Many people find it challenging to manage their day to day financial lives without some level of outside assistance. A licensed, professional financial advisor works to provide either one-time or ongoing financial advice to individuals wanting to shore up their financial goals and get a better handle on their money.
Financial advisors offer a range of services, from protection planning through insurance and investment management to fee-based financial planning to paying clients. These services help individuals get an idea of how their money is working for them, or how it could be in the future.
For several decades, financial advisors have been of the human variety, with clients visiting with a face-to-face advisor, sharing their personal financial information, and receiving a roadmap of sorts based on their overarching goals.
In today’s technology-infused world, some individuals are leaning on the digital environment to receive their financial to-dos. Robo-advisors, algorithm-driven digital platforms, are growing in popularity, given their potential lower cost and ease of use. Here’s how traditional, human advisors and robo-advisors compare in terms of cost and benefits.
Average Cost of a Traditional Advisor
Human financial advisors offer a bevy of services to clients, and so it makes sense that fee ranges for these services vary greatly from one advisor to the next. Some advisors charge an assets under management fee, or AUM, when investment portfolios are managed.
The average AUM fee charged to a client is between 1.25 and 1.75%, although some advisors charge less. This means that a client with an investment portfolio of $100,000 pays between $1,250 and $1,750 for ongoing wealth management and financial advice.
Other advisors work on a fee-only basis, offering financial planning without managing investments. Based on the complexity of the goals or financial circumstances of the client, a planning fee may range from $1,000 up to $5,000, per year.
Working with a human advisor has its benefits, most notably in the realm of having one-on-one advice from someone who has taken the time to evaluate a client’s unique financial situation. Human financial advisors offer a much more comprehensive approach compared to robo-advisors, and they are able to make recommendations and help with implementation no matter what an algorithm suggests.
Average Cost of a Robo-advisor
Robo-advisors are fully digital, meaning there is little to no interaction with a live human. This reduces their cost and makes them a smart fit for lower net worth individuals or those who do not have a complex financial situation.
The average cost of a robo-advisor is also based on the amount of money held in an account, or AUM, although some platforms offer add-on services, like speaking with a human advisor, for an added monthly fee. Robo-advisors range from 0.25% up to 0.75% on the AUM scale.
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Robo-advisors benefit individuals who want a simple, straightforward, low-cost investment management experiences. Most digital investment platforms have a short list of investment options available to clients, typically index funds, but the reduced cost is meant to benefit the client in the long run.
Most robo-advisors do not offer true financial planning unless the client pays an additional fee for access to a licensed advisor. In many cases, the combination of low-cost investment management with a robo-advisor and the human touch of a traditional financial advisor is a strong fit for clients in need of financial guidance.