source article: Marc Lichtenfeld
It seems like every year, a new investing trend comes along trying to reinvent the wheel.
All the features of the new wheel come with a cost, of course. But the old wheel works fine for most people.
And it was no different last year... 2016 was the year of the robo-advisor.
Robo-advisors are programs run by algorithms that automatically invest your money in funds or stocks based on your goals and tolerance for risk.
One benefit of robo-advisors is that they remove human bias. There's no sales person trying to put you into an investment for which they receive a commission.
They also remove the chance of human error. Sometimes even advisors with the best intentions get it wrong (of course, so does the algorithm, although that's not supposed to happen).
Even the best intentions can sometimes not work out!!
The fees are small - typically 0.25% at the low end and up to 0.5% at the high end if you use the robo-advisor's premium services that allow you to talk to a human for advice. That's substantially lower than the standard 1% you'd pay an investment advisor. However in Australia the main robo-advisors that are advertising are charging .5 to .7% per annum. This does seem ridiculously expensive for the service you are (not) getting. My guess all robo's in Australia will end up with fee structures around the .25% mark, otherwise the global players like Betterment will begin offering services here.
However, with an investment advisor, you have a relationship with him. He'll listen to you complain about your daughter-in-law.
The robo-advisor and its human counterparts won't. They don't know you, and they don't really care. The humans are just available (at an additional cost) to help you define your goals and answer questions.
Then the investments it puts you into also have fees, though to be fair, some are very small - sometimes less than 0.1%.
But that's on top of the annual fee that you'll pay.
Robo-advisors are an option if you want a machine to pick your investments. But if you want some help from a human being, you may be better off using a flat fee (human) advisor or a company with relatively good value fees.