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Money Matters: What Is a “Robo-Adviser”?

August 15, 2017 | Lake Gibson Village

Is using one to manage your retirement funds a sound decision?

Have you’ve heard the term “robo-adviser,” but don’t know what one is? This financial-planning tool first popped up among a few little-known start-ups, but today, many financial-planning companies, including Vanguard, Fidelity and Schwab, are using them. Basically, it’s computerized advice about your financial investments. A robo-adviser is a digital tool — not a real person — that provides digital financial advice based on mathematical rules or algorithms, which are performed by software, to automatically allocate, manage and optimize your assets. 

You answer a few multiple-choice or fill-in-the-blank questions that are used to assess your risk tolerance and time frame for your planned retirement. In seconds, the program analyzes your answers and generates a portfolio for you. 

Because keeping costs low is key, robos mostly use low-fee exchange-traded funds (ETFs) to build portfolios. In most cases, firms charge a management fee of 0.25% to a bit less than 1% a year, based on the amount you have with them (though some charge a flat annual fee). You also have to pay the expenses charged by the funds you own. But in most cases, you pay no commissions when you trade ETFs. 

So, how do you know if it’s a good idea for you?


  1. Low Fees: There are many low-cost robo-advisers to choose from that cost-conscious consumers will love. That’s because the higher levels of automation that robo-advisers provide means that they can offer lower fees than traditional wealth managers or financial advisers.
  2. Low Minimum Investment: Robo-advisers tend to have lower minimum investments than traditional wealth managers. Many financial investment advisers require that you have minimum assets of $500,000 or more. If your assets don’t meet this requirement, you may benefit from having your portfolio managed by a robo-adviser. If you have been funding your own retirement with a 401(k) plan and/or IRA account, but don’t understand your investments, you will definitely benefit from using a robo-adviser.
  3. Time-Saver: If you want invest in the markets, but don’t want the hassle or time commitment it takes to build your own investment portfolio, a robo-adviser is a good option.


  1. Lack of Control: You can’t choose or tweak particular investments. Most robo-adviser services are truly completely automated — you can’t select a different fund or change the amount invested in a particular fund. You can usually tweak the allocation or adjust your goals and financial profile to reallocate your portfolio, however.
  2. The Service Is Limited to Investing: Robo-advisers cost much less than human financial advisers, but they only can help you with your investments. If you want tax planning, budgeting, or other financial planning, you’re out of luck.
  3. They Cost More Than Other All-In-One Funds: Though less costly than a human financial adviser, robo-advisers do cost more than the lowest-cost all-in-one funds available, such as a target-date retirement fund.

Bottom Line

While the robo-adviser investment strategy isn’t without disadvantages, it is better than nothing at all. If you’ve got a hodgepodge of investments with no asset allocation and no real understanding of what your investments are, you may want to go the robo-adviser route.

If you can handle the higher fees (but still less than a human financial investment adviser), you might want to think about a hybrid robo program. These mix computerized and human investment advice.

If you are retired or nearing retirement, it may be time to sit down with a human expert. You’ll receive the benefits of getting investment advice from someone who understands complex algorithms and your personal needs and goals. Keep in mind that financial advisers can add tremendous value. They can offer guidance about the best asset allocation for you based on factors that a computer program can never take into account.

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