A Closer Look: Robo-Advisors Vs. Traditional Financial Advisors

In a newly circulated piece by Paladin Research & Registry, the differences between the recently popularized robo-advisors and traditional financial advisors were parsed through. Although the new technology provided by robo-advisors is appealing and beneficial to many investors, the personalized interaction granted by traditional financial advisors should not be glossed over.

Paladin's Social Media Manager Cortney Bandar posed, "Did you know that robo-advisors are limited to passive asset management?"

It is this simple difference and more that Paladin wants all interested investors to recognize. Bandar shared with Benzinga that knowing the key differences between the two options instead of simply jumping on the investment bandwagon will help investors "make a more informed decision when they are deciding who will manage their well-earned savings."

Crucial Differences

Paladin mentions a handful of differences that need to be recognized before making the decision on who should manage your investments.

These differences range from understanding that robo-advisors are automated to grasping that the investment expenses vary greatly, for a reason.

Above all, the piece emphasizes that knowing what options are available and understanding the reasons behind the options can allow investors to make the most informed decisions regarding their money.

What's In A Name

Primarily, the key difference between robo-advisors and traditional advisors is the human element that is granted through a relationship with a traditional advisor.

Paladin states that robo-advisors are simply "an online service provider that provides automated investment management with limited human contact," while a traditional financial advisor "provides personal advice and services with an emphasis on human contact."

The Element Of Advice

When it comes time to mold your personalized portfolio, the absence of a face-to-face, human interaction becomes apparent.

While traditional advisors work with you to tailor your portfolio based on personal advice, robo-advisors typically develop your model portfolio off of a standard questionnaire.

How Advice Is Shared

Robo-advisors are not void of human interaction, but the options are limited. Both robo-advisors and traditional advisors can provide human contact through telephone calls, email exchanges and skype conferences. However, face-to-face conversations are impossible with robo-advisors.

Capabilities

Furthermore, both advisors provide investment advice, but traditional financial advisors can provide much more. Typical financial advisor services also have the opportunity to share planning and insurance advice and services, while robo-advisors are most frequently limited to investment advice only.

The Management Aspect

Robo-advisors use a passive approach to investment management, unlike traditional advisors who can be more hands-on, based on the client's preferences.

The Bottom Line

Short and simple, robo-advisors cost less than traditional advisors. This cost difference is possible because of the above differences. With less human interaction and fewer personalization options, robo-advisors can charge less.

Regardless of how you choose to invest or have your investments managed, it is essential to understand that there are options available to cater to your needs. As with all things financial, the more you know, the more in control you can become over your financial situation. Take the time to educate yourself and insure your financial future.

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