Robo Advisor vs. Online Financial Advisor: What’s the Difference?

Robo advisors appeared on the financial advising scene roughly 15 years ago to offer fee-conscious individuals access to well-crafted investment portfolios. In U.S. News’ ranking of the best robo advisors for 2024, the methodology relied on some of the factors that matter most to investors, such as the quality of financial advice, customization and low fees.

Meanwhile, independent financial advisors are offering their services online more often than ever before following the COVID-19 pandemic, and online brokerage firms are offering a mix of services to accommodate the tastes, life circumstances and budgets of a broader spectrum of investors.

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But what’s the difference between robo advisors and the services of human online financial advisors? How should investors make a decision about which kinds of services suit their needs best? With the latest technological advancements and the evolution of artificial intelligence as a practical tool, the answer is not as simple as a choice between one or the other. In fact, some traditional financial advisors have been using robo platforms for quite a while now.

To address this hot topic, we asked the financial advisors who write for the U.S. News Advisor’s Corner series to weigh in on some of the most popular questions from internet searches now about robo advisors and online financial advisors and to give their thoughts on how investors should proceed in today’s markets. The intent is not to steer you one way or the other with this roundtable, but to provide real-world insights from financial advisors to help you make your own informed decisions:

Reader question: What is the difference between an online broker and a robo advisor?

KATE: An online broker, such as Charles Schwab, Fidelity or Vanguard, is a platform for buying and selling stocks. These brokers are also “custodians,” the financial industry term for a company that’s legally allowed to hold your assets on your behalf. A robo advisor, on the other hand, is an automated service that creates and manages a diversified investment portfolio. They typically use low-cost exchange-traded funds, allocated by asset class, based on your goals and risk tolerance.

RITA: Yes, robo advisors are automated investment management platforms that create a predetermined investment model based on your risk tolerance, time horizon and investment objectives. Online brokers offer access to a wider range of investment options and allow account owners to make individual trading decisions. Online brokers offer the ability for more personalization and customization.

JULIE: A robo advisor is an investment platform designed for less experienced investors who are seeking a simple or passive means to investing. The automated platform is going to create and manage your investments, based upon a specific series of questions meant to assess your goals and how conservative-to-aggressive you want to be in reaching them. Once the platform determines your portfolio investments, it will continue to manage them based on the platform’s proprietary algorithm.

An online brokerage platform pairs a more experienced investor with a broad range of investment options and tools, putting you fully in the driver’s seat with your trading decisions. This is a popular, technology-based approach if you have the time and are willing to research and execute a wide variety of investment options.

KATE: And the large brokerages have robo-advisor services in addition to their full-service offerings. Stand-alone robo advisors include Betterment and Wealthfront.

SCOTT: I’d say online brokers, such as Fidelity and Charles Schwab, give you a broad platform through which you can buy and sell investments, like stocks, bonds, mutual funds and ETFs, for personal accounts. Robo advisors, like Vanguard’s, offer financial-planning services to consumers who may not have a strong preference for human interaction throughout the planning process. Online advisors, like Compound Planning, deliver personalized, financial-planning services to consumers in a digital format and along with human interaction.


Should I use a financial advisor or robo advisor?

JULIE: Choosing to use a human financial advisor, online broker or robo advisor is a matter of choice and comfort level in one’s personal abilities to make investment decisions. It also taps into the amount of time, effort and research that you want to do yourself. One of the most undervalued benefits of a human advisor is their ability to help modulate emotional responses to market changes. Even the most experienced investors can get caught up emotionally when it is their own investments at risk. Financial advisors can help you recall your investment goals and continually reassess your response to risk to help keep you on track. They also can integrate the nuances of your individual situation so that your financial objectives and real-life concerns are both fully addressed.

KATE: Robo-advisor services require minimal human involvement, although robo-advisory companies do have humans in their customer service centers who can answer questions. They can’t, however, create custom portfolios for investors.

