Should I use a Robo Advisor, Human Advisor, or Both?

Chris Reddick |

A 2020 Vanguard survey of generations and investing showed that younger Americans (Gen Z and Millennials) are significantly around three quarters more interested in learning about investing than older generations.1 Millennials are twice as likely to use a robo-advisor for investments than baby boomers. Around the same amount would like to receive professional financial advice in the future. The research shows that even knowing younger generations want to use technology, they understand the importance of professional financial advice.

Millennials are very interested in financial coaching compared to older generations. Younger generations believed that they are in need of more than a robo-advisor to help in understanding if they have invested properly and are saving enough for retirement or other financial goals. Younger generations would pay for financial advice, but would pay at a lower price point than older generations.

Millennials and Gen Z have largely grown up in a tech-savvy world, but they prefer to have both digital help with a human advisor touch.2 Digital investment advice had a coming of age with the Great Recession of 2008 with the emergence of companies such as Betterment, Personal Capital, and Wealthfront. Many of these early players have switched from just providing robo services to more human touch. In addition, there has been the widespread use of smartphones enabling the creation of automated savings and investing through mobile apps.

What are some reasons why you would need a robo-advisor?3

1. Making investing easy: The first reason to invest with a robo-advisor is that they make investing easy! When signing up to most robo-advisor platforms it just asks you to fill out a short questionnaire. In this questionnaire, you would answer questions about your age, investment goals, risk tolerance, and other factors that the algorithm needs to pick your ideal investment portfolio. The robo-advisors do a great job of offering an investment portfolio that is diversified and low cost.

2. Robo-advisors usually cost less than traditional advisors: Many traditional advisors charge based on assets under management or AUM. Most charge an average of about 1% of your AUM per year. For example, when your balance is $100,000, they charge $1,000 per year. Robo-advisors tend to charge much less at around a quarter of 1% or less.

3. Stay on track for retirement: With a robo-advisor, you know you are on track for your retirement goals even when you're not actively working on it. You can turn on an automatic investment plan where you add a little to your portfolio every paycheck or every month and you accumulate savings over time.

When should you supplement or replace robo-advisor with a human advisor?4

1. Behavioral problems. We, humans, act irrationally and emotionally much of the time. We need someone else to talk us through life's complex challenges. We like to be assured that we are making the correct decisions. We need someone to remind us of our goals and how to reach them step by step. As of yet, robo-advisors are not able to provide that detailed human interaction that we crave.

2. Life gets more complex as we get older. Over time, as your portfolio grows, it becomes more complex. We have different savings accounts such as a 401k, an IRA, or Roth account. What about college savings? What's the best insurance? Many of these complex financial issues cannot be easily answered with robo-advisors. We need a financial planner to make sense of how they fit together.

3. A bit of both. Younger generations want to use technology to help with financial planning but are willing to pay for the human interaction that a financial planner can provide. Having a financial planner work on helping you reach goals makes sense. You can supplement your personal financial advice with robo-investing.

Younger generations are thirsty for new innovations in investing. Robo-advisors is one solution providing low cost, diversified portfolio solutions. But these generations also recognize that human interaction is important for other goals that go beyond investing such as saving for a new home, saving for their kid's college, and so forth. A financial planner becomes the quarterback that is able to guide younger generations through their personal finances to better achieve their financial dreams.


For your reference:

Gen Z: born 1997-2002
Millennials: born 1981 to 1996
Gen X: born 1965 to 1980
Young boomers: born 1956 to 1964







*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets.


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