Financial Planning

Need Financial Advice? How to Choose Between Robo and Human Help

Some people can do fine with a low-cost robo-adviser. Others really need a more personal touch.

Preparation is essential to meeting any goal, but when it comes to financial planning, there’s often a disconnect: We know it’s important, but we just don’t follow through as we ought to. In fact, a study by the Duke Center for Advanced Hindsight highlights that our own gaps between intention and action prove a major barrier to financial security.

Because we know that planning is critical to meeting financial goals (whether it’s buying a car or a house, paying for college, or a host of other milestones), it’s important that people find the method that works best for them.

The path to financial wellness differs from person to person, and things like life stage and personal preference will impact how individuals choose to plan for their financial future. Of course, not everyone needs a financial adviser, but even some who do may decide to go without: Recent Prudential research shows that 68% of Americans say they don’t use an adviser, either because they can’t afford one or don’t want to pay for one.

Though each person has a unique relationship with money, there are common conversations happening in living rooms across the country about individual and collective states of financial wellness. There’s certainly no shortage of sources for insight, from friends and family to financial publications, financial company websites, online retirement calculators and goal-setters, among other sources. Some retirement workplace plans also provide access to advice.

And there’s one myth worth busting: People don’t have to be wealthy to afford professional advice. But they should understand the choices available to them.

Here are a few considerations:

A Look at Robo-Advisers

Robo-advisers provide an easily accessible option for those happy to let an algorithm do the work, while fees paid on assets can be as low as 0.15%. Consumer appetite seems to be increasing for robo services, with S&P Global Market Intelligence estimating that robo-advisers could be managing more than $600 billion in assets by year-end 2022.

Passive investing — where money is tied to a preset mix of investments, such as the S&P 500 — is where robo-advisers tend to shine. Rather than working to beat the market, their algorithms strive toward matching market gains over time.

It’s a good way to go for those who have very little need for direct contact for advice, are happy to ride out market volatility, and whose financial needs are rather static. And because robo-advisers offer professional management for portfolios of less than $5,000 — or even allow clients to open an account without a minimum balance — they are often a great choice for younger investors.

It’s important to keep in mind that robo-advisers offer very little flexibility amid one-size-fits-all solutions, so those wanting something tailored to their unique financial needs may have to look elsewhere.

Considering the Hybrid Option

A hybrid of financial and robo-advisers helps people understand their unique financial situation in ways robo-advisers alone simply cannot. Some robo platforms, for example, offer an option to tap into human advice.

In a hybrid world, advisers focus on serving as coaches who help clients set financial goals and overcome their behavioral biases, while the consumer manages the portfolio account. Advisers can also be on call to provide guidance during market volatility in the context of a financial plan — something robo-advisers simply can’t do.

In a hybrid model, customers save money on portfolio management fees. The models also allow for lower investment minimums.

Working with a Personal Financial Adviser

Personal financial advisers manage everything for their clients. While many advisers use automated investment managers, they also bring the benefit of helping clients assess their financial situation, coach them through life’s changes — including getting married, starting a business or helping kids through college — and can help build a solid financial plan.

Ultimately, people well-suited for a fully human approach are those who prefer direct contact, have complex needs, want to rely exclusively on an expert, are uncomfortable with a do-it-yourself model, or want a measure of control and flexibility over investments and asset allocation.

It may cost more, of course, but that depends on how advisers charge. Some advisers don’t charge for advice. They work to understand a client’s finances, learn about their financial goals, and get to know their clients over time as needs evolve, then make a commission only if their client buys a product. Others will provide a consultation and charge money to create a comprehensive financial plan, whether a client buys products or not. Others may charge a flat fee of 1% to 2% of assets under management. Fee-based advisers, including many registered investment advisers, charge hourly fees, while commission-based advisers may cost more.

Whichever option someone ultimately chooses, there is always a desire for good advice. Each option caters to unique needs, and people should do their homework before investing to make the choice that works best for them.

1020836-00001-00

About the Author

Salene Hitchcock-Gear, President of Prudential Individual Life Insurance

President of Prudential Individual Life Insurance, Prudential Financial

Salene Hitchcock-Gear is president of Prudential Individual Life Insurance. She represents Prudential as a director on the Women Presidents’ Organization Advisory Board and also serves on the board of trustees of the American College of Financial Services. In addition, Hitchcock-Gear has a bachelor’s degree from the University of Michigan, a Juris Doctor degree from New York University School of Law, as well as FINRA Series 7 and 24 securities licenses. She is a member of the New York State Bar Association.

Most Popular

Where's My Refund? How to Track Your Tax Refund Status
tax refunds

Where's My Refund? How to Track Your Tax Refund Status

If you're waiting for your tax refund, the IRS has an online tool that lets you track the status of your payment.
March 2, 2021
Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer
Coronavirus and Your Money

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer

The IRS has an online tool that lets you track the status of your stimulus checks.
February 19, 2021
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021

Recommended

33 States with No Estate Taxes or Inheritance Taxes
retirement

33 States with No Estate Taxes or Inheritance Taxes

Even with the federal exemption from death taxes raised, retirees should pay more attention to estate taxes and inheritance taxes levied by states.
February 24, 2021
18 States With Scary Death Taxes
inheritance

18 States With Scary Death Taxes

Federal estate taxes are no longer a problem for all but the extremely wealthy, but several states have their own estate taxes and inheritance taxes t…
January 24, 2021
Are There Cracks in Your Pension Plan?
retirement

Are There Cracks in Your Pension Plan?

You're counting on pension benefits in retirement. But how secure is your pension plan? We offer some guidance, including a pension calculator, to hel…
December 28, 2020
Doug Glanville on Race, Sports — and Personal Finance
personal finance

Doug Glanville on Race, Sports — and Personal Finance

Kiplinger contributor (and former Major League Baseball player) Doug Glanville shares insights from years playing the game — and investing. Also, what…
December 22, 2020