3 Questions to Ask When Choosing a Robo Advisor
Robo advisors have been gaining popularity for some time now. Automation has been making its way into more and more areas of life. A variety of industries, as well as the business world more generally, have been waking up to the potential that automation offers. Automation can reduce cost and resource requirements, while also giving businesses access to sophisticated algorithmic-based decision making.
Robo advisors bring automation technology to the world of investing. These tools are designed to allow anyone to enter the world of passive investing. A robo advisor charges a fee, which can be as low as .15% of an investor’s managed assets. Compared with the industry standard fee of 1% that financial advisors charge, robo advisors offer better value to consumers, while also bringing the same benefits to the table.
The wealth management landscape is slowly being overtaken by these robo advisors, even those who are generally suspicious of this kind of technology are finding themselves increasingly won over by the undeniable results that they produce. However, before you rush out to purchase your own robo advisor and hand over your portfolio, you need to know exactly what you are getting into.
As with any financial decision, you should take the time to research exactly what you are buying and what the risks and rewards are. The following are the key questions that you need to ask when deciding on the best robo advisor for your needs.
What Services Are Provided?
When you are assessing the suitability of a robo advisor, make sure that you are clear about your current financial situation and where you want it to be in the future. It is only when you clearly articulate a tangible goal that you will be able to measure how successful your investment strategy is. Besides services, you also want to ask about minimum account balances and whether you can invest $1,000 or less on the platform.
Some robo advisors offer only basic passive investment services, and maybe a little portfolio rebalancing if you’re lucky. Others will offer you extensive financial planning services and a comprehensive array of investment instruments to use. The latter type is going to be harder to find, as you would expect, but for some people, the former will provide everything they need. This review of Betterment v Vanguard illustrates how different these services can be.
Show Me Your Pie Chart!
Not so much a question, but if you’re going to get into the world of robo advisors, then you will have to learned to love the pie chart. This is the primary way that robo advisors communicate data and statistics to their users, so choose one that you can read easily.
Can I Speak to a Person?
Both now, and after signing up for the service, you are going to want to be able to talk to a person if necessary. Speaking to someone face to face is generally good practice if you are considering investing. An increasing number of robo advisors have chat functions built in.
Robo advisors have the potential to completely transform the way that you invest. Passive investment is becoming increasingly popular and robo advisors bring the power of automation to the concept.