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There are many options out there that help investors manage their investments. In addition to more than 250,000 financial advisors nationwide, robo-advisors have attracted billions of dollars in assets on the model of low fees and tech-driven transparency. Investors should carefully weigh their options when choosing between these different advisors, while paying attention to factors like expenses, portfolio construction, and ancillary advice.

This article will explore the many available options for wealth management, and why robo-advisors are not always going to be the best fit for everyone. (For related reading, see: What Is a Social Credit Score and How Can It Be Used?)

Growing Number of Options

Investors have never had more choice when it comes to wealth management. The Bureau of Labor Statistics estimates that there are more than 250,000 financial advisors throughout the United States, with more than 70,000 expected to join the workforce by 2024. That’s roughly one financial advisor for every 1,200 citizens. These advisors can be easily found in nearly every city either online or in a phone directory.

In addition to human advisors, there are a growing number of so-called robo-advisors that provide automated wealth management services. Robo-advisors take inputs—like a person’s age and retirement goals—and generate a portfolio of stocks, bonds, and/or funds designed to meet those goals. These services could attract more than $5 trillion in assets under management over the next 10 years, according to Citi estimates, driven by their low-cost and high-tech approach.

As of March 10, 2017, some of the most popular robo-advisors include:

Robo-advisor

Founded

Asset Types

Fees

Betterment

2008

ETFs

0.25%

Wealthfront

2011

ETFs

0 - 0.25%

Schwab

2015

(Mostly) Schwab ETFs

0%

Vanguard

2015

Vanguard ETFs

0.30%

FutureAdvisor

2010

ETFs

0.50%

Self-directed investors may use exchange-traded funds and mutual funds to build their own portfolios. Investing mogul Warren Buffett recommends investing in a low-cost S&P 500 index fund. Target-date retirement funds provide another diversified low-cost option. Self-directed investing requires some level of hands-on activity, such as choosing funds and making regular contributions, but auto-deposits and other features can help automate the process.

Choosing the Right Path

The growing number of financial advisors has made it difficult for individuals to decide how to invest their capital and prepare for retirement.

Low-cost robo-advisors, broad market index funds, and target-date retirement funds are great options for younger investors with a long time horizon. In fact, investing $50,000 in a low-cost fund with a 0.18% expense ratio could save $60,285 over the course of 30 years relative to the 1.01% that’s commonly charged by actively-managed funds. There’s a wealth of research showing that low-cost, passively-managed funds tend to outperform their active counterparts.

Those using a robo-advisor should consider all the fees involved however. For example, Schwab’s robo-advisor platform may not command an advisory fee, but it invests in Schwab funds that may have higher expense ratios than alternative funds. It’s also important to look at the strategies used by each robo-advisor. For instance, Wealthfront adds commodity exposure whereas Betterment focuses primarily on equities and bonds.

Robo-advisors and self-directed investing become less attractive as a person’s financial picture becomes more complicated. For instance, those approaching retirement must contemplate issues like deciding the best way to draw down a portfolio, calculating how much Social Security to claim, and choosing the best, tax-efficient investments to transfer their assets to heirs. These issues are often too involved and complicated for robo-advisors and non-professional individuals to effectively deal with.

The Bottom Line

There are many different options for those seeking financial advice, ranging from in-person financial advisors to robo-advisors. When choosing an advisor, it is important to consider the fees involved, how the portfolio is built, and whether ancillary financial advice is needed. Robo-advisors may not always be the right choice, particularly for complex financial situations where it may be helpful to meet with an advisor in person to discuss options. (For related reading, see: How Advisors Can Use Blogs to Boost Their AUM.)

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