{"id":10708,"date":"2021-04-01T06:31:30","date_gmt":"2021-04-01T10:31:30","guid":{"rendered":"http:\/\/staging-prblog.paladinregistry.com\/blog\/?p=10708"},"modified":"2021-04-01T07:39:27","modified_gmt":"2021-04-01T11:39:27","slug":"what-is-a-robo-advisor-and-should-you-use-one","status":"publish","type":"post","link":"https:\/\/www.paladinregistry.com\/blog\/advisors\/what-is-a-robo-advisor-and-should-you-use-one\/","title":{"rendered":"What is a Robo-Advisor and Should you use one?"},"content":{"rendered":"\n<p>&nbsp;In the\nyear 2020, more than 10 million brokerage accounts were opened by investors in\nAmerica, despite the coronavirus pandemic. The economic shock induced by the\npandemic also drove more and more investors to seek professional guidance on\nmoney matters than ever before. According to a Nationwide report, one in four\nrespondents to their survey sought to engage with a financial advisor for the\nfirst time during the pandemic.&nbsp;\nMoreover, a majority of these investors opted for automated investment\nguidance with Robo-advisors. <\/p>\n\n\n\n<p>Robo-advisors are the latest revolution in the\ninvesting sphere that have the potential to disrupt the financial service\nindustry, providing people with a technologically driven, efficient, and\ncost-effective way to invest their money safely. However, although\nRobo-advisors are finding quick traction and gaining popularity, many skeptics\nare still wary and think of this technology as an enigma. <\/p>\n\n\n\n<p>In this article, we break down the role and\nbenefits of Robo-advisors and whether a Robo-advisor\u2019s service is suitable for\nyour financial needs. <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_68_1 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69e246866ba34\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69e246866ba34\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.paladinregistry.com\/blog\/advisors\/what-is-a-robo-advisor-and-should-you-use-one\/#What_is_a_Robo-advisor\" title=\"What is a Robo-advisor?\">What is a Robo-advisor?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.paladinregistry.com\/blog\/advisors\/what-is-a-robo-advisor-and-should-you-use-one\/#Who_governs_Robo-advisors\" title=\"Who governs Robo-advisors?\">Who governs Robo-advisors?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.paladinregistry.com\/blog\/advisors\/what-is-a-robo-advisor-and-should-you-use-one\/#How_do_Robo-advisors_work\" title=\"How do Robo-advisors work?\">How do Robo-advisors work?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.paladinregistry.com\/blog\/advisors\/what-is-a-robo-advisor-and-should-you-use-one\/#What_services_do_Robo-advisors_offer\" title=\"What services do Robo-advisors offer?\">What services do Robo-advisors offer?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.paladinregistry.com\/blog\/advisors\/what-is-a-robo-advisor-and-should-you-use-one\/#How_do_Robo-advisors_rebalance_portfolios\" title=\"How do Robo-advisors rebalance portfolios?\">How do Robo-advisors rebalance portfolios?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.paladinregistry.com\/blog\/advisors\/what-is-a-robo-advisor-and-should-you-use-one\/#How_do_Robo-advisors_execute_tax-loss_harvesting_strategies\" title=\"How do Robo-advisors execute tax-loss\nharvesting strategies?\">How do Robo-advisors execute tax-loss\nharvesting strategies?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.paladinregistry.com\/blog\/advisors\/what-is-a-robo-advisor-and-should-you-use-one\/#How_do_Robo-advisors_charge_for_their_services\" title=\"How do Robo-advisors charge for their\nservices?\">How do Robo-advisors charge for their\nservices?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.paladinregistry.com\/blog\/advisors\/what-is-a-robo-advisor-and-should-you-use-one\/#What_are_the_advantages_of_using_Robo-advisors\" title=\"What are the advantages of using\nRobo-advisors?\">What are the advantages of using\nRobo-advisors?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.paladinregistry.com\/blog\/advisors\/what-is-a-robo-advisor-and-should-you-use-one\/#What_are_the_disadvantages_of_using_Robo-advisors\" title=\"What are the disadvantages of using\nRobo-advisors?\">What are the disadvantages of using\nRobo-advisors?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.paladinregistry.com\/blog\/advisors\/what-is-a-robo-advisor-and-should-you-use-one\/#When_should_you_use_a_Robo-advisor\" title=\"When should you use a Robo-advisor?\">When should you use a Robo-advisor?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.paladinregistry.com\/blog\/advisors\/what-is-a-robo-advisor-and-should-you-use-one\/#When_should_you_not_use_a_Robo-advisor\" title=\"When should you not use a Robo-advisor?