Robo-Advisers Charge Far Less Than Human Advisers, but Have Limits

Robo-advisers, which are online services that invest your money for you, now manage more than $1 trillion. They also cost far less than people. In 2024 the median fee was 0.25% of assets a year, according to a Morningstar report. Human financial advisers typically charge about 1%. The catch is that they work best for simple financial lives.

What a robo-adviser does

A robo-adviser uses a computer formula to build and manage a portfolio based on your goals, your comfort with risk and other factors. It can run regular brokerage accounts and IRAs, both traditional and Roth. Some employers offer one to manage a 401(k). Betterment and Wealthfront launched the idea in 2010 and 2011. Acorns, Charles Schwab, Fidelity and Vanguard are also major players.

• You answer a risk questionnaire, and the service builds a portfolio from your answers.
• Younger investors usually get more stocks. The mix shifts toward bonds as you age.
• Many offer tax-loss harvesting, which uses investment losses to offset gains and lower your tax bill.

What the fee gap means

On $100,000, a 0.25% fee is $250 a year. A 1% fee is $1,000. Some portfolios hold only a handful of stock and bond ETFs, which are baskets of investments that trade like a single stock, plus some cash. Others hold dozens of funds and add assets like gold, real estate and cryptocurrency.

Where robos fall short

David Goldstone, a certified financial analyst at Condor Capital Wealth Management, says robos suit people who need basic, low-cost management. That is who they were built for. He says many people wrongly think the platforms actively trade stocks. Most portfolios, he says, are index-focused, well diversified and low cost. As wealth and complexity grow, he says, the products may become limited.

Bill Schultheis, a financial planner at Edelman Financial Engines, says a planner does much more than follow the market. He doubts a robo-adviser or AI can grasp the emotional side of money decisions. The article also says people nearing or in retirement may want to think twice before handing a portfolio to a robo.

What is changing

Many providers are widening what they offer. Depending on the company, that can include estate planning tools and limited access to human advisers for harder questions. Betterment, whose core customers are retirement savers, is also targeting do-it-yourself investors saving for nearer goals, such as buying a home.