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Robo-advisor vs. financial advisor: Which investment style is right for you?

You have options when it comes to managing investments. 

Tags: Investing, Investments, Planning
Published: November 30, 2020

Automated investment solutions, more commonly known as robo-advisors, have simplified the investment process and made it easier than ever to become an investor.

However, there are times when you may want or need the personalized support of a human advisor.

These five questions can help you determine which of these investment management types is a better fit for you. 

Automated VS. Human - infographic
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1. How well do you know yourself as an investor?

A. Very well: I feel confident choosing my own level of risk.

B. Not very well: I probably need a lot of help to figure out a risk level that’s right for me.

Automated investing

For investors who have a well-defined sense of their own risk tolerance, automated investing tools can be a good way to make your own investment decisions. Some even offer tools that can give you insight into your risk appetite.

Human advisor

If you’re feeling uncomfortable or even overwhelmed by the idea of defining yourself as an investor, a financial advisor can help you understand your risk tolerance and offer investment strategies tailored to your goals and needs.

 

2. Are your goals simple or complicated?

A. Simple: I have a straightforward goal and a good idea of what I want and when I want it.

B. Complicated: I have multiple goals; some of them are related while are others are less defined.

Automated investing

For investors with defined goals and clear time horizons or target values, automated investing can be a good choice. Some robo-advisors even allow you to update your goals regularly, so your investment strategies remain relevant as your needs change over time.

Human advisor

If you have multiple goals that are interdependent, you may need to talk with a financial advisor for additional guidance.

 

3. How much will you be investing?

A. Less than $250,000: I need an investment solution that is designed to work well at this level.

B. $250,000 or more: I want to take advantage of more complex strategies.

Automated investing

If you are looking to invest less than $250,000 in a particular investment strategy, robo-advisors can often be the lowest cost option.

Human advisor

Investments north of $250,000 usually allow for more diversification. Higher-end, premium strategies can help you take advantage of diversification, but are best navigated with the help of a financial advisor.

 

 

4. How comfortable are you with a “hands-off” approach?

A. Comfortable: I like to let the system do the work, I’ll just check my updates.

B. Uncomfortable: I prefer full service, with a live person taking care of my money.

Automated investing

Robo-advisors are generally rebalanced using an algorithm. When the algorithm finds trades that can adjust your current portfolio to become more like your target portfolio, it automatically executes them. Some also consider tax impact when choosing to trade. If you are comfortable with letting this process run, automated investing may satisfy your needs.

Human advisor

If you prefer a human in the driver’s seat, it may be best to have an advisor rebalance your portfolio. They use technology to analyze your investments against your portfolio strategy — but the bottom line is that a human decides whether rebalancing or other adjustments are right. 

 

5. Do you need just investment management or something else?

A. Just the management: I like handling my financial needs one piece at a time.

B. I’ll want more: I also want to know how my loans, insurance and other financial goals fit in.

Automated investing

Robo-advisors are excellent for straightforward investments, but they don’t provide additional financial services.

Human advisor

Financial advisors are trained to look at the larger picture for wealth management, using an entire toolbox of financial solutions. They may be able to help with a comprehensive financial plan that maps your needs over time.

 

What’s right for you?

Three or more “automated investing” answers? A robo-advisor may be a good investing option for you.

 

Three or more “human advisor” answers? Working with a financial advisor may be a better fit.

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