\">When should you not use a Robo-advisor?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/www.paladinregistry.com\/blog\/advisors\/what-is-a-robo-advisor-and-should-you-use-one\/#To_sum_it_up\" title=\"To sum it up\">To sum it up<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_a_Robo-advisor\"><\/span><strong>What is a Robo-advisor?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A Robo-advisor is a form of wealth management\nservice that offers investment services with little or no human intervention.\nIt is a digital platform that uses advanced software and algorithms to create\nand manage your investment portfolio. The system, i.e., the Robo-advisor, asks\nyou some simple questions or does a short survey to better understand your\nfinancial profile, requirements, and future goals. The Robo-advisor then leverages\nthis information to offer you sound advice suitable to your profile and\nautomatically invests your assets upon receiving your go-ahead. The supporters\nof this concept applaud the fact that there is no human involvement in the\ndecision-making; the investment suggestions are purely technical and\nmathematical and are uninfluenced by human behavior and emotions. Some\nRobo-advisor platforms, however, also offer human guidance as a supplementary\nservice. But they are increasingly transforming into fully-automated platforms.\nRobo-advisors are also known as automated investing services or online\nadvisors. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Who_governs_Robo-advisors\"><\/span><strong>Who governs Robo-advisors?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Robo-advisors have the same legal status as\ntheir human counterparts. All Robo-advisors must be registered with the U.S.\nSecurities and Exchange Commission. These advisors are also subject to the same\nsecurities regulations and principles as traditional broker-dealers. Most\nRobo-advisors are affiliates of the Financial\nIndustry Regulatory Authority (FINRA).<\/p>\n\n\n\n<p>Assets managed by Robo-advisors are considered\nsecurities held for investment purposes, not bank deposits. Hence, these assets\nare not insured by the Federal Deposit Insurance Corporation (FDIC). However,\nthere are other avenues by which Robo-advisors can ensure clients&#8217; assets, such\nas the Securities Investor Protection Corporation (SIPC).<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_do_Robo-advisors_work\"><\/span><strong>How do Robo-advisors work?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Robo-advisors are driven by advanced computer\nalgorithms and use numbers to create an investment strategy that optimally\naligns with your financial goals and risk tolerance. Some of the best\nRobo-advisors offer a range of financial services such as easy account opening,\nrobust goal planning, various account services, portfolio management,\nretirement planning, automatic rebalancing as well as tax optimization.\nFurther, these advisors offer attentive customer service, comprehensive\nfinancial education and come at a much lower cost than human financial\nadvisors. This makes Robo-advisors a much more lucrative option for investors\nfrom all categories. <\/p>\n\n\n\n<p>In most cases, Robo-advisors automate and\noptimize passive indexing strategies based on mean-variance optimization. When\nyou sign up for a Robo-advisor service, you have to fill in a basic online\nquestionnaire that will enable the program to understand your investment goals,\nlife stage, investment preference, and more. The questions will typically\nrevolve around your investment timelines, risk appetite, savings balance, etc.\nOnce you equip the Robo-advisor with the necessary information, the advisor\nruns them through the computer algorithm to offer an optimum asset allocation\nstrategy. It then builds a diversified portfolio that helps you meet your\nfinancial goals within the shortest horizon, or within your investment\ntimeline, as defined by your profile.<\/p>\n\n\n\n<p>If you are satisfied with the options\nprovided, you may give it the green signal to proceed. The Robo-advisor will\nthen make the investment on your behalf &#8211; all back-end jobs such as\ndocumentation taken care of by the system. After the investment is made, the\nrobo-advisor also monitors the portfolio as per a predefined frequency, and\nalso automatically rebalances your portfolio to ensure that it is aligned with\nyour targets and risk preferences. Rebalancing is the process of moving around\nyour assets within your portfolio such that the investment from the least\nperforming asset will be pulled out and the funds diverted to the highest\nperforming assets. This ensures that your losses if any, are trimmed and your\nportfolio yields good returns for you. Some Robo-advisors also offer tax optimization\nstrategies. These advisors may use tax-loss harvesting tactics to sell specific\nsecurities at a loss to offset the gains in other securities in order to\nminimize your overall tax outgo.