Robo-advisers are financial planners which are based on a digital platform with little or no human interference in their operations. The use of Robo-advisers since the first launch of Betterment in 2008 has continued to go up among the low and medium net investors, while the high net investors are reluctant in incorporating them in their decision making and prefer manual processes. After constant development and upgrade of robo-advisers, they can now handle more complex work like retirement planning, investment selection and tax-loss harvesting.
What Are the Benefits of Using Robo-advisers?
There are some factors which have made the use of robo-advisers popular among the low and medium net worth investors. The cost of using robo-advisers in decision making is much lower as compared to human labour. Human financial planners charge a typical rate of 1% to 2% on a client’s total account balance as compared to robo-advisers’ rate which is 0.2% to 0.5% annually.
Robo-advisers are fast and have no limit
Robo-advisers are efficient in executing their work and take only a few minutes to have the application working. The efficiency is in contrast to human labour which compels a client to have a physical meeting with a financial advisor, fill out paperwork and wait for feedback for an invoice and when the work should commence. Unlike personal advisors who have a name in the financial field and discriminate low net worth clients with less than $100,000 in assets, robo-advisers do not require much capital to set up an account. Betterment, for example, has no minimum account limit and clients can access the services 24/7 from the comfort of their homes.
Robo-advisors use the same legal standards as human labour as they have to register with U.S. Securities and Exchange Commission. The registration assures clients that they are bound by similar regulations and security laws as when they would have hired a personal advisor.