When it comes to working with an advisor to help manage your finances, there are lots of options at your disposal. Robo-advisors, for instance, are a very popular option when it comes to getting financial advice. They are often cheaper than human advisors. However, despite the benefits of using a robo-advisor, a new Vanguard study found that a majority of investors crave the human connection provided by a human financial advisor that can reduce anxiety over their portfolio management. So much so, in fact, that many would consider using a combination of both robo-advisor and human advisor services. If you’re looking for a financial advisor but not sure where to start, consider using SmartAsset’s free advisor matching tool to help find advisors that serve your area.
Robo-Advisor vs. Human Advisor
There are plenty of differences between a robo-advisor and a human advisor. However, they both serve the same general purpose. They’re there to help you manage your finances, from your investments to your day-to-day spending and saving goals. Some advisors help with multiple aspects of financial planning, whereas others focus on one specific area, such as your investment portfolio.
There are, however, some major differences between the two. First and foremost, a robo-advisor is a digital platform, whereas a human advisor is a person you can interact with. While they may be able to help you with similar financial planning needs, robo-advisors are inherently a more limited option.
Human advisors, on the other hand, can converse with you, respond to your questions and ask key questions. They’ll likely be able to provide you with more advice overall, and that advice will probably be more tailored to your financial situation.
What the Study Says
In February of 2022, Vanguard released a research report that looked at how investors viewed both robo-advisor services and human advisor services. One major finding was that investors believed that any kind of advice helped their portfolio, whether it was from a robo-advisor or a human advisor.
However, the study also revealed a particular affinity for human advisors. More than 90% of investors who worked with a human advisor said they wouldn’t consider switching to a robo-advisor. At the same time, 88% of robo-advisor users said they would consider switching to a human advisor in the future.
Furthermore, investors in the report estimated that they were $160,000 closer to reaching their goals thanks to human advisors. That figure was three times what robo-advisor user reported. At the same time, investors did in fact prefer digital services for diversification and tax optimization.
What Kind of Advisor Should You Work With?
At the end of the day, you’ll need to decide which type of advisor it makes most sense for you to work with. Your preferences are paramount when it comes to making this type of decision, so make sure to do as much research as possible before settling on one option. While you can always change your mind, it’s undoubtedly easier to make the right decision off the bat.
However, the results of the study suggest that working with a human advisor has advantages that a robo advisor simply can’t catch up with. If you’re someone who wants more personalized advice and someone to talk to, a human advisor is probably your best bet. Investors also made it clear that being able to form a connect with a human advisor is an important part of their financial planning journey.
The study does suggest that robo-advisors and human advisors can serve different purposes, so you don’t have to rule out the possibility of working with both. If you want a simply platform on which to invest your money but also want personalized help with budgeting, saving and goal setting, this hybrid solution could be right for you.
Bottom Line
Again, you’ll need to decide whether you want to work with a human financial advisor, a robo-advisor, both or neither. However, it’s important and interesting to understand why it is that people tend to prefer working with a human advisor. There are certainly limitations to using a robo-advisor, so be wary if you choose only this path. For many, there’s simply no replacement for the connection of working with a real live human financial advisor.
Tips for Investing
- Working to manage your investments on your own can be a challenge, and even robo-advisors only go so far. Working with a human financial advisor can be a big help. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you’re going at your investment portfolio without professional help, it pays to be prepared. SmartAsset has you covered with free online investment resources to help you get started. For example, check out our free asset allocation calculator today.
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