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_services_do_Robo-advisors_offer\"><\/span><strong>What services do Robo-advisors offer?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Most Robo-advisors work on a standard formula\nthat automates investment management to do it better via a computer at a lower\ncost. At most, Robo-advisors can do the following for you:<\/p>\n\n\n\n<p>\u00b7 Build a portfolio as per your requirements<\/p>\n\n\n\n<p>\u00b7 Monitor and regularly rebalance your\nportfolio, automatically or at set intervals<\/p>\n\n\n\n<p>\u00b7 Provide financial planning tools like\nretirement calculators<\/p>\n\n\n\n<p>\u00b7 Deploy tax-loss harvesting or other similar\nstrategies on taxable accounts<\/p>\n\n\n\n<p>However, if you wish for a more comprehensive\nset of financial services like estate planning, inheritance handling, etc.,\nstandard Robo-advisors might not be able to offer much assistance.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_do_Robo-advisors_rebalance_portfolios\"><\/span><strong>How do Robo-advisors rebalance portfolios?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Most Robo-advisors use modern portfolio theory\nor a similar variant to create a passive, indexed portfolio. The modern\nportfolio theory (MPT) is based on how risk-averse investors can build\nportfolios that aim to maximize potential returns given a specific level of\nrisk. Portfolios based on MPT minimize risk for a specific level of return. <\/p>\n\n\n\n<p>After creating a sound portfolio as per your\nrequirements, Robo-advisors continue to monitor and rebalance your portfolio to\nensure the asset weightage is optimal and as per your requirements even when\nthe market fluctuates. The advisors assign a target weight and a tolerance\nrange to each asset class or individual security. For example, let us assume\nthat as per your financial preference, your portfolio structuring includes 35%\nin top-grade domestic companies, 20% in market stocks, and the remaining 45% in\nsecure government bonds. Now, overtime or because of a sudden market shock, if\nthe weightage of any of these securities shifts, the Robo-advisor pitches in\nand shifts the allocation mix around to rebalance the entire portfolio to\neventually reflect your original target allocation.<\/p>\n\n\n\n<p>In the past, consistent rebalancing wasn\u2019t\nrecommended due to the high-costs involved. However, with Robo-advisors,\nportfolio rebalancing has become more efficient since it is done automatically\nand is virtually free of cost.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_do_Robo-advisors_execute_tax-loss_harvesting_strategies\"><\/span><strong>How do Robo-advisors execute tax-loss\nharvesting strategies?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Tax-loss harvesting implies selling some of\nyour securities at a loss to offset a capital gain to reduce the tax liability\nin similar security. This tactic is primarily used to minimize the short-term\ncapital gains and, thereby, the corresponding liability. A Robo-advisor applies\nthe same fundamentals to harvest the losses and reduce the tax burden on\ncapital gains. Robo-advisors use algorithms and reserve two or more stable ETFs\n(exchange-traded funds) for each asset class. Through this method, when one\nS&amp;P 500 ETF faces a loss, it is immediately and automatically sold to\nregister the loss and harvest it by investing in another S&amp;P 500 ETF.\nHowever, multiple rules govern the tax-loss harvesting mechanism, such as the\nwash-sale rule and more. An efficient Robo-advisor is well-versed with the\nrules and applies strategies while following the standard practices and ensuing\nrules and regulations that govern the industry. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_do_Robo-advisors_charge_for_their_services\"><\/span><strong>How do Robo-advisors charge for their\nservices?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Generally, a Robo-advisor\u2019s fee is structured\nin two ways \u2013 fixed monthly charges or a percentage of assets. In the case of\nfixed monthly charges, you can expect to pay as low as $1. However, in terms of\nthe percentage fee, a Robo-advisor can charge anywhere between 0.15% and 0.50%\nof your investment assets.