RITA: Robo advisors improve access to low-cost investment management. Robo advisors have lower minimum investment requirements than traditional financial advisors. Financial advisors do offer more personalized and customized financial advice, not just investment advice. In fact, many financial advisors may create a customized financial plan for their clients. As part of the financial planning process, they help their clients identify, clarify and prioritize their financial goals and objectives.

A financial plan will address budgeting and cash flow, proactive tax planning, investment management, education planning, retirement planning, risk management and estate planning. In other words, what type of professional you decide to work with depends on both your personal and financial circumstance.

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Are robo advisors cheaper than financial advisors?

KATE: Yes, robo advisors are cheaper than financial advisors, but there’s not an apples-to-apples comparison between the two types of services. Robo advisors offer a very basic asset allocation and investment service. Because of this very basic service offering, these companies can keep their costs low. Financial advisors offer a far more comprehensive suite of services, including planning and ongoing assistance with any kind of financial question.

JULIE: By design, robo advisors are cheaper than their human counterparts. This is because, while you are getting solid investment services, you are not paying for the personalized approach, experience and expertise that a human financial advisor can offer.

KATE: Advisors also help clients with big life decisions, such as when to retire or when to sell a property. I once helped a client decide whether it was time to sell a small office building she owned, and helped her locate a suitable real estate agent. That’s not the kind of service you’ll get from a robo advisor.

JULIE: Many investors who choose robo services often quickly realize that the “hand holding” and the one-to-one in-the-moment education that a human can provide is far more valuable than they initially realized. A robo-advisory platform can offer more customized services, but the add-on fees for those services will often exceed what the human advisor’s fees would have been from the start. Additionally, the robo advisor is still fully driven by its algorithm, so even the add-on services may not be able to truly meet your unique needs and concerns.

An easy analogy is the late Henry Ford’s famous statement about the Model T car, “Any color the customer wants, as long as it’s black.” Ford created the Model T to make automobiles affordable to the masses. Robo advisors follow in this same path. If your only goal is to be able to drive, then this universal approach can make investing more affordable, especially for newer and smaller investors.


Can robo advisors replace financial advisors?

KATE: A robo advisor is not a replacement for a financial advisor or planner, due to the difference in the level of service the two types of companies provide. However, a robo advisor is often suitable for a young investor who doesn’t have a lot of money in the market and doesn’t yet need a comprehensive financial plan.

For investors whose situations are more complex, a financial advisor is usually the preferred choice. For what it’s worth, most people’s financial situation becomes more complex over time. Marriage, children, homeownership, college savings and retirement savings are just a few of the many things that affect planning decisions, making it more difficult to go it alone without input from a planner.

JULIE: There is a long history of tension between humans and their technological counterparts. The current conversations around generative artificial intelligence, or AI, have certainly brought this push-pull to a newly heightened state.

Financial literacy is key to the acceptance of technology where human advice could be truly replaceable. The amount of financial education needed, however, is staggering. This education is not just in the investments themselves, either. For example, there can be significant tax ramifications with different investments. An astute financial advisor not only brings their expertise to the table, but also other key partners, such as a CPA or tax attorney, who can enable an investor to capitalize on these opportunities. While not impossible with a robo advisor, the costs associated with these add-on services make human advice more compelling.

“Sentience” is defined by Merriam-Webster as the “ability to feel or sense, as opposed to perceive or think.” Until AI can master sentience, this uniquely human trait will still trump even the most robust technical approach. This is because the act of investing is filled with emotional hurdles: Will I pick the right investments? Will I buy at the lowest price and sell at the highest price? What if I make a mistake? What if I lose everything?

RITA: Financial technology and wealth management technology have transformed how advisors and consumers approach wealth management. It has brought new challenges, but also new opportunities to the market. For financial advisors, it involves providing value that goes beyond the capability of algorithms. People have emotions and insecurities that need to be addressed, a quality that no machine can yet provide.

SCOTT: Any type of financial planning service or advisor can be replaced at any time, especially if the services are not meeting a client’s expectations and needs. Consumers have preferences regarding how they like to discuss and manage their financial plan, so I think both robo financial advisors and personal financial advisors will continue to maintain broad appeal for many years to come.

