Automation has swarmed every aspect of our everyday life, so why not take advantage of technology whenever we can? Specifically in the realm of hiring financial advisors, there are definitely pros and cons to weigh between (A) hiring a real person to make financial decisions on your behalf or (B) using a robo advisor service that can do most of the same stuff automatically.

Let’s get into a few considerations to make before committing to one option or the other.

Robo Advisors

So, what is a robo advisor?

A financial robo advisor is an automated platform that provides financial planning services without requiring human supervision. These digital platforms offer automated, algorithmic investment management services, allowing users to receive personalized investment advice and portfolio management without the need for direct human interaction.

Pros:

1. Low Fees: Robo advisors typically charge lower fees than human advisors, making them a cost-effective option for investors.
2. Accessibility: They are accessible 24/7, allowing investors to manage their portfolios at any time without needing to schedule meetings.
3. Automation: Robo advisors automate investment processes, saving time and effort for investors.
4. Objective Decision Making: They eliminate human bias, emotions, and judgment, leading to more objective investment decisions.
5. Diversification: Many robo advisors offer easy diversification options, spreading investments across different asset classes to reduce risk.
6. Tax Loss Harvesting: This is when you sell something in your portfolio at an overall loss and simultaneously purchase substantially similar assets, keeping your portfolio’s overall value the same in the short term. This is done to have that loss offset your capital gains for tax purposes. Human advisors attempting this strategy could get in legal trouble, so robo advisors are uniquely capable of tax loss harvesting.

Cons:

1. Lack of Personalization: While robo advisors do tend to take your own personal risk tolerance profiles into account, they may not provide the same level of personalized advice and tailored financial planning as human advisors.
2. Limited Human Interaction: Some investors may miss the human touch and the ability to discuss their financial goals and concerns with a real person.
3. Complex Situations: For complex financial situations or unique investment needs, the algorithmic approach of robo advisors may not suffice.

Human Financial Advisors

Pros:

1. Personalized Advice: Human advisors can tailor their advice and investment strategies to meet the specific needs and goals of their clients.
2. Emotional Support: They can provide emotional support and reassurance during market fluctuations, which can be valuable for some investors.
3. Financial Planning: Human advisors can offer comprehensive financial planning services, including retirement, estate, and tax planning.
4. Expertise and Experience: They bring years of experience and expertise to the table, which can be beneficial for complex investment scenarios.
5. Customized Solutions: For high-net-worth individuals or those with unique financial situations, human advisors can offer custom solutions.

Cons:

1. Higher Costs: Human advisors typically charge higher fees, which can eat into investment returns over time.
2. Potential Bias: They may be prone to biases and conflicts of interest, impacting the objectivity of their recommendations and investment decisions.
3. Limited Accessibility: Scheduling meetings and consultations with human advisors may be time-consuming and less flexible than using robo advisors.

Overall, the choice between robo advisors and human advisors depends on individual preferences, financial goals, and the complexity of one’s financial situation. While robo advisors offer cost-effective and automated solutions, human advisors provide a personalized and holistic approach to financial planning. It’s important for investors to weigh the pros and cons carefully before making their own personal choice.

Feel like you need to take a step back? Check out my blog post about investing when you have no idea what you’re doing!

My personal preference is to go with a robo advisor like Wealthfront to manage an automatically diversified portfolio of investments for me. Along with the robo advisor service, Wealthfront also has a variety of other products such as a very competitive high-yield savings account. If you use this link to sign up, you can get an extra half a percent APY for 3 months when you open a cash account!