<\/p>\n\n\n\n<p>However, these charges are in addition to the\nfees associated with your investments. For example, if your Robo-advisor\ninvests your money in mutual funds or exchange-traded funds, these will come at\na cost that includes their expense ratio in addition to the overall charge of\nthe Robo-advisor, whether fixed-monthly or asset-based. The investment fee is\nsubtracted from your returns before they are distributed to you.<\/p>\n\n\n\n<p>That said, many online platforms allow you\nfree trial access to Robo-advisors, enabling you to experience their services\nbefore you pay for them. These advisors are a great option for you if you\nprefer to pick and choose investments on your own. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_advantages_of_using_Robo-advisors\"><\/span><strong>What are the advantages of using\nRobo-advisors?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Currently, Robo-advisors have become an\nincreasingly popular way to access the market, especially for ordinary and\nlow-balance investors. The main advantage fueling the popularity of these types\nof advisors is that each company has its algorithms that set aside emotional\nbiases from investing, providing you an opportunity to get higher returns at\nlower costs as compared to human financial advisors. <\/p>\n\n\n\n<p>Key advantages of using Robo-advisors include:<\/p>\n\n\n\n<p><strong>\u00b7 Low fees: <\/strong>Professional financial advisory services can\ncause a significant financial burden. Irrespective of whether you pay your\nhuman advisor via a fee-based model or a fee-only model, you direct a huge sum\nof your hard-earned money towards financial advisory services. However,\nRobo-advisors have brought a shift in the paradigm.Today, the market is full of several efficient and low-cost\nRobo-advisors that offer sound financial advice and are most suitable for the\ncost-conscious investor. <\/p>\n\n\n\n<p><strong>\u00b7 Comprehensive investment models:<\/strong>\nMost Robo-advisors use algorithms based on the modern portfolio theory (MPT).\nThis is a widely popular theory that particularly caters to risk-averse\ninvestors and how they can build portfolios that aim to maximize potential\nreturns given a specific level of risk. Portfolios based on MPT minimize risk\nfor a specific level of return.<\/p>\n\n\n\n<p><strong>\u00b7 Increased market penetration for financial advice:<\/strong> Generally, first-time investors, young investors, or those that have\nrestricted budgets tend to not opt for professional financial advice owing to\nits cost. However, with Robo-advisors, the market has expanded to cater to\nthese investor sections too. Robo-advisors provide easy access and charge a\nlow-fee for offering professional financial management services. Hence, more\nconsumers get expert advice, enabling them to achieve better returns than a DIY\nmodel.<\/p>\n\n\n\n<p><strong>\u00b7 Customized advisory models:<\/strong>\nRobo-advisors do not function on a one-size-fits-all approach. Instead, they\nengage with you to better understand your preferences and financial goals, and\naccordingly, create a portfolio that aligns with your needs. Further, these\nRobo-advisors have advanced algorithms for different types of clients. For\nexample, if you want a specific industry or sector-focused portfolio, a\nspecialized Robo-advisor will assist you. But if you wish to build a highly\ndiversified, low-cost portfolio, a specific Robo-advisor can help you in this\ncase with low-fee ETF options. That said, some Robo-advisors might excel in\noffering portfolio rebalancing and tax-loss harvesting services. Some platforms\nalso allow you to choose a single approach or a hybrid-style Robo-advisor. <\/p>\n\n\n\n<p><strong>\u00b7 Low minimum balance requirement:<\/strong>\nProfessional Robo-advisors are a boon for investors that have low-net\ninvestment worth. Many Robo-advisors offer zero minimum account balance\nfunctionality, while several others offer services with no minimum balance as\nwell. Alternatively, some other Robo-advisors are accessible to investors with\na minimum balance between $1,000 and $5,000. <\/p>\n\n\n\n<p><strong>\u00b7 Better availability and efficiency:<\/strong>\nRobo-advisors are more accessible than human advisors. They are available 24\/7.\nThis allows you to take advantage of the investment expertise anytime and grab\nlucrative opportunities in no time. That said, Robo-advisors also have the\nupper hand in terms of efficiency. In the case of a human financial advisor, if\nyou want to execute a trade, you have to physically call the advisor and\nexplain your requirements, fill out the paperwork, and wait for them to do the\nrest. But in the case of a Robo-advisor, you have all the accessibility within\na few clicks from the comfort of your home or anywhere else in the world. