Robo Advisor vs Broker: Investing with Robo Advisors in 2022 (2024)

FAQs

Robo Advisor vs Broker: Investing with Robo Advisors in 2022? ›

“Advisors have a fiduciary responsibility to their clients. Brokers are salespeople.” Unlike traditional brokerage accounts, robo-advisors may not offer access to a financial advisor and access to customer service may be limited, or nonexistent. The levels of service can vary depending on portfolio size.

It estimated that the global robo-advising market grew from $28.24 billion in 2022 to $41.52 billion in 2023.

Do robo-advisors outperform the S&P 500? Robo-advisors can outperform the S&P 500 or they can underperform it. It depends on the timing and what they have you invested in. Many robo-advisors will put a percentage of your portfolio in an index fund or a variety of funds intended to track the S&P 500.

If you're in the market for a robo-advisor, there are plenty of providers to choose from — but important factors like fees, investment portfolios, account minimums and other features can vary widely. In our analysis, the two robo-advisors with the top scores are Wealthfront and Betterment.

While robo-advisory platforms ask questions to get you there and automate features such as portfolio rebalancing and tax-loss harvesting, they're unable to probe the way a human financial advisor can to determine the ins and outs of your financial situation.

Limited Flexibility

Most robo-advisors won't be able to help you if you want to sell call options on an existing portfolio or buy individual stocks.

Robo-advisors in the U.S. have faced three main challenges: high client acquisition costs, ongoing costs of servicing clients, and low revenue yield on client assets.

Robo-advisor performance is one way to understand the value of digital advice. Learn how fees, enhanced features, and investment options can also be key considerations. Five-year returns from most robo-advisors range from 2%–5% per year.

Digital Advisor Use Dropped in 2022

High-net-worth investors exited robo-advisor arrangements at the highest rates. Here's how the data broke down along asset levels: $50,000 or less: A drop from 23.6% to 20.6% in 2022, which translates to a decrease of 3 percentage points.

Online brokers are ideal for those who prefer a hands-on approach, making their own decisions and doing their own research. Robo-advisors are best suited for those who value simplicity and hands-off automation.

Is robo-advisor better than etf? ›

Robo-advisors help automate the decision-making, recommending a portfolio that aligns with an investor's goals and preferences. Robo-advisors may carry higher fees than ETFs, but their costs usually remain below those of a traditional human advisor.

Robo-advisors, like human advisors, cannot guarantee profits or protect entirely against losses, especially during market downturns—even with well-diversified portfolios. Because most robo-advisors only take long positions, when those assets fall in value, so will the portfolio it has constructed.

Robo-advisors, like Automated Investor, typically have lower fees than traditional wealth managers. The cost to use a robo-advisor generally ranges from 0.25% to 0.50% of your portfolio compared to 0.5% to 1.5% for traditional advisors.

The type of advisor that is better for you depends on what your financial needs are. For core investing and planning advice, a robo-advisor is a great solution because it automates much of the work that a human advisor does. And it charges less for doing so – potential savings for you.

The Robo Advisor Market grew from USD 6.36 billion in 2023 to USD 8.01 billion in 2024. It is expected to continue growing at a CAGR of 26.71%, reaching USD 33.38 billion by 2030.

In next decade the robo advisor market is expected to significantly grow and challenge traditional investment advisors. Investment profiles may become more personalized but still focus on ETFs and mutual funds.

No guarantee of performance: Robo-advisors invest in stocks and bonds, and the prices of these assets can fluctuate a lot, especially in the short term. These are riskier investments than bank products, and a robo-advisor does not promise performance.

Robo-advisor performance is one way to understand the value of digital advice. Learn how fees, enhanced features, and investment options can also be key considerations. Five-year returns from most robo-advisors range from 2%–5% per year.

While a robo-advisor can be efficient in managing your investing decisions, a human advisor may be best for more complex decisions like helping you choose the right student loan repayment plan or comparing compensation packages for a new job. Cost: If cost is a factor, robo-advisors typically win out here.