One of the most frequent questions we are asked is "What is a roboadvisor and how can it help me?" Surprisingly (or perhaps not surprising at all), many people we speak with have never heard of the term at all. That is why we are here. To inform, educate, question, improve, and offer advise on how to utilize this growing service.
What exactly is a roboadvisor? The general definition is as follows:
Robo-advisor- a type of financial advisor that utilizes technology to generate financial plans and investment advice with limited human interaction.
It's really that simple! Well, it can get a lot more complex, but fear not: That is what we are here to help with! Let's delve a little deeper and break it down a bit more for you:
Who - The list of robo-advisors continues to grow. We break down the top options here at The List. Many of these companies offer the same general options but they also are different in many aspects.
What - Robo advisors are firms designed to give investment advice. These firms simply replace the in-person interaction with technology. Much like retail banks have automated their teller interactions (ATMs -Automated Teller Machines), so to have investment advisors into what we call AIM, or Automated Investment Management.
When - Robo advisors are fairly new to the asset management scene. Firms such as Wealthfront and Betterment were founded in 2008 while Schwab just launched version in early 2015.
Where - The beauty of this model is that you can live anywhere and have access to the service because it is web-based. No longer do you need to look for a local financial planning firm for your needs.
Why - Financial planning can be very expensive. Those without the funds to hire a financial planner may actually need it the most. Before robo advisors, there was no good option for the mass market to access this service. Robo advisors have been created to fill that need. These firms charge low annual fees, usually a percentage of your assets, and invest your funds in low-cost ETFs.
How - Robo advisors use a complex algorithm that takes into account your financial situation, wants, and needs, as well as standard industry best practices to come out with a plan on how to invest your money to reach your goals.
BUT - Robo advisors are not for everyone. Complex situations simply cannot be properly serviced at this point and they may never be. There simply is no substitute for a fully developed financial plan especially when you have significant funds and complex needs.
Check out more articles written here at RoboRiches in our archives.
There are many roboadvisors to choose from; each with distinct characteristics and a wide variety of services offered. We break down the similarities and differences between these firms here at The List.