You’re up in the middle of the night with a burning question about your financial future. Maybe you’ve got to make a decision about the best kind of savings account for you. Perhaps you’re eager to move on a particular stock, but you’re not sure if it’s the best choice. Your peace of mind, not to mention the strength of your portfolio, depends on getting the right answers right now.
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But your advisor’s office doesn’t open for several more hours. Even then, you’re not guaranteed to get an appointment that day. In your urgency, you join the many Americans who are turning to online robo-advisors for information and guidance. Robo-advisors are becoming increasingly popular — in fact, Grand View Research estimated that the global market size for robo advisory reached 6.61 billion in 2023 alone.
It’s not hard to understand why. Ideally, robo-advisors can distill even complex financial information into simple terms that people without financial backgrounds can understand. And you can access them in the palm of your hand. However, before you make any major moves, it’s important to understand the pros and cons of turning to your friendly neighborhood robo-advisor.
GOBankingRates chatted with a few experts to get their take on what anyone exploring this resource should know, especially those new to investing.
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Using a Robo-Advisor Can Be Cost Effective
According to Devin Carroll, owner and lead advisor at Carroll Advisory Group, going for a robo-advisor can be much cheaper than signing up with a human-led firm, since charges for robo-advisory services are typically lower.
Also, because many flesh-and-blood advisors now have minimums on the investable assets that potential clients must have, robo-advisors are a good choice for people who don’t have a lot to invest or are just beginning their personal wealth journeys.
“Robo advisory firms typically don’t have such a minimum and this makes them attractive to people with smaller portfolios who would otherwise be priced out of advice from human advisors,” said Carroll.
Robo-Advisors Don’t Come With a Personal Touch
While you don’t necessarily need to be besties with your financial advisors, having a personal relationship with them can help them guide you to wiser decisions. An advisor who can sit across from you, and get to know you in a way that a robo-advisor simply can’t, is better equipped to offer a more personalized touch to more intricate financial situations like estate planning or tax strategy.
As Carroll explained, robo-advisors are based on very certain algorithmic software that doesn’t accommodate specific economic decisions. The lack of specificity and knowledge into a client’s life circumstances put robo-advisors at a disadvantage in terms of being able to offer the best advice for a client’s needs.
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Robo-Advisors Can Be a Great Resource for First Time Investors
Starting to invest can be equally intimidating as it is exciting. But trying to teach yourself the ins and outs of the market can be daunting. If you happen to find an in-person advisor who feels condescending or smug, you could easily be discouraged.
Jason Chepenik, a certified financial planner (CFP) and the senior vice president of the Retirement and Wealth division of One Digital, said robo-advisors can take the anxiety out of first-time investing.
“Robo-advisors offer a straightforward, low-cost way to build and manage a portfolio, taking the stress out of making investment decisions by using algorithms to do the heavy lifting,” he said.
Using robo-advisors allows you to take a “hands-off approach” to monitoring your investments at any time and alleviates the stress of adjusting your portfolio by doing it automatically.
Robo-Advisors Don’t Whether Volatility as Well as Human Counterparts
Whether it’s a sudden shift in the market, or an unexpected change in your personal life, sometimes outside circumstances will compel you to make swift adjustments to your financial planning. Unfortunately, robo-advisors aren’t as uniquely qualified to respond to volatility as human advisors.
Chepenik said that human advisors can be better qualified to shepherd you through the unexpected, like a health issue arising, a sudden change in income or even an inheritance.
“A human advisor takes the time to understand your unique situation and can adapt your financial plan as your life evolves,” he said. “In times of uncertainty or market turbulence, having someone who knows you and can offer tailored advice and emotional support can be invaluable.”
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This article originally appeared on GOBankingRates.com: The Rise of Robo-Advisors: What You Need To Know
