Robo-Advisors vs. Human Advisors: Which Is Better for Investing?

If you've been considering the possibility of entering the investment market, or if you're looking to change your investing approach, you may have come across the innovative services of "robo-advisors." Here's the deal on these automated services.

What Exactly Is a Robo-Advisor?

Robo-advisors are automated online services that ask you a set of questions about your personal financial goals and preferences, and then provide you with investment advice and access based on your answers. For example, if you can afford to leave funds tied up for many years, you'll receive different recommendations than would someone who needs quick access to their resources. Some riskier investments carry the potential for higher returns, but are not appropriate for investors who are relying on those funds for their future well being. Once the robo-advisor determines your investment style, it uses the same type of software that human advisors do--but far less expensively. Robo-advisors also do not provide the many additional services human advisors offer, such as retirement advice, tax strategies and estate planning.

What Advantages Do Robo-Advisors Offer?

Unfortunately, not every human advisor is committed to their clients' well being. Robo-advisors protect unsophisticated investors from the small percentage of human advisors who are governed by their own greed or conflicts of interest. Robo-advisors also take care of the manual details of portfolio management, lowering your costs and providing you with continuous direct access to the markets. You can be more hands-on in such an arrangement, and if you want investment advice at 3 o'clock in the morning, it's only a few clicks away. These automated platforms also allow you access to advice without charging you for a bundle of other services you don't need.

Is a Robo-Advisor Right for You?

If you're younger and are used to conducting your financial life online, you may feel more comfortable with a robo-advisor. According to U.S. News, 58 percent of millennials do their own financial research, and robo-advisors make that research accessible. Robo-advisors open new doors to investors of modest means, giving them access to markets and guidance that would not be available through traditional channels. Also, the efficiencies of automation mean that transaction fees are often only a fraction of what a human advisor would charge. The president of one robo-advisor notes that the average American family can end up spending over $100,000 in fees alone on their 401(k)s over the course of their working life.

On the other hand, if you feel the need to ask questions and to have emotional support before making financial decisions, you will want to work with a human advisor. This relationship can prove its value during rough times in the market when you might be tempted to sell unwisely because you feel panicky. The best human advisors serve as mentors, teaching you the skills you need to move forward with financial planning. Also, some robo-advising software only takes into account the last 10 years of information on exchange-traded funds, and a human advisor can give you a longer range and a more nuanced view. Your particular investment needs may include any number of unique personal factors that a robo-advisor questionnaire has not included.

The innovation of robo-advisors opens up exciting money-saving options for small investors, and this technology is bringing big changes to the world's financial markets. Whether you decide on a human or automated advisor to help you with investing decisions, t's important to be prudent and do your homework. No advice comes with an absolute guarantee, and you should always have both eyes wide open before purchasing any financial product.

The Best Robo-Advisor Investing Sites

There are many automated investing sites out there, so picking one that fits you can be difficult. We looked at the top robo-advisor sites and picked the best based on different criteria:

Best Overall Robo-Advisor:
TradeKing Advisors

TradeKing offers a wide range of options for its automated robo-advisor, TradeKing Advisors, making it one of the most appealing offerings when it comes to auto-investing. Along with no trading fees, this makes TradeKing our top pick. The minimum deposit and balance for a Core portfolio is $500. Portfolios with a balance under $5,000 are charged $1/month, while portfolios over $5,000 are charged an annual fee of 0.25%. Unlike most other automated investing sites, TradeKing does not charge any individual investing fees. This detailed review of TradeKing gives more detail about the service as well as a FutureAdvisor review, which is another robo-advisor service.

Best Robo-Advisor for Beginners: Betterment

Betterment has some of the best options when it comes to diversifying your portfolio, as well as an array of pricing options that let's you feel more in control, even if your investments are automated. Betterment's pricing options are based on the amount of money that is in your account, giving incentives for the more money you contribute, and best of all, doesn't require a minimum amount to invest. Here is a good comparison of Betterment vs. Wealthfront, another top robo-advisor service.

Best Robo-Advisor for Big Investors: Personal Capital

Since Personal Capital focuses on the more wealthy client, it doesn't offer many options for those who don't have a lot of money to invest, which makes it's options limited. If you do, however, have the money to invest, it's a great option. Personal Capital's fees fluctuate based on how much you invest, but the minimum amount is $25,000, so you better be ready to invest if you use Personal Capital. If you want to know more about the service, this review gives good detail about it.