Pros and cons of robo-advisors versus human financial advisor

In some cases, an investor can simply rely on a robo-advisor to manage their portfolios. But some instances may require a human financial advisor to take the lead, experts say.

A robo-advisor is an automated digital program that creates and manages your portfolio based on your investment preferences and risk tolerance, according to Investor.gov. 

Such programs typically come at a lower cost than traditional financial advisor services. In 2024, the median robo-advisor fee was 0.25% of assets per year, according to a recent Morningstar report. Human advisors typically charge around four times that amount, or 1% of assets under management.

However, a robo-advisor is “not going to look at your entire picture,” said Melissa Caro, a New York-based certified financial planner and founder of My Retirement Network, a financial literacy platform.

Here’s how to understand if you can stick to a robo-advisor, if you need a human financial advisor, or if you can have a combination of both.

A robo advisor can be suitable for someone who’s still in the so-called “accumulation phase” — when they are starting out and building wealth by saving and investing, and don’t need more intricate services like tax planning, said Caro.

“Things aren’t complicated in your life yet,” she said. 

What’s more, most robo-advisor platforms require low minimum investment balances.

According to the Morningstar report, a quarter of the robo-advisor platforms reviewed have an account minimum of $50 or less for the most basic services. Nearly every other provider has a minimum of $5,000 or less.

Meanwhile, some financial advisors require higher minimum investment balances. Some might require $25,000 while others can be as much as $500,000, $1 million or more, according to SmartAsset.

Still, such investment thresholds can be beneficial for both advisor and consumer, said Caro. For consumers, it helps you discern when a traditional advisor’s services may make sense.

For example, if you’re someone who has their emergency fund set up and has an additional $10,000 to invest, using a robo-advisor platform can be a “great way to just start to familiarize yourself” with investing and how compounding works, she said. 

“You don’t need to nor should you be paying a percentage of assets under management fee for your $10,000,” she said.

On the flip side, there comes a time where investors reach a “ceiling of complexity” and may benefit from a a person sitting across the table, said Dennis Morton, a CFP and the founder and principal of Morton Brown Family Wealth in Allentown, Pennsylvania.

In addition to managing investment portfolios, a financial advisor can also offer other areas of expertise, such as insurance analysis, estate planning and multi-year tax planning, said CFP Zach Teutsch, the founder and a managing partner at Values Added Financial in Washington, D.C.

“A robo-advisor may be doing none of that,” said Teutsch, a member of CNBC’s Financial Advisor Council.

When discerning what’s the best approach for you, it’s important to ask yourself what questions or problems you’re trying to solve, who’s best equipped to solve it and at what price, he said.

If you’re simply looking for investment management and trading services, “robo-advisors can be less expensive,” said Morton.

But if you’re somebody who needs specialized financial planning, a human financial advisor can provide a tailored approach, experts say.

Whether you decide to go with a robo-platform or an advisor, make sure to research and compare the different services that are offered and at what costs, said Morton. 

“There’s a lack of uniformity in what you can get,” he said.