Robo-Advisors vs. traditional financial advisors: finding the best financial advisor for you

Everyone has financial goals, often originating from personal values and desires – from putting aside funds towards retirement, saving up for a house, setting up an investment portfolio and so on.

Historically, a financial advisor was the best and only option to achieve your financial goals. Although traditional financial advisors are still popular, technology has caught up, transforming the way we go about our finances.

The robo-advisor, an automated financial planning tool, uses algorithms to assess financial context and risk tolerance, then advises on personalised investment options and auto-manages investment portfolios.

Understanding Robo-Advisors vs. Traditional Financial Advisors

Robo-advisors were created due to technological influence and shifting investor demand for low-cost investment options, easier ways to invest, and inexpensive financial advice. These algorithmic alternatives are adept at spreading the risk across a diversified portfolio of options that are low cost and have a history of performance.

By contrast, traditional financial advisors give advice over a spectrum of topics, such as retirement planning, insurance, estate planning, investment management, to name a few. Financial advisors try to understand your current financial situation beyond the auto-generated questions of a robo-advisor. The human element works well here to understand motives and desires before setting up financial goals and developing an investment plan, with suitable investment options.

Which provides a better investing experience?

Robo-advisers are automated, so your financial goals and thresholds are primarily set and revised by you. This makes it a low-cost, convenient investing experience with some amount of personalisation – somewhat like booking an airline ticket or shopping online. The robo-advisor usually chooses funds with low minimum such as stocks, bonds, and short-term investments. This is easier for younger investors to begin their investment journeys and for those with lesser funds to achieve their financial goals.

On the other hand, a traditional financial advisor can be a barrier for some investors due to the high minimum investment. This advisor scours every option before presenting to you a dedicated, more personalised investment portfolio, from simple to complex. It may give you an opportunity to get a bigger picture before you decide. The traditional financial advisor even maintains your portfolio for you. All these factors make a traditional financial advisor a costlier proposition due to the high fees involved, with many potential investors sometimes dropping out and opting for robo-advisors.

You decide your financial goals

At the end of the day, your financial goals determine the type of advisor you should opt for. Depending on your goal and your overall preference, traditional financial advisors and robo-advisors bring different skill sets to the table. For a more detailed set of long-term investment options that match a higher risk appetite with higher minimums, a financial advisor could be the better option.

Robo-advisors simplify investment, offering you a plethora of short-term options that may aid in achieving short-term financial goals faster. It gives you personalised asset management at an inexpensive rate.

Serious investors often use a combination of the two, to achieve a well-rounded holistic financial planning approach. Be sure to do your homework before you make your decision.