The Pros and Cons of Robo-Advisors

Robo-Advisors

Financial technology, more commonly known as FinTech, has been all the rage as of late. It’s basically a line of business that uses technology to provide financial services. And, like any new technology, the public tends to be slow to adapt – but one of the more interesting businesses to come from FinTech are robo-advisors, which are starting to become mainstream.

What Is a Robo-Advisor?

The term robo-advisor may sound a bit intimidating, but it’s a pretty simple concept. Robo-advisors provide automated investment services: there’s no research for you to do and you can say goodbye to high mutual fund fees, deposit your funds and let the computers take care of everything.

With any new technology, there’s always going to be a certain amount of excitement and fear. Some people are afraid that they could lose their money, but if the advisor you choose is partnered a member of the with Canadian Investor Protection Fund and your account meets all the qualifications, then you’re insured up to $1 million by the CIPF in case of insolvency. Robo-advisors also often have additional insurance so your entire investment will be covered.

Whether you decide to become an early adopter or if you prefer to stick with a traditional advisor; it’s an exciting time in the FinTech world so make sure you know all the facts about robo-advisors.

Also read: Mutual Funds – Often An Expensive Choice>

The Pros of Robo-Advisors

Convenience: This is the main reason why people are attracted to robo-advisors; everything is done on your own time. You can open an account, create a financial plan, and get financial advice without ever having to book an appointment or show up in person. And it’s not all automated; you still have access to a real person through web chats or on the phone.

Reduced fees: Every robo-advisor has a different fee structure, but you can expect to pay about 0.15 – 0.60 per cent on top of any management expense ratio related to the investments they chose for your portfolio. The overall cost to you ends up being a bit more than if you went DIY, but it’s still a fair amount cheaper than investing with mutual funds.

No minimum investment required: It doesn’t matter of you have $100 or $1,000,000; anyone can invest with a robo-advisor. Fees tend to be reduced when you have more invested, but it’s nice to know that you can get good advice regardless of your portfolio size.

The Cons of Robo-Advisors

Not all Robo-Advisors are alike: Like any service, no two robo-advisors are alike. Some are only able to manage your portfolio, while others offer every client a dedicated advisor. This isn’t necessarily a knock against robo-advisors, but many people still value working with a financial planner in person who can sit down with them and go over their entire portfolio. When choosing a robo-advisor, find out exactly what services are being offered.

Also read: 5 Questions to Ask Your Financial Advisor>

Portfolios can be complicated: Although robo-advisors are built on simplicity, the portfolios recommended can be a bit complicated at times. One of the most popular index portfolios only requires three funds for investors, but robo-advisors may recommend more to justify their services. This doesn’t mean they’re giving bad advice, but there’s a case to be made about keeping things simple.

You need to be tech savvy: Since everything is based online, you do need to have a certain comfort level with technology. Yes, it’s easy to signup online, but some people still prefer to have real human interaction when it comes to investing their money.

Ready to Get Technical?

If you’re still not sold on robo-advisors, check out Wealthsimple, WealthBar and Nest Wealth who have established themselves as the leaders of this new business. It’s also worth noting that it was recently reported that the Bank of Montreal plans on introducing their own automated online advice service so clearly the big banks aren’t afraid to adapt to the times.

Will you try investing with a robo-advisor? Tell us in a comment, or visit us on Facebook and Twitter!

Related Topics

Growing Your Money / Saving For Retirement / Savings / Savings News

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