Is a robo-advisor something you should consider?


What are your financial goals? Do they include paying for your children’s education? Maybe you want to buy a boat and travel the world. Everyone has different goals and sometimes they can be extremely complex. It’s important to have the appropriate support to help navigate you through your financial journey. There are countless aspects to your financial future, and you need to make sure you evaluate all sides.

In the last few years, there has been a lot of attention given to ‘robo-advisors.’ Every large financial institution seems to have their own version – it’s basically an algorithm that creates an investment plan for you. But is using one right for you and your family? Here are a few things you should consider.

Pros:

Expansion of financial advice: Robo-advisors make financial education more accessible. Especially for younger generations that don’t understand the first thing about investing, this gives them an easy way in. They may feel intimidated to walk into a financial firm and sit down with a financial planner. Robo-advisors give them the opportunity to get their feet wet and learn a little bit about investing along the way. Many robo-advisors have countless resources for their clients and content to help educate them on a strong financial plan.

Various types of robo-advisors: There is no “one size fits all” robo-advisor. There are many different types, depending on where your interest lies. For example, let’s say you were interested in investing in a certain market sector, like an investment mix compiled of low-fee ETFs (exchange traded funds). There are also robo-advisors that claim to be experts in rebalancing and tax strategy. No matter what you are interested in, there may be a robo-advisor that can help.

No minimum balance: A lot of investment firms require you to have a certain deposit minimum in order to work with them. The minimums can range anywhere from $1,000 - $250,000 or more. This allows for every investor to get started no matter where they are at financially.

Cons:

Financial well-being: This is most likely the biggest hurdle that robo-advisors will encounter. Robots think in black and white. They are programmed to give you a certain result with the information you’ve provided. What they miss is that sometimes financial decisions can be a challenge and require an evaluation of a lot of different factors. When you need someone to support and encourage you, your robo-advisor won’t have the capability to do so.

Working with a trusted financial planner can factor in your emotions with your financial decisions. At times in your financial journey, you may need more than a result.

When you need real advice: Along with your financial well-being, you may need some trusted financial advice. Financial planning can be very complicated and you need multiple solutions to handle your financial situations. Financial planners have seen many different clients and know that every client has different needs. Robo-advisors cannot weigh out the pros and cons of a decision or factor in your emotions. For an example, say you have a stock that your grandmother gave you when you were 10. It is slowly decreasing in value and you need to decide if this would be a good decision to sell. You are emotionally attached to that stock since you’ve had it for so long and it was a great gift, but you need to weigh out the pros and cons of selling. Will there be tax implications? Where will you put the money once you sell it? Will there be repercussions from your family?

Limited services: Many robo-advisors have a limited amount of services they offer their clients. They might have a lot of resources to help educate you, but sometimes you need a service that is outside their experience. A lot of investment firms have services such as estate planning or tax advising. These services should be included in your fee.

The Simply Money Point

There are some benefits to working with a robo-advisor, such as the low barriers to entry. There are also some negatives. Their largest downfall is that they may not be able to help you achieve your financial well-being. They have trouble seeing the entire picture and helping you make the best financial decisions for you and your family. If you are looking for a personalized financial plan for the future, you may want to consider working with a trusted financial planner (we recommend a Certified Financial Planner ™) instead.

Want to learn how our team at Simply Money Advisors can help you create a personalized plan for you? We invite you to speak with our team.

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