According to Freedom Debt Relief, a new trend in financial advice is the use of robo advisors. These Robo advisors are now being used by brokerage firms like Betterment, Charles Schwab, E*TRADE, and TD Ameritrade. While some people still prefer to speak to a live person, a number of people are now using these Robo services for investment advice.
Who Do Robo Advisors Work Best For?
In general, robo advisers work best for people who are happy with their index funds and are looking only for portfolio advice. They do not provide 401K advice or tips for saving for retirement. Robo advisers are most commonly used for smaller accounts, but Freedom Debt Relief reports that some firms have clients with million-dollar portfolios who are also accessing this service.
For those who are interested in using robo advisors, but still need human contact, some brokerage firms also offer a “hybrid” service. Betterment, Schwab, and Vanguard all offer this service. Typically, what happens is that you can choose the option of speaking with a person and the next available advisor will assist you. Although, at some firms, like Personal Capital, you will have a dedicated advisor.
Services Provided by Robo Advisors
As mentioned earlier, robo advisors work well when you need portfolio advice. According to Freedom Debt Relief, you answer a series of questions online, then a virtual advisor matches you with low fee trades that are diversified and tailored to your needs and risk tolerance. This robo advisor is basically a software program that calculates algorithms to find the best match for you. Your portfolio will be monitored and rebalanced throughout the year for tax purposes. And you can do all of this without ever having to speak to a live financial advisor (if you choose).
Fees for Robo Advisor Services
So, the big question is, can you save money by using a robo advisor? Currently, the fees for this service are charged based on the percentage of assets managed. This is the same method a human financial advisor typically uses to charge fees. The current average range for robo advisors is around 0.25 percent annually. However, in some cases, the fees can go up as high as 0.50 percent per year.
Freedom Debt Relief notes that these fees are generally higher if you use a hybrid service. Hybrid fees usually start around 0.30 percent of the assets and can be as much as 0.91 percent – particularly if you have a dedicated person for your financial adviser.
Would You Use This Service?
Now that you know about this service, Freedom Debt Relief wants to know, would you use a robo adviser for financial advice on your portfolio? Arguments can be made for and against this service. Some people simply don’t trust robots and prefer human interaction when discussing their finances. However, others recognize that using a virtual adviser eliminates the potential for self-interest or human error from your adviser. A robo adviser’s recommendations are based solely on its calculations and the information you provide.
Fortunately, many firms offer hybrid services for those who are open to the idea, but still hesitant.