Robo-Advisors vs. traditional financial advisors: which is right?

Compare the benefits and drawbacks of using robo-advisors versus traditional financial advisors

Robo-Advisors vs. traditional financial advisors: finding the best financial advisor for you

Everyone has financial goals, often originating from personal values and desires – from putting aside funds towards retirement, saving up for a house, setting up an investment portfolio and so on.

Historically, a financial advisor was the best and only option to achieve your financial goals. Although traditional financial advisors are still popular, technology has caught up, transforming the way we go about our finances.

The robo-advisor, an automated financial planning tool, uses algorithms to assess financial context and risk tolerance, then advises on personalised investment options and auto-manages investment portfolios.

Understanding Robo-Advisors vs. Traditional Financial Advisors

Robo-advisors were created due to technological influence and shifting investor demand for low-cost investment options, easier ways to invest, and inexpensive financial advice. These algorithmic alternatives are adept at spreading the risk across a diversified portfolio of options that are low cost and have a history of performance.

By contrast, traditional financial advisors give advice over a spectrum of topics, such as retirement planning, insurance, estate planning, investment management, to name a few. Financial advisors try to understand your current financial situation beyond the auto-generated questions of a robo-advisor. The human element works well here to understand motives and desires before setting up financial goals and developing an investment plan, with suitable investment options.

Which provides a better investing experience?

Robo-advisers are automated, so your financial goals and thresholds are primarily set and revised by you. This makes it a low-cost, convenient investing experience with some amount of personalisation – somewhat like booking an airline ticket or shopping online. The robo-advisor usually chooses funds with low minimum such as stocks, bonds, and short-term investments. This is easier for younger investors to begin their investment journeys and for those with lesser funds to achieve their financial goals.

On the other hand, a traditional financial advisor can be a barrier for some investors due to the high minimum investment. This advisor scours every option before presenting to you a dedicated, more personalised investment portfolio, from simple to complex. It may give you an opportunity to get a bigger picture before you decide. The traditional financial advisor even maintains your portfolio for you. All these factors make a traditional financial advisor a costlier proposition due to the high fees involved, with many potential investors sometimes dropping out and opting for robo-advisors.

You decide your financial goals

At the end of the day, your financial goals determine the type of advisor you should opt for. Depending on your goal and your overall preference, traditional financial advisors and robo-advisors bring different skill sets to the table. For a more detailed set of long-term investment options that match a higher risk appetite with higher minimums, a financial advisor could be the better option.

Robo-advisors simplify investment, offering you a plethora of short-term options that may aid in achieving short-term financial goals faster. It gives you personalised asset management at an inexpensive rate.

Serious investors often use a combination of the two, to achieve a well-rounded holistic financial planning approach. Be sure to do your homework before you make your decision.

Disclaimer

The views shared in this podcast are for general information and educational purposes only and do not constitute financial, investment, legal or tax advice. Listeners should seek independent advice from a qualified professional before making any financial decisions. Emirates NBD Bank PJSC accepts no liability for any loss arising from reliance on the content discussed.

Other articles

Diversify your investment portfolio with ETFs

Investing in yourself: the best investments beyond the stock market

We may spend a lot of time and energy figuring out how to invest in stocks, bonds, real estate or gold but often forget to invest in ourselves. Our financial wants often take precedence over our personal needs, but life teaches us eventually that it is essential to invest in oneself.

Diversify your investment portfolio with ETFs: a beginner's guide

Building a strong investment portfolio is like constructing a sturdy house—it requires a solid foundation and a variety of materials to withstand market shifts. One of the best ways to achieve this balance is by investing in Exchange-Traded Funds (ETFs).

How to diversify your portfolio

If you’ve taken the time to learn about different investments and are starting to invest your money, that’s great! It may be that you’re relying on just one investment and not diversifying enough. Let’s talk about how you can diversify and potentially grow your wealth better.

What you need to know about Investment Risk

If you’re just getting started as an investor, of course you’re looking for investments with high returns, but you also need to take into account the risk that comes with your investments. Let’s look at the reality of investment risk and what it means for you.

Behavioural biases: are they affecting your investments?

We all like to think we make rational, logical choices with our money. But the reality is our decisions can often be influenced by behavioural biases – unconscious tendencies that can lead to compromising financial outcomes.

Beginner’s guide to the stock market

People often talk about making or losing money in the stock market. But what exactly is the stock market and how does it work? Learn the fundamentals of how to start your investment journey.

Passive income: 3 ways to earn money without working

When we talk about financial freedom, we often think of passive income. Passive income is, essentially, a way of earning money without having to work for it.

Index Funds: A guide to a long-term investment strategy

For those who are looking at long-term goals when investing, an Index Fund might be a good product to consider, as they are one of the most common, data-backed ways to build wealth.

So you want to start investing

When you make investments, you’re essentially putting money into assets with the expectation that it will grow over time. Learn the basics of how to begin building your financial future.