Key takeaways
Robo-advisors use technology to automate investing and keep fees low. Financial advisors offer personalized, one-on-one guidance.
Robo-advisors charge about 0.25% to 0.50% a year, with low or no minimums.
Financial advisors charge about 0.50% to 2% a year and often require higher minimums.
Pick a robo-advisor for simple needs and a smaller budget. Choose a financial advisor for complex finances.
Not everyone feels comfortable going full DIY when it comes to investing their money. If you want professional help, you have two main options: a human financial advisor or an automated robo-advisor. Let's break down robo-advisors versus financial advisors so you can find the best fit for your situation.
Robo-advisor vs. financial advisor: What's the difference?
The main difference comes down to who manages your money and how much you pay. A robo-advisor uses software from financial professionals to build and run your portfolio automatically. A financial advisor is a person who gives you customized advice and can plan around your whole financial life.
Cost is one of the biggest differences. Robo-advisors usually charge about 0.25% to 0.50% of your balance each year, according to Vanguard®. (see disclosure 1) Financial advisors often charge 0.50% to 2% a year, based on Savvy Wealth data. (see disclosure 2)
Minimums are another gap. Many robo-advisors let you open an account with as little as $0. Financial advisors may require anywhere from $25,000 to $1 million to get started, according to SmartAsset™. (see disclosure 3)
What are robo-advisors?
Robo-advisors are built by financial experts who use algorithms and software to build and manage your investment portfolio. They create a personalized mix of investments based on your goals, timeline, and risk tolerance. Then they adjust your holdings over time to keep you on track.
How automated portfolio platforms work
The relationship starts with a get-to-know-you questionnaire. You answer questions about your age, investment goals, timeframe, and risk tolerance, which measures your comfort with market ups and downs.
The algorithm then uses that information to tailor its recommendations and help you reach your goals. Here is what it does for you:
Choose suitable investments: Portfolios use low-cost index funds, mutual funds, and exchange-traded funds, or ETFs, across market segments.
Set the right balance: Your robo-advisor decides how much to put in each investment, based on your risk level and goals.
Monitor and adjust: Your portfolio is rebalanced automatically as the market moves, so your mix stays on track.
Make tax-smart moves: Some platforms find tax-saving moves in non-retirement accounts to help lower what you owe.
You can open several account types with robo-advisors, including Roth and traditional individual retirement accounts, known as IRAs, plus taxable brokerage accounts.
Affordability and accessibility are two big advantages here. Using technology to handle labor-intensive tasks costs less, and lower overhead means lower fees for you.
How much do robo-advisors charge?
Robo-advisors typically charge an annual management fee of 0.25% to 0.50% of your account balance, according to Vanguard. (see disclosure 1) That comes to about $2.50 to $5 for every $1,000 you invest, or $25 to $50 on a $10,000 balance.
What are financial advisors?
"Financial advisor" is a catch-all term for professionals who advise on nearly every money issue. That includes budgeting, debt management, retirement savings, estate planning, taxes, and insurance.
This broad umbrella includes specialists like:
Certified Financial Planners, or CFPs, who handle comprehensive financial planning.
Chartered Financial Analysts, or CFAs, who focus on investment management and analysis.
Certified Public Accountants, or CPAs, who specialize in tax planning and preparation.
Not sure which type of pro you need? See our guide to choosing and vetting financial advisors.
How investing advisors work
The framework advisors use looks a lot like how robo-advisors operate. The difference is in the details, especially the info-gathering and plan-execution phases. A financial advisor will:
Gather detailed information: Advisors dig into your finances, assets, timeline, risk tolerance, and financial goals.
Explain their approach: Good advisors describe their investment philosophy and the strategies they use to manage your money.
Build a tailored plan: Advisors map out the right mix of assets and may weigh in on accounts they don't manage, like your 401(k).
Put the plan into action: Most advisors actively manage your money for you, sometimes with customizable software.
Or hand off the plan: If you hire for advice only, you get recommendations to carry out on your own.
A high level of personalization and detailed expertise are the key benefits here. Advisors can fine-tune your portfolio by factoring in workplace retirement plans and pensions.
How much do investment advisors charge?
Most advisors charge a fee based on the assets they manage for you, known as assets under management, or AUM. Typical fees run from 0.50% to 2%, according to Savvy Wealth. (see disclosure 2) That's $5 to $20 for every $1,000 they handle, or $50 to $200 for every $10,000 invested.
