handle the rest. As a bonus, you can link your external investment accounts, like your employer’s 401(k), so that the algorithm can see your other investments and take them into account.

When you want a checkup on your progress, Personal Capital will connect you with a human advisor who can answer your questions and help you design a plan to reach your goals.

Visit Personal Capital or Read our full review of Personal Capital.

Bottom Line

Both robo advisors and financial advisors can help you meet your investing and retirement goals. Which one is the right choice for you depends on how you want to manage your money and how comfortable you are with letting a computer do the work for you.

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