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_disadvantages_of_using_Robo-advisors\"><\/span><strong>What are the disadvantages of using\nRobo-advisors?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Some of the critical disadvantages of using\nRobo-advisors include:<\/p>\n\n\n\n<p><strong>\u00b7 Not 100% personalized: <\/strong>Even though several\nattempts and numerous algorithms have been developed, the Robo-advisors are not\nyet 100% personalized.As an\ninvestor, your needs are different, your long-term and short-term vision\nchanges, and several factors impact your investment decisions. And while many\nRobo-advisors allow you to list and then later edit your goals, preferences,\netc., they are not as efficient presently. Moreover, in case of market\nvolatility gripping your investments, Robo-advisors cannot offer the\nmuch-needed comfort, unlike a personal human financial advisor. A human\nfinancial advisor can counsel you, ease your fears, instill confidence in you,\nand ensure you stay afloat during tiring times. Further, your human advisor can\nwork with you more comprehensively than a robo-advisor. Apart from integrating\nyour finances, taxes, retirement plans, and estate plans, your human advisor\ncan also help you with matters beyond just &#8216;monetary&#8217; concerns. On the other\nhand, your Robo-advisor has no expertise in specific investment areas like call\noptions and individual stock purchases. Sometimes algorithms cannot answer all\nyour investment concerns, and hence, you might have to engage with a human\nadvisor.<\/p>\n\n\n\n<p><strong>\u00b7 Competitive pricing with several human financial advisors: <\/strong>Robo-advisors are known for their low fees. However, many human\nfinancial advisors charge as low as the Robo-advisors while offering similar\nservices. Some human advisors only take 1% of the assets under management (AUM)\nfor the services, which is almost equivalent to the average cost of engaging a\nRobo-advisor. Moreover, some human financial advisors bill you on an hourly\nbasis or a specific fee for a service. This allows you to choose to pay\nconsciously only for the service you want. Besides, with the advancement of\ndigital platforms, many web-based personal human advisors are offering\nfinancial help at a much lower cost than those available offline. <\/p>\n\n\n\n<p><strong>\u00b7 Not the sole option for small investments or new investors: <\/strong>Robo-advisors are most attractive to new investors or those with a\nsmall amount to invest. However, many human financial advisors offer a host of\nservices at a highly affordable monthly fee structure. <a href=\"https:\/\/www.paladinregistry.com\/landing\/find-financial-advisors?cta=match\">Paladin Registry<\/a>\nhelps you to find vetted financial advisors for your needs without any charge.\nThe platform finds the best advisors for your financial needs and vets their\nbackground. <\/p>\n\n\n\n<p><strong>\u00b7 No personal interaction:<\/strong>\nRobo-advisors are run by computer programs and algorithms. There is no human\nelement or any interaction. So, if you are someone who likes to have one-to-one\npersonal conversations with your advisor, Robo-advisors are not suitable for\nyour needs. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"When_should_you_use_a_Robo-advisor\"><\/span><strong>When should you use a Robo-advisor?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A Robo-advisor is a great choice for you if\nyou are new to financial planning or if you are someone who finds it difficult\nto trust another human being with your financial needs. Also, if you do not\nwish to enter into a full-time financial advisor contract, Robo-advisors might\nwork well for you. Robo-advisors are less complicated and do not require\nmonthly or quarterly human reviews, allowing you to chart your course\nleveraging technology. <\/p>\n\n\n\n<p>Further, if you are young with higher risk\ntolerance and a considerable amount of time at hand until retirement, you can\ntake advantage of the Robo-advisor and get simple and equity-centric\nallocations. If you are restricted on time and\/or monetary resources,\nRobo-advisors may be a good option for you.&nbsp;\nRobo-advisors only charge 0.25-0.35% of your investment assets per year\nto create your portfolio within no time of you answering the basic\nquestionnaire. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"When_should_you_not_use_a_Robo-advisor\"><\/span><strong>When should you not use a Robo-advisor?