If you want to invest but don't want to pick your own stocks, funds or bonds, today you have two popular options to choose from: Robo Advisor and Financial Advisor.
For most of modern history, only the wealthy had access to investment advisors to help them manage their money. Everyone else had to get by on their own, often with little or no knowledge of how to invest.
Today, anyone can access an automated advisor to manage their investments. Most are dramatically cheaper than their human counterparts, and do not require the same high minimums to invest.
But how do we know which one is better than the other? Today we tell you the main differences between a financial advisor and a robo advisor.
Robo advisors are also known by the term automated manager, since in reality, apart from advising, they manage your money for you. Therefore, robo advisors or automated managers are digital platforms that, through the use of algorithms, offer efficient automated fund portfolios at low cost and under limited human supervision.
Robo advisors make it easier to create investment portfolios customized for each individual and tailored to their profiles and objectives. The creation and maintenance of portfolios is fully automated.
The automated manager does it all:
Thanks to its automation, this new capital management alternative offers investors lower costs and, consequently, higher returns.
The most common features of robo advisors are:
The main advantages of a Robo Advisor are:
A financial advisor is a professional who helps manage the finances of an individual or company according to their income, assets and needs. In other words, advisors manage financial operations on behalf of their clients.
However, an advisor is not only limited to advising you on your domestic economy and whether you should invest in the stock market: his recommendations can range from how to maximize your money to whether you are at the right time to open a pension plan. It all depends on the type of questions you ask, and for this, it is vital that you establish a relationship of trust, sincerity and objectivity on both sides.
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Robo Advisor |
Financial Advisor |
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The portfolio is managed in an automated way, and performs all trades without human intervention. All trades are carried out at the optimal time for the investor based on a series of algorithms. |
One or more persons are dedicated to managing the fund's assets, buying and selling those assets that best fit the fund's investment policy. |
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Very cheap services that analyze your profile after conducting a suitability test (without the need for prior research) and suggest an investment portfolio. |
High costs that, although they have been reduced thanks to digitalization, are still higher than those involved in a Robo Advisor. |
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They are known for charging very low commissions (they offer portfolios composed of index funds and ETFs), an affordable initial investment and do not require excessive financial knowledge. |
The minimum initial investment required is much higher. The average in the UK is around £150 per hour. |
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Robo Advisors can automate investment strategies, such as Modern Portfolio Theory (MPT), that optimize the ideal asset class weightings in a portfolio for a given risk preference. |
Calculations such as those in MPT, though they can be done by hand, are laborious and prone to human error. |
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Certain Robo Advisors allow access to some investment funds and financial instruments that are not available to the general public, or at least not under the same conditions. |
In the case of investment funds, it is difficult for this to happen since the marketers only allow access to retail classes or require quite high minimums for their other classes. |
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Information and customer service is digitized and available at all times. We can see the status of our investment and where our funds are in a transparent and independent manner. |
We do not have the information about our investments at hand, as the most common way to access it is to contact the financial advisor. |
Passive management is here to stay. Thanks to Robo Advisors, anyone can now start investing in broadly diversified portfolios of index funds and ETFs with very low fees.
If you want a smart way to benefit from passive wealth management, you can start investing using Rizeapp. Much cheaper than a financial advisor, and definitely more effective.
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