The Pros and Cons of Robo-Advisors

By Brad Harvey on June 6, 2024

Although you may not yet be familiar with “robo-advisors” or how they may benefit you, the practice was launched during the financial crisis of 2008. Traditional robo-advisor technology platforms employ a preset risk-scoring system to provide automated investment management with minimal if any, human interaction or intervention. They were designed to offer minimal investing services in a more affordable way than traditional wealth management services.

To begin working with an automated advisor, you go online and fill out a brief questionnaire designed to gauge your investment goals, timeline, and risk tolerance. The answers you provide will guide the computer in recommending a specific investment portfolio for you based on that program’s preset mathematical rules.

The Upside

Robo-advising has opened the world of financial management to a much broader audience and allows people to begin building a brighter future for themselves and their families today. Because there is limited to no interaction with a human financial advisor, you are not paying for their time and experience. In addition, most robo-advisor solutions have lower investment minimums, so you need less money to start investing. Additionally, many find that hiring a robo-advisor is better than going it alone because the automated system does not make emotional (and often short-sighted) decisions based on peaks and valleys in the market.

Once your portfolio parameters are set (X percent in stock ETFs, Y percent in bond ETFs, etc.), the only time there may be a change to that portfolio is when the percentages need to be realigned. For example, if, based on your risk profile, the computer puts together a portfolio mix that includes 60% in stocks, 36% in fixed income, and 4% in cash, then those would remain your percentages until you change your risk assessment.

Limitations

Although automated advising opens the world of financial management for many, they may still want access to a human advisor who is actively monitoring the markets and can provide real-time advice and financial planning. As we age and our lives and portfolios expand, we may need to consider more complicated decisions. An experienced wealth manager can advise on how to pay off student debt, handle an inheritance, start a business, or plan for long-term healthcare. Some feel more comfortable having a personal relationship with a wealth advisor who sees their financial picture and can advise them accordingly.

The Bottom Line

Hiring a robo-advisor may be a good option if you are a beginning or emerging investor, do not have the time or interest to manage your investment accounts, and/or would like to keep your investment management costs down.

However, if you are already an established investor interested in learning more about the ins and outs of investing, financial planning, and wealth management, please get in touch with us at Harvey@RIAGroups.com to learn more about the advantages of working with us.

About Harvey Investment Management

We aim to empower and support investors no matter where they are on their financial journey. Like us on Facebook, follow us on LinkedIn and X, and watch our informative videos on our YouTube channel. In addition, we invite you to learn more about our team and how we can help you reach your financial goals by emailing or calling us at 719.960.0969.

Brad Harvey, President and CEO

Harvey Investment Management, Inc. is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC (member FINRA and SIPC). Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC.

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