We’ll let the first-ever robo-advisor, Wealthfront, define exactly what a robo-advisor is. According to the company’s vice president of product, Dave Myszewski, a robo-advisor is “a service that provides a diversified and rebalanced portfolio of low-cost ETF index funds. In the simplest terms, robo-advisors offer automated portfolio management.”
Bob Peterson, senior wealth advisor at Crescent Grove Advisors in Lake Forest, Illinois, took it a step further: “A basic robo-advisor is a simple, low-cost option that allocates investments according to the selected level of risk — typically based on a quiz or survey to determine a client’s risk tolerance. These services offer monthly contributions, rebalancing and even tax-loss harvesting. Many robo-advisors also offer ‘premium’ services, which include limited phone support from a financial advisor.”
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Peterson put it nicely: “Although a robo-advisor can do a good job of setting you in the right direction, as you age and your asset base grows, so does your complexity. When you are at or near retirement, you need to make decisions about tax-efficient asset distributions, Social Security-claiming strategies, Medicare options, long-term cash flow planning, generational planning, long-term care planning, etc.” Being able to pick up the phone or send an email to plan ahead, set plans in motion or simply share concerns and ask questions can be worth the price of access to a strong financial advisor.
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