What is a RoboAdvisor and which one is best for you?

Robo-Advisors, even the name alone stirs up questions in one’s mind.

For those who don’t have a background in finance may dwell on the concept of Robo-Advisors and selecting the best one amongst them. However, the concept is less complex than most people think, Robo-Advisors are software based programs that function as a platform to provide automated, algorithm based financial services. These robo-advisors do not require human supervision to present you with a jaw dropping, financial plan. The typical functioning of Robo-Advisors is based on collecting information from the clients i.e. users financial account to better estimate the financial situations and align them with future goals and objectives. The collection of this information can be done via surveys and then the gathered information is used to advise or automatically invest the financial assets in potentially fruitful opportunities.

So what exactly is this thingamajig?

Launched in 2008, the year of the recession, this advisor’s initial purpose was to make investments beneficial by rebalancing the assets within the target-day-funds. This allowed investors to manage their funds passively, by buying and holding their desired investments with the help of an easy online interface. This futuristic gizmo can now provide its services directly to the consumers instead of advisors like it did a decade ago. With Robo-Advisor by your side you can manage a vast amount of finance related tasks more efficiently;

  • Tax-Loss Harvesting
  • Investment Selection
  • Retirement Planning

The use of financial technology or FinTech to manage assets is highly recommended in today’s era. The robo-advisor is famous by many names: “automated investment advisor,” “digital advice platform” and “automated investment management” performing more or less the same functioning.

So why use Robo-Advisors?

The main benefit of handing over your financial statements to Robo-Advisors is the amount of money you will be able to save. Antediluvian practices of hiring investors are effective yet expensive, hence Robo-Advisors provide you with an alternative that arrives at the same conclusion and saves up your money. Robo-Advisors eliminate the need for human labor while providing with a platform that provides services at a fraction of the initial cost. The average advisory fee of using Robo-Advisors was calculated to be 0.40%, regardless of the account size. Most robo advisors have been noted to charge 0.20-0.50% of the total account balance, making it equivalent to 1-3% of what human financial advisors would cost.

Other perks also include being highly accessible. While the time offered by a human financial advisor is limited, Robo-advisors are free from such limitations. They can offer their services throughout the day, giving you 24 hours of service. This makes them more effective than their human advisors counterparts, while they are free from limitations, they do require a stable internet connection to function.

Furthermore, they require less capital to begin working with. They follow a standard baseline being of $5000 to get started, while most human financial advisors require up to $100,000 to work with. Some robo-advisors are free from the minimum baseline limit and will manage your account regardless of this minimum benchmark. What’s more, is they also eliminate the need to consult and meet-up with financial advisors, every time you want to execute a trade. This saves time on filling paper work and waiting for approvals, now with just a few clicks you can get your desired results in no time!

So, which is the best Robo-Advisor for me?

Before selecting the best one, compare and contrast the offerings of Robo-Advisors with your own objectives and goals. Variables that can help you find the best financial robo-advisors according to your needs are; your account balance and the type of account you have. Next, comes determining which purpose do you want Robo-Advisor to serve and which offered features best align with your agenda; Direct Indexing, Tax Loss Harvesting, Fractional Share, Human Advisors and single stock diversification.

Famous Robo-Advisors that do not have the requirement of having a minimum baseline balance are; Betterment, Wealth-simple, Bloom, and Hedgeable. With respectively $7.3 Billion, $560 Million, $807 Million and $44.7 Million in asset management. Other options include; Wealth-front, Personal Capital, SigFig, Vanguard, Rebalance IRA, WiseBanyan, TradeKing Advisor and much more.