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Advice / Succeeding at Work / Money

What Is a Robo-Advisor and Is It the Right Choice For You?

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You finally have some extra cash to invest, but you're unsure where to start. While financial advisors sound helpful, you're seeking something simpler and more cost-effective. Enter robo-advisors—digital financial platforms that currently manage $1.8 trillion worth of assets. That alone tells you enough about how many people rely on them to keep their investments safe. But are they right for you? What exactly are robo-advisors, and can they truly replace traditional financial advisors?

The idea behind this innovation is to take the emotion out of investing—there’s no actual person picking your investments—so that in theory, you can enjoy better ROIs. And if companies don’t need to pay human advisors, they can pass that money savings on to you in the form of lower fees. But there’s a lot more to robo-advisors than just lower costs. Here’s everything you need to know about them, from how they work to whether they're the right fit for your financial situation.

How does a robo-advisor work?

A robo-advisor is a digital financial platform that uses automation and machine learning algorithms to offer financial planning and investment advice. Unlike traditional advisors, it doesn’t need any human supervision.

Typically, robo-advisors ask you a series of questions about your current financial situation and future investment goals. Once you fill out the survey, they use the collected data to offer financial advice and make investments on your behalf.

They are also known as digital advice platforms and automated investment advisors. The best of them are known for their easy account setup, investment services, robust goal planning, and portfolio management. You may also find security features and comprehensive education.

Read this next: 10 In-Demand Generative AI Skills Right Now

Are robo advisors worth it? Learn about their benefits

Robo-advisors are a great innovation, but do you really need one? If these benefits resonate with you, the answer might be yes.

Lower fees

Before robo-advisors, professional investment help often came at a cost that was at minimum 1% of your assets. Automation has changed that, giving us many less expensive options.

For instance, Charles Schwab's Intelligent Portfolios have no advisory fees or commissions. Platforms like Wealthfront and Betterment are also great for budget-conscious investors.

Robust investment models

The best robo-advisors in the business use advanced research and modern theories for efficient portfolio building. Some, like Betterment, rely on Nobel Prize-winning investment theories. These theories are designed to build a portfolio that yields the most profit with the least amount of risk.

Lower account minimums

Robo-advisors are a great way to get professional financial management, especially if you don't have much money to invest. Companies like Betterment and Folio Investing let you start with close to nothing. Others may demand a minimum investment of $1,000 to $5,000.

Some robo-advisors, like Rebalance360, ask for at least $500,000. But that's still lower than some traditional financial advisors, who might want you to have at least $1 million.

If you're interested in specific kinds of investments, robo-advisors offer many different portfolios. If you're looking for low fees, some have affordable portfolios with different investment types, like exchange-traded funds (ETFs).

Plus, many robo-advisors offer extra services like rebalancing your investments based on performance and tax-loss harvesting (a way to make sure you don’t pay taxes on gains) to help you make the most of your money.

Fees associated with a robo-advisor

Robo-advisors charge a fee based on your assets under management (AUM). While traditional financial advisors often charge more than 1% of AUM per year, many robo-advisors typically charge about 0.3% per year.

Another way robo-advisors make money is through payment for order flow (PFOF), which they receive from directing trade orders to specific market makers. It's a tiny amount, often just fractions of a penny for every share. This system can sometimes lead to better trade prices for clients since robo-advisors bundle multiple smaller trade orders into large ones and execute them a few times a day.

Robo-advisors also earn money by promoting financial products and services, like mortgages, credit cards, or insurance, to their customers. They do this through partnerships with other companies.

If your robo-advisor's fees are higher than what you earn from your investments, you might be better off not using one.

Potential cons of robo advisors

As innovative as they are, robo-advisors do have limitations. Here are some downsides you should know before you consider their services.

Limited flexibility

Robo-advisors are often limited in scope. So, if you're interested in more sophisticated strategies like selling call options on a current portfolio or buying specific stocks, you might need a more flexible platform.

Traditional robo-advisors usually follow preset algorithms, which may not align with advanced investment strategies. If you're an experienced investor or even a newcomer looking for a diverse range of asset classes, you'll find that many of them fall short of meeting your broader investment goals.

Limited personalization

Robo-advisors are designed to meet the needs of many investors as they allow you to set and adjust your financial goals through their software.

However, these platforms might not always address your personal financial challenges and concerns. For that, you might need to speak to a human financial advisor who can create a customized investment plan for you.

No human contact

Robo-advisors are great for automated investing but don’t expect any personal interaction. They typically lack a physical office where you can meet face-to-face with an advisor.

Unlike traditional financial planners, robo-advisors won’t provide emotional support during market downturns or offer comprehensive financial, tax, and estate planning.

If you value a personal relationship with your financial advisor, they might not be the best choice.

What is the best robo-advisor? 5 popular options to check out

Before you start with a robo-advisor, you’ll have to pick the right one for your needs. Here are five top choices.



Account Minimum







Merrill Guided Investing



M1 Finance






How to start with a robo advisor: A step-by-step guide

Now that you know which robo-advisor works for your current financial limits and goals, you can begin setting up your account. Most robo-advisors have a similar account setup.

Here are the general steps to get started:

Step 1: Requirements

Robo-advisors in the US typically require you to be a citizen or permanent resident. You will need the following to open your account:

  • Personal Information: Your name, address, phone number, driver’s license, and email address.
  • Financial Information: Your net worth, income, and sometimes your investment experience.
  • Banking Information: Your bank's name, account type (savings or checking), bank routing number, and account number.

Step 2: Choosing the right account type

Robo-advisors offer different types of accounts. Common ones include individual investment accounts, joint accounts, IRAs (for retirement), or trusts.

Step 3: Completing the risk questionnaire

You might be wondering, “How risky are robo-advisors?” Well, most of them have a questionnaire that helps determine the best investment portfolio for you. The questionnaire usually asks about your age, salary, current assets, and investment goals. The most important part is about your risk tolerance.

If you're okay with volatile investments, you might get a portfolio with more stocks. If you prefer a steadier approach with less risk, your portfolio will have more bonds and cash.

After you answer the questions, the robo-advisor will suggest a sample portfolio for you. You can usually adjust the portfolio if it doesn't feel right to you.

Step 3: Funding your account

Once you've set up your account and decided on a portfolio, it's time to fund it. You'll need to connect a bank account to transfer money into your robo-advisor account.

Most platforms encourage setting up automatic transfers since it ensures regular investments, even when the market is down. It's a good strategy because it allows you to buy more shares when the prices are a lot lower. It’s also a classic money-saving technique, so that you “pay yourself first” by investing money automatically, rather than spending it on impulse or other purchases.

You can also fund your account through a one-time bank transfer, a wire transfer, or by mailing a check. If the robo-advisor has branch offices, you might even be able to drop off a check in person.


Robo-advisors are shaking up the investment world by making professional asset management accessible to everyone. If you like a hands-off approach, a reliable robo-advisor might be just the ticket.

But remember: whether it's a robot or a human, the real key is finding an investment strategy that speaks your language.