Given the digital age that we live in, there’s a high likelihood that you rely on some sort of automated technology to make your life a little bit easier and less mundane. Over the past decade, the personal finance world has produced a marquee of its own products to try to keep up. These include various investment and financial planning platforms intended to make the stock market less intimidating and time-consuming for the ‘average Joe’ investor.

Robo-advisor platforms, in particular, have become a popular option because they offer the benefits of being a typically inexpensive and user-friendly solution. But does that mean you should necessarily rely on them to manage your portfolio? If you aren’t sure whether a robo-advisor or a more traditional financial advisor is better suited to your needs, Morris Financial Concepts is here to give you the main differences you need to consider!

Is a Robo-Advisor the Right Option for Me?

DIY investing has become significantly more popular in recent years. The GameStop mania and trading of other ‘memestocks’ earlier this year are proof. During the COVID-19 era, many searched for new skills and hobbies while at home, with a number trying their hand at the stock market via robo-advisors and online brokerage platforms like Robinhood.

You might be one of them, or you may be asking yourself, what is a robo-advisor? Essentially, robo-advisors are low-cost digital platforms that provide automated passive investing services using a computer algorithm. While all of these features sound great, robo-advisors tend to be better suited for some investors than others. Here are the main differences between a traditional financial advisor and an automated robo-advisor:

1 – Service vs Guidance

To manage your own investment portfolio online, you need to be fairly tech-savvy and have extensive market knowledge and time on your hands. Plus, a good bit of patience. For this reason, many investors turn to passive investing platforms, rather than apps like Robinhood. Both our fee-only financial advisors in Charleston, SC, and robo-advisors will manage and select investments on your behalf, without requiring you to constantly monitor your portfolio or make important financial decisions.

The key difference is that robo-advisors, as they sound, aren’t actually people, but rather automated algorithms that provide a management service, rather than guidance. Hence, why they are typically available at a lower cost. Unlike our Charleston, SC, financial advisors, they cannot encourage you to contribute to profitable investments, sell low or buy high, or prevent you from making unwise investments. It’s also difficult to know exactly what they are investing in, and unfortunately, some robo-advisors are moving away from passive index strategies to more risky areas of the market.

By contrast, our Charleston financial advisors provide the option to be as hands-on as you would like to be. If you want to be more involved, we can serve as an invaluable resource for questions and recommendations. We also have the time, knowledge, and expertise to make smart trading decisions for you.

2 – Algorithm vs Human

Robo-advisors are growing in popularity because of the convenience and accessibility they offer. Most display a simple dashboard at the touch of a button on your smart device. Their simplified capabilities can be a great starting point for beginners and hobbyist investors in a good market. When the market is turbulently fluctuating or you have questions about your portfolio, though, there isn’t necessarily someone to call.

Some robo-advisors may provide hybrid services, providing limited access to an actual financial advisor, for an additional fee. Yet, it can still be more difficult than it should be to reach them in times of need. When and if you finally do, it may feel impersonal, dare we say, robotic.

In contrast, our Charleston fee-only financial advisors can provide intuition, compassion, and vision for the entirety of your personal finances. When you have a question or concern, we offer the benefit of being able to talk to a real person, rather than waiting on a customer service line or chatbot for hours.

3 – Management vs Strategy

While it varies from platform to platform, robo-advisor applications typically prompt users to input their age, income, general financial goals, and risk tolerance before suggesting an investment asset allocation, which is essentially just a rule of thumb. Based on these limited criteria, robo-advisors can help you make some tailored decisions, but they are unable to sit down with you and get all of the details, even hybrid ones.

Without the full picture, it’s very difficult to develop a comprehensive investment strategy. Additionally, most robo-advisors don’t quite have the capabilities to handle more advanced investment portfolios. They serve to provide exposure to the broader stock market, which can be helpful for beginners but inadequate for others.

Some have even developed rebalancing and tax-loss harvesting abilities, though they still lack powerful investment diversification. This means that you are putting your money at risk. As every good investor knows, you shouldn’t put all your eggs in one basket when it comes to the market.