Some advisors also charge hourly rates from $150 to $300, based on Savvy Wealth data. (see disclosure 2)
Differences between robo-advisors and financial advisors
Here's a side-by-side look at how robo-advisors and financial advisors compare on services, cost, and more.
Robo-advisor | Financial advisor | |
|---|---|---|
Services offered | Digital portfolio management, sometimes with added planning services | One-on-one advice and portfolio management, sometimes with full planning |
Approach | Automated, data-driven management built by financial professionals | Human-led management that may use robo-style tools |
Minimum investment | As little as $0 to open an account | Often $25,000 to $1 million or more in investable assets (see disclosure 3) |
Typical management fee | 0.25% to 0.50% of assets under management (see disclosure 1) | 0.50% to 2% of assets under management (see disclosure 2) |
Investment options | Pre-screened low-cost mutual funds and ETFs across asset classes such as stocks and bonds | A range of funds, ETFs, individual stocks, and other assets chosen by the advisor |
Customer support | Tech and account support by app, email, or phone | One-on-one access to a dedicated advisor |
Human vs. algorithm investment management
Here's how the two options handle the day-to-day work of managing your money:
Robo-advisor: An algorithm builds and manages your portfolio from the data you provide, then rebalances automatically to match your goals.
Financial advisor: A human uses technology too, but can weigh more nuanced, personal details in each decision.
Scope of services
The range of services offered by each option varies quite a bit:
Robo-advisor: Robo-advisors mainly offer automated portfolio management at a low price. Some add coaching or CFP access at higher balances.
Financial advisor: Advisors also handle retirement planning, taxes, estate planning, insurance, and budgeting. Some specialize in certain clients.
Cost
Whichever option you choose, you'll pay for the service. Here's how each one charges:
Robo-advisor: Automated platforms typically charge 0.25% to 0.50% of the assets they manage for you. (see disclosure 1)
Financial advisor: Expect to pay around 1% of your portfolio a year, and more for extra services. (see disclosure 2)
Level of customization
The two options also differ in how much you can tailor your portfolio:
Robo-advisor: Your portfolio is built for you. You can't pick individual investments, but you can update your goals anytime.
Financial advisor: Advisors offer more flexibility and can fold your existing assets into a fully custom plan.
Robo-advisor pros and cons
Robo-advisors keep costs and effort low, but they trade away some flexibility. Here's a quick look at both sides.
Pros | Cons |
|---|---|
Low or no minimum investment | Less customization than advisor-led strategies |
Low management fee of 0.25% to 0.50% (see disclosure 1) | Investments limited to a preset menu of funds and ETFs |
Automated portfolio creation and ongoing management | Less direct human interaction |
Easy setup, similar to opening a bank account | Core service skips holistic financial planning |
May offer human advisor access for an extra fee |
Financial advisor pros and cons
Financial advisors offer deep, personal guidance, but they cost more and ask more of you upfront. Here's the trade-off.
Pros | Cons |
|---|---|
Highly tailored advice and planning | High minimum investment requirements |
Investments customized to your needs | Hourly or per-project costs from hundreds to thousands |
One-on-one human help on call | Requires vetting to find a qualified pro |
Full range of financial services | More involved onboarding and meetings |
Can you use both a robo-advisor and a financial advisor?
Yes, you can use both, and many people do. You might start with a robo-advisor to handle everyday investing at a low cost. Then you can add a financial advisor for bigger decisions like tax planning or estate planning.
Some robo-advisors even offer access to human advisors once your balance reaches a certain level. This hybrid approach gives you low-cost automation plus a real person when your finances get more complex.
How to choose the right option for you
The right choice depends on your budget, your goals, and how much hands-on help you want. These two guidelines can point you in the right direction:
Choose a robo-advisor if you're new to investing, have a smaller budget, and want low fees with automated management.
Choose a financial advisor if you have complex finances, want tax strategies, or need full planning with one-on-one guidance.
You can start with a robo-advisor and switch to a financial advisor as your needs grow. Starting early gives your investments more time to build.
The bottom line: making your choice
Your choice comes down to your budget, how complex your finances are, and whether you're comfortable with a digital-only relationship. A robo-advisor keeps costs low and handles the work for you. A financial advisor offers personalized guidance for more complex needs.
Whichever you pick, professional portfolio management can help you stay on track toward your goals. Chime® offers investing (see disclosure 4) through Chime Invest™, which includes Managed Portfolios, an automated robo-advisor built around your goals, with no account minimum and fee-free investment management (see disclosure 5) for members with Chime Prime.