Robo-advisers vs human advisers: which should I use?

Summary

• Robo-advisers are cheaper, typically charging 0.3% to 0.7% of assets annually, and human financial advisers may charge around 1% to 2%, an hourly fee or a fixed fee.

• Robo-advisers focus on automated investing, while human advisers offer broader financial planning.

• Robo-advisers are more accessible but lack human expertise and oversight. 

• Find the right financial adviser for your needs at Unbiased.

What is a robo-adviser?

Robo-advisers are online platforms that use algorithms to provide automated investment advice. 

You answer questions about your goals and risk tolerance, and based on your answers, the algorithm creates a diversified portfolio of investments that typically include low-cost index funds or exchange-traded funds (ETFs). 

According to Forbes, popular robo-advisers in the UK include Nutmeg, Moneyfarm, InvestEngine, and Wealthify.

How do robo-advisers compare to human financial advisers?

Robo-financial advice consists of a digital, automated approach to investing, making robo-advisers a cost-effective option, especially for those starting their investment journey.

They excel at building and managing a diversified portfolio based on your risk tolerance and goals, primarily using low-cost ETFs.

For those with more complex financial needs, which require in-depth advice beyond investments (like retirement or estate planning), or who simply value the reassurance of a personal relationship with an expert, a human financial adviser is a better fit.

Human advisers can offer a more tailored and holistic approach, considering your unique circumstances and providing ongoing support as your life changes.

Robo-advisers vs human advisers: which is best for you?

When deciding whether a human financial adviser or a robo-adviser service is the right option, consider the following:

Available services

Robo-advisers focus primarily on investment management and use algorithms to build and automatically rebalance a diversified portfolio of investments based on your risk tolerance and goals. 

Take the time to go through the most popular robo-advisers UK firms have to offer and see whether their automated investment offerings will suit what you’re looking for.

Human financial advisers, on the other hand, offer a much broader range of services, including investment advice, retirement planning, tax optimisation, and estate planning.

Pricing

Robo-advisers are typically much cheaper than human advisers and usually charge a percentage of your assets under management, usually between 0.3% and 0.7% per year. 

Human advisers might charge a fixed fee, a percentage of assets (between 1% to 2% is common), an hourly fee (which can vary significantly), or a combination of both. 

Robo-advising is often more accessible for those with smaller portfolios due to their lower fees and lower minimum investment requirements.

Human advisers, with their higher fees and sometimes higher minimums, might be more suitable for high-net-worth individuals with more complex financial situations.

Maintenance

Robo-advisers are designed for "hands-off" investing, making them ideal for goals like retirement planning.

They will automatically rebalance your portfolio to keep you on track, making them suitable for long-term investing, but only on a surface level unless you regularly update your information.

Human financial advisers require more active engagement with regular reviews and consultations. They benefit both short-term and long-term goals, as your adviser can adjust your strategy as your life changes. 

What are the pros and cons of a robo-adviser?

Robo-advising has its advantages and disadvantages, including: 

Pros

• Low cost: Robo-advisers are significantly cheaper than traditional human advisers.

• Accessibility: They offer a user-friendly platform and low minimum investment requirements.

• Convenience: You can access your portfolio and manage your investments anytime, anywhere.

• Diversification: Robo-advisers automatically build and manage a diversified portfolio.

Cons

• Limited personalisation: Robo-advisers do not offer the same level of personalised advice.

• Restricted investment options: You typically have limited choices regarding specific investments.

• Lack of human interaction: Robo-advisers do not have the human touch.

• Algorithm-driven: Algorithms may not be suitable for investors with complex financial situations.

• Limited scope of advice: Robo-advisers primarily focus on investment management.

What are the pros and cons of a human financial adviser?

These are the advantages and downsides of a human financial adviser:

Pros

• Personalised advice: A human adviser takes the time to understand your circumstances.

• Holistic approach: They can offer advice on various financial matters.

• Level of support: A human adviser can provide reassurance and guidance during market volatility.

• Expertise and experience: Advisers possess qualifications and experience to navigate complex financial situations.

• Relationship and trust: You build a relationship with a real person who holds your best interests at heart.

Cons

• Higher cost: Human advisers are generally more expensive than a cheaper robo-adviser.

• Time commitment: Working with a human adviser requires active engagement.

• Accessibility: Finding a trustworthy adviser who meets your needs takes time and effort.

• Minimum investment requirements: Some advisers may have minimum investment thresholds.

Get expert financial advice

Robo-advisers offers a low-cost, automated approach to investing that is ideal for beginners and those with straightforward financial goals.

However, human advisers can offer tailored guidance throughout your life, adapting to your evolving circumstances and offering expertise on various financial matters.

For professional financial advice, let Unbiased match you with a qualified financial adviser who can offer tailored advice to help you meet your short and long-term goals.