4 – Cost vs Quality of Services

Generally speaking, robo-advisors provide less expensive passive portfolio management – but their low price may come at the cost of quality. Robo-advisors can’t account for personal financial goals or unique situations, which can result in missed opportunities and poor financial decisions in the long run.

While exact fees vary from platform to platform, robo-advisors oftentimes charge a management fee between 0.2% and 0.5% of assets under management, with many hybrid advisors exceeding this range. By contrast, traditional financial advisors usually charge 1% or more to manage investments, though it depends on the fee structure (learn more here).

At Morris Financial Concepts, we operate as fee-only, Independent Registered Investment Advisors and CERTIFIED FINANCIAL PLANNER™ professionals who uphold the fiduciary standard. As one of the oldest and largest registered investment firms in Charleston, SC, our focus has always been – and will always be – on acting in the best interests of our global clientele base.

We are not compensated by any incentives and are not tied to any fund, service, or investment product, and our operations and fee structure are transparent. At Morris Financial Concepts, we charge a fixed fee of 1% or less, depending on your assets under management, and we provide holistic wealth management beyond investment planning. For more information, review our ADV and Form CRS.

5 – Investing vs Holistic Planning

Investment planning is just one piece of the puzzle. Robo-advisors may be able to fill the gap for some investors, but what about the bigger picture? Your personal goals are equally as important as your financial goals. After all, money is simply a mode to achieve your dreams.

Whether you want to travel the world, pay for your children’s education, retire early, or all of the above, your goals should be evident in your overarching financial strategy, and, by extension, your investment portfolio. Yet, despite recent advancements, robo-advisors are not able to factor these unique but crucial elements into your investment strategy. For the majority of investors, this limitation can be problematic down the road.

The findings of this Wells Fargo and Gallup Study suggest that investors still want guidance from financial advisors when saving, investing, and preparing for retirement. They look to their financial advisors for support in many other areas of their lives outside of investing. Many value the role a real financial advisor plays in motivating them to meet their financial goals, understanding unique personal and family dynamics, and clarifying broader life goals, which robo-advisors lack the ability to do.

The Bottom Line

Both types of advisors have their benefits, and ultimately, it depends on your wants and needs. To determine which is best for you, ask yourself the following questions:

• Do I have a complex estate or growing assets?
• Do I need a financial resource that can provide me with guidance?
• How much money am I looking to invest right now?
• Do I need financial services outside of investment planning?
• Would I benefit from more advanced investment and tax strategies?

Robo-advisors can provide an excellent starting point to building your wealth and straightforward investing, given the relative latency of their technological capabilities and minimal human oversight. If you have already complex or growing assets, you are likely better served by hiring a Charleston financial advisor who can provide you with comprehensive, tailored advice and management. We offer the options, accountability, experience, and guidance to help you reach your goals.

That doesn’t mean that robo-advisors can’t supplement advice from a financial advisor if you would still like to take a combined approach. If you have a financial plan in place with the help of your financial planner, then, by all means, go for it.

Talk to the Right Financial Advisor for You

Your financial journey should be a collaborative one. At Morris Financial Concepts, we tailor our wealth management plans to fit your specific needs. From achieving financial independence to protecting your legacy, our plans go beyond investments to give you a holistic map towards success. Contact our fee-only financial advisors in Charleston, SC, today to get started!

The opinions expressed herein are those of Morris Financial Concepts, Inc. (“MFC”) as of the date of publication and are subject to change without notice. Nothing contained herein is intended to be investment advice. Nothing contained herein is an offer to buy or sell a particular security, investment strategy, or product. Past performance should not be used as an indicator of future results. Some information used derives from outside sources that MFC believes to be reliable, however, accuracy and completeness cannot be guaranteed. MFC is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about MFC including our investment strategies, fees, and objectives can be found in our ADV Part 2, which is available upon request. MFC-21-10.