Artificial intelligence has the capacity to instantly analyze news and social media outlets to understand what’s on consumers’ minds. Robo advisors and online financial planners can use AI for a variety of positive outcomes for consumers, including better customer service, automated workflows and enhanced communications about market movements.


What is a good robo-advisor fee? What is the average return?

RITA: The fees for a robo-advisor relationship can vary depending on the underlying investments. They are lower than those of a traditional financial advisor. Fees range from 0.05% to 0.25%, costing $5 to $25 annually for every $10,000 invested, though some robo-advisory platforms may assess higher fees.

The returns vary based on the overall allocation of the investment portfolio.

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Are robo advisors better than ETFs?

KATE: A robo advisor is simply a platform that holds investments; it’s not an investment in and of itself. In fact, robo advisors typically hold exchange-traded funds, or ETFs, for clients. This allows a robo-advisor to minimize costs, by using index ETFs with low expense ratios. That helps investors keep more money in their pockets, rather than forking it over to a fund manager.


Do robo advisors outperform the market?

SCOTT: It’s difficult, some would say impossible, for any type of financial advisor to outperform the market, with consistency, over time. A well-designed financial plan will include an estimated, annual investment return, say, 6%, needed to help an investor meet her financial priorities, from the ability to retire in 10 years to funding travel and health care expenses throughout retirement, which could last 30 years or more.


How risky are robo advisors?

JULIE: Overall, robo advisors are designed for investors who seek a long-term, diversified portfolio that they can set and forget. The algorithm, without the risk of human error or bias, will continually manage the underlying investments.

But, it can never be said enough: All investments carry risk. Robo advisors are not immune to losing money. Because robo advisors are utilizing strategies and structures designed to appeal to the largest possible audience, the underlying investment choices are often more limited. Additionally, they typically take a “long position,” meaning that the asset is expected to rise in value. As global conditions vary, these bullish assets may fall out of favor. With their more limited investment options, it also may take more time for those assets to recover lost value.

SCOTT: One key question to keep in mind with any type of automated service is this: What exactly is being automated? So, when it comes to an automated investment strategy, it’s a good idea to look into whether the strategy can help you stay on track with your financial goals, like being able to retire on time.


How prevalent is online financial advising, and how has it evolved?

RITA: I do serve clients virtually. The pro is that you can work with an advisor who is well versed in a particular area of specialty. The con is that you may miss out on local tax advice. For example, the state of Maryland offers a long-term-care tax credit the first year a policy is purchased. Not everyone is aware of this state tax benefit.

JULIE: In my opinion, geography continues to become less and less relevant across all ages for independent financial advisors with consistent internet access. Some clients and advisors still like for their initial meeting to be in person but are perfectly fine with video after that. Even older clients are more open to video as it enables them to feel safer with COVID and all the other respiratory illnesses floating around. Others like that their children can be part of their planning meetings even if they live in another city or state.

SCOTT: While in-person meetings will likely never go away, the majority of my client-services deliverables are now performed remotely, for example, through Zoom.

JULIE: I know multiple advisors who are truly virtual only; they have never met any of their clients in person. The majority that are 100% virtual have been so since their inception, so those advisors do trend younger. But, I am seeing more “traditional” advisors converting. These advisors are doing well as they are able to accommodate a larger number of clients virtually than they are able to do in person. As a result, they are able to work from home. I still see plenty of advisors with physical offices, but many of them are just waiting out their leases.

The whole “office” dynamic changes with virtual meetings. Costs go down significantly … plus, many advisors also enjoy not putting on a full-blown suit or dress attire. A lack of a physical office does pose challenges to accommodate staff and even wholesaler meetings.

RITA: I do think that people are more open to working with their advisor on a virtual basis. To be a member of XY Planning Network, or XYPN, you do have to offer your services virtually.

KATE: One thing I would add: A lot of people, even younger clients, don’t realize you can hire an advisor outside of your state. For some reason, people think there’s some kind of local regulation about that. But as others have said, that feeling seems to be going away.

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Robo Advisor vs. Online Financial Advisor: What’s the Difference? originally appeared on

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