Online financial advisers or robo-advisors are all the rage right now, at least according to what I read in the financial press and see on social media. There is definitely something to this, as Fidelity Institutional recently struck a deal with online adviser Betterment and Charles Schwab Corp. (SCHW) recently unveiled its own robo-advisor service.

Is an online adviser right for you? The answer, like most questions in the financial planning world is that 'it depends.' Here are a few thoughts to consider.

What Level of Advice Do You Need?

Certainly if you have a seven-figure portfolio and need advice in complex areas like tax planning, estate planning, the exercise of stock options and the like, a robo-advisor is probably not for you, at least in their current state. Folks like this are better-served by a relationship with a more traditional financial adviser.

For Millennials and others with more modest portfolios who may just need some asset allocation advice and perhaps some basic financial planning help, many of today’s online advisers might fit the bill.

All Online Advisers Are Not the Same

Just as all traditional financial advisers are not the same neither are all online advisers. In the world of traditional financial advisers there are differences in their areas of expertise, how they are compensated, and the types of clients they work with. The same holds true in the robo-adviser space.

For example, online adviser Learnvest caters to a variety of people with needs ranging from basic budgeting to those needing financial planning and investment advice. Their fees range from around $70 to $400 on a one-time basis with monthly charges for ongoing support. And Personal Capital offers services geared a bit more up-market and is targeting investors with portfolios ranging from $250,000 to $1 million. 

Convenience and Accessibility

One of the major pluses of online advisors is the convenience of working with them and the ease of accessing their services. As the parent of three Millennials I know this generation is very used to buying goods and services online, so why not financial advice?

Online advisers are accessible 24/7 which might appeal to a wide range of clients. With everyone’s busy schedules this level of accessibility might be the impetus for some folks to go and get the financial help they need.

Understanding What’s Behind the Advice

Just because an online adviser is accessible and reasonably priced doesn’t mean that the advice is any good. It's incumbent upon anyone looking at using an online adviser to do their homework first and to understand how investment recommendations are generated. 

Most of the robo-advisers utilize algorithms of one sort or another in making their investment recommendations. While you may not be a mathematician or an investment expert at the very least ask questions and read up on their investment methodology to see if it makes sense to you.

Does it Have to Be 'Either, Or?'

I’m certainly no expert in the online adviser space but it seems to me that with the likes of Schwab and Fidelity getting into this space it won’t too long until some of the best aspects of the online advisers overlap into the service offerings of traditional brick-and-mortar advisers. In fact we have been seeing some of this for several years with features like online client portals on the websites of many financial advisers.

It's likely that we will see some variation of an online adviser offering by more traditional financial advisers in the future in an effort to attract younger clients who can then grow into the larger clients who need, want, and can afford more traditional full-service advice.

Working with clients online and remotely also has advantages for the traditional financial adviser. While there are certainly costs to build out and maintain their website, there would be savings resulting from the elimination of a physical presence plus conceivably the opportunity to reach a wider range of potential clients.

What Happens When the Market Heads Down Again?

The growth of online advisers has occurred during a torrid bull market that has been going since March of 2009. What will happen to these firms during the next bear market? Will their younger, inexperienced clients bail on their investments? I honestly have no idea. However one advantage to the human touch is the opportunity for the adviser to talk nervous clients off of the proverbial ledge.

The Bottom Line

All businesses are impacted by the advancement of technology and by change in general. The financial services business is no exception. In fact financial advisers are very reliant on technology for so much of what they do. The evolution to online advisers is no surprise. Is an online adviser right for you? For many the answer might be 'yes,' especially younger less-affluent investors who have been terribly underserved by the financial services industry. This space will surely evolve over time and offer even better options for investors and for savvy financial advisers.