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What are Robo Advisors and should you consider them

Science Fiction writers and movie makers have always been afraid of the future robot uprising that would wipe out the humans or make them their slaves. Rarely has Science Fiction shown robots as helping people become healthier or wealthier. Robo advisers aren’t exactly robots, but they aren’t (completely) human and they are rising.

What Is A Robo Advisor?

Today’s investors can choose to build and manage their portfolios by having a (human) financial advisor, by doing it by themselves, or by enlisting a robo adviser.


There are now over 200 robo advisors in the U.S., with more of them launching every year, and while they have come a long way since their conception in 2008, they are far from mainstream.

Early predictions of worldwide adoption of robo advisors were extremely optimistic. The predicted size of the robo-advisor market by 2020 was $2.2 trillion, however there is considerably less than $1 trillion worldwide managed by robo advisors as of May 2019, and the $2.2 trillion mark probably won’t be reached until 2022, but they are certainly making their way.


How Do Robo Advisors Work?

Typically, a person first opens a robo-managed account and provides information about their financial situation and investment goals through an online survey. Robo adviser then crunches the given data and automatically invests contributed client assets according to the results. If you’re not an investment professional, or someone who enjoys reading and learning about investing, you can evade all the hard work related to creating and managing the investment portfolio, and hand over the decision-making to the robo advisers.

But why would you choose a digital advisor over a human one? Here are some benefits of the automated help.

Biggest Benefits Of Robo Advisors

  • They are low-cost. It takes significantly less capital to get started, and robo advisors impose lower fees than those charged by traditional advisors.
  • They are easy and accessible. They are easy to set up and are available 24/7, as long as the user has an Internet connection.
  • They are efficient. Everything can be done with the click of a few buttons in the comfort of one's home. You don’t even have to log in to the account and place trades.

What Are The Cons Of Using A Robo Advisor?

Investors who prefer human assistance, need a tailored approach or have multiple investment accounts, probably won’t be satisfied with robo advisers. Robo advisors have been criticized for lacking in empathy and sophistication, while also limiting the options investors can make. Automated services are also ill-equipped to deal with unexpected crises or extraordinary situations.

Top 5 Robo Advisors

Top 5 robo advisors according to value of assets under their management:

  • Vanguard - the world’s largest mutual fund company, responsible for making low-cost, passive investing the trend it is today.
  • Schwab - charges no advisory or management fees, and you can open an account with a $5,000 opening minimum balance.
  • TD Ameritrade - has a $0 account minimum and offers a wide range of services.
  • Betterment - the oldest robo advisor with no minimum balance to open a new account.
  • Wealthfront - the first robo advisor to offer free financial planning that is personalized for its clients.


Should You Get A Robo Advisor?

Beginner or young investors without financial knowledge needed to make informed investing decisions, or professionals who don’t have time to actively manage their fund, may want to put their portfolio on automatic with robo advisors. Additionally, people who don't have the assets or the desire to hire and interact with a financial advisor may want to choose a robo advisor to select investments and place trades