10 Experts Share Their Thoughts on Robo-Advisors

We invited some finance experts to provide their opinions on Robo-advisors, including their benefits and drawbacks.
Toni Nasr, CFA, FRM
Robo-Advisors: Pros and Cons uncovered by Experts

Robo-advisors, platforms using algorithms to generate and manage portfolios, are still growing in popularity. Since 2008, the number of companies offering automated wealth management services increased as the number of users seeking those services was rising.

We invited some finance experts to provide their opinions on robo-advisors, including their benefits and drawbacks.

What is your opinion on Robo-advisors?

Ryan Kelly, CFP, CRPC, AIF, EA, Founder & Financial Planner, Aries Financial Navigators: “Robo-advisors can be a great option for those with few financial complexities, often younger individuals or families still in the "accumulation" phase of asset growth. But as financial complexity increases, and frequently tax complexity––business owners, those with substantial stock options or equity compensation packages, real estate investors, and high net-worth individuals––robo-advisors start to fall short of what an experienced financial advisor and/or tax professional might be able to accomplish. Much like medical issues and the need for a doctor's help, the "need" for a financial planner usually makes itself evident when there's a problem: how to handle taxation or re-investment of an inheritance, navigating major employment or family changes, selling a business before retirement, or similar.”

Mark Stewart, Certified Public Accountant for Step By Step Business: “My opinion on robo-advisors is that they are built primarily for retail investors who are new to investing or want to invest only small amounts. They cannot predict market trends. So, hiring a human financial advisor will be ideal if you're going to invest a large sum of money or you want to invest based on the prediction of market trends. However, you must understand that the robo and human advisor cannot prevent loss in an investment.”

What are the pros and cons of Robo-advisors?

Pros

  • Sara Graves, founder of USTitleLoans: “Robo-advisors are very low-cost and often have no minimum balance requirements. They utilize notable investment models to create an investment portfolio with the greatest return for the slightest risk. They offer a personalized investment portfolio based on user data after answering online questionnaires.”
  • Jake Hill, CEO of DebtHammer: “Many robo-advisors offer tax-loss harvesting in their taxable accounts. This offsets taxable capital gains by selling funds that have losses. The losing investments are replaced with similar funds to keep asset allocation constant. This activity reduces your tax bill and ultimately improves returns.”
  • John M. Nowicki, President, LCM Capital Management: “Robo-advisors are a wonderful option that a lot of investors should take advantage of versus the traditional advisor/broker route. The main reason is the fees and the simplicity associated with most robo-advisors and their investment models. The AI component that most of these tout as to how they derive their models makes investors feel comfortable and gives them, to an extent, the feeling that there is some magic black box. The problem however is, no Monte-Carlo or black box scenario can ever replicate what actually happens so I feel there can be a false sense of security associated with robo-advisors.”
  • Matthew Debbage, COO of Creditsafe & CEO of Creditsafe Asia and Americas: “I believe that robo-advisors can be trusted and actually, this has been the direction that the modern world has been heading in for quite some time. I understand that there is a hesitation when it comes to things like this, but in reality robo-advisors are often able to do what humans cannot. On top of this, due to their programming, there isn’t really room for error. Robo-advisors are actually quite cheap compared to in person advisors. There’s a plethora of robo-advisors to choose from that all have a varied range of affordability for beginner investors and more advanced investors.”

Cons

  • Carter Seuthe, CEO, Credit Summit: “One of the biggest downsides of robo-Advisors is the lack of customization. Your portfolio may not end up being as personally customized as you’d like, and that’s often because they often don’t provide alternative investing options.”
  • Mila Garcia, co-founder of iPaydayLoans: “While they do provide an excellent starting point to creating wealth, robo-advisors are not actually designed to beat the market. They are made to work in sync with it and this means that there are limitations on how much and how quickly you can earn, in contrast to working with a fully dedicated team of human experts.”
  • Robert R. Johnson, PhD, CFA, CAIA, Professor of Finance, Heider College of Business, Creighton University: “The biggest drawback of robo-advisors is that they are largely a one size fits all solution. In other words, if two individuals are of the same age and indicate that they have the same risk tolerances, robo-advisors will provide similar solutions. But, we are all different, we have different other asset holdings and customized solutions are necessary.”

How to choose a Robo-advisor?

Jonathan Merry, Director at Bankless Times: “You should research how a robo-advisor might improve your particular situation before choosing whether it is worthwhile to use one. You must first ascertain your precise needs and whether a robo-advisor could be able to satisfy them in order to decide if a robo-advisor is worthwhile. You will have several options to choose from that may meet what you're searching for because robo-advisors offer a huge variety of automated features & price ranges with varying amounts of human support. However, if you're unsure of what you require, it could be wiser to get a fully functional robo-advisor since it will be able to climb up or down to meet your requirements and adapt as those requirements change.”

Conclusion

Finally, before opening an account with any robo-advisor, we recommend that you conduct some research and visit their websites. You may find it helpful to read about their investment process, compare the fees charged, and make sure that the company is regulated.

Remember, if you have any questions, feel free to leave a comment below.

A reminder that the above should not be construed as investment advice and should be considered information only. Investors should do their own research and due diligence about the services and opportunities best suited for their risk, returns, and impact strategy.

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