<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Without a doubt, Robo-advisors offer easy,\nautomated, and low-cost advice. However, despite their benefits, human\ninteractions have their strengths. Apart from offering skilled and professional\nfinancial advice on investing and money management, human advisors are also\nadept at providing emotional support. Financial matters are extremely personal\nand individualized, and a human advisor is valuable in tailoring your portfolio\nto fit your personalised financial requirements. <\/p>\n\n\n\n<p>Moreover, human advisors can add substantial\nvalue in extreme and unexpected market conditions, like the COVID-19 pandemic\ninduced financial stress. You can speak to your human advisor about the effects\nof the pandemic and how your monetary situation has altered ever since. The\nadvisor can then accordingly make adjustments to your portfolio if necessary.\nAdditionally, human advisors can appraise you of the upswings and downswings in\nthe market before-in-hand. <\/p>\n\n\n\n<p>If you are an investor with a low-risk\ntolerance, it is best if you work with a human financial advisor as they can\noffer you emotional reassurance during critical times. Besides, if you take\nhelp from a Robo-advisor to build a low-risk portfolio, the algorithm will most\nlikely create an extremely conservative portfolio that will, in turn, limit\nyour returns. <\/p>\n\n\n\n<p>Likewise, if you are only five years from\nretirement or already retired, you can consider engaging with a human financial\nadvisor. In such cases, a Robo-advisor might not be able to effectively balance\nthe human and financial factors involved. <\/p>\n\n\n\n<p>That said, if you are a high-net-worth\ninvestor or have complicated estate, tax, or legacy planning considerations,\nyou will benefit more from a human financial advisor than a Robo-advisor. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"To_sum_it_up\"><\/span><strong>To sum it up<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The suitability of a Robo-advisor\u2019s services\ndepends on an individual&#8217;s financial needs and goals. However, presently, the\ndrawbacks of a Robo-advisor outweigh its advantages in some key financial\nservice areas. Even though the Robo-advisor industry has experienced explosive\ngrowth, projected to reach US$7 trillion worldwide by 2025, multiple areas\nstill lack expertise and specifically require competent human financial advisor\nsupport. <\/p>\n\n\n\n<p><em>If\nyou are not sure where to start looking for a financial advisor, use <\/em><a href=\"https:\/\/www.paladinregistry.com\/landing\/find-financial-advisors?cta=match\"><em>Paladin Registry<\/em><\/a><em>\u2019s free match service to find 1-3 qualified\nfinancial advisors to manage your finances. You may also view the advisor\u2019s\ncredentials, ethical standards, and business practices and make an informed\ndecision on which advisor is the most suitable for your financial needs. <\/em><\/p>\n\n\n\n<p>To learn more about the author William\nHayslett view his <a href=\"https:\/\/www.paladinregistry.com\/blog\/author\/william-hayslett\/\">short bio<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>&nbsp;In the year 2020, more than 10 million brokerage accounts were opened by investors in America, despite the coronavirus pandemic. The economic shock induced by the pandemic also drove more and more investors to seek professional guidance on money matters than ever before. According to a Nationwide report, one in four respondents to their survey sought to engage with a financial advisor for the first time during the pandemic.&nbsp; Moreover,<\/p>\n","protected":false},"author":122,"featured_media":10710,"comment_status":"open","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[325],"tags":[],"class_list":["post-10708","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-advisors"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What is a Robo-Advisor and Should you use one? - Paladin Registry<\/title>\n<meta name=\"description\" content=\"The suitability of a Robo-advisor\u2019s services depends on an individual&#039;s financial needs and goals. However, presently, the drawbacks of a Robo-advisor outweigh its advantages in some key financial service areas.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.paladinregistry.com\/blog\/advisors\/what-is-a-robo-advisor-and-should-you-use-one\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"What is a Robo-Advisor and Should you use one? - Paladin Registry\" \/>\n<meta property=\"og:description\" content=\"The suitability of a Robo-advisor\u2019s services depends on an individual&#039;s financial needs and goals. 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