In the past, investors had two options when deciding how to handle their investments. First, they could do everything themselves through their personal brokerage account. Second, they could hire a human financial advisor to handle everything for them.

Over the last few years, computerized financial advisors have come to the mainstream, but before you hand your cash over to a machine, it is important to understand the benefits and drawbacks of both the technological and human approaches.

Benefits and Costs of Human Advisors

The benefits of a human financial advisor are clear to most people. Financial advisors are trained to help people in a variety of financial situations to best invest and manage their money to reach their goals.

This is a person you can call on the phone or meet with in person to share your goals and help you devise an investment strategy to reach them. These advisors have a depth of investment knowledge and are legally required to hold licenses. Advisors at large firms also have extensive tools and additional training to help their clients.

However, you must pay for these services. Some advisors charge fees based on your total assets under management, and others charge a fixed fee for their services. Fees typically range from 0.5% to 2% of assets under management.

Some advisors are paid on commission for trades and may be compensated by specific mutual fund companies for directing investors to their funds, even if it's not in the best interest of the client.

Of course, there are strict guidelines that say your best interest should come first, but these lines can be easily blurred. A fee-only advisor does not take any commissions and is only paid from your fee, and so does not face that conflict of interest.

In addition to fees, many advisors only take on clients with a net worth of at least $500,000, excluding many investors from their services.

Benefits and Costs of Robo-Advisors

If you don’t have $500,000 to invest or think financial advisors are not the best option for you, computerized advisors may be an attractive option. New companies like FutureAdvisor and Personal Capital are breaking down traditional investment advising with different practices.

Personal Capital offers a combination of algorithmic financial advising and person-to-person interaction, providing an advisor you can call for additional investment assistance. You can use their analysis tools for free, but have to pay if you want them to manage things for you. Fees range from 0.89% to 0.49% depending on your assets under management.

FutureAdvisor is 100% automated and will make trades in your existing account based on a short survey you take when signing up. As with Personal Capital, you can see advice for free when you signup, but you have to pay for the service to make trades for you. The fee is 0.5% for all accounts.

Another popular and growing robo-advisor is Betterment. Betterment is another fully automated investing solution, but rather than manage investments in your existing account, your investments are managed in an account held at Betterment. Fees range from 0.15% to 0.35% based on your account balance.

The Bottom Line

Choosing how to manage your investments is a big decision. If you want help from an advisor, you can save money by choosing an online robo-advisor and can use one even if you only have a few thousand dollars.

If you have a higher net worth and want personal attention, a human financial advisor is an option, but you have to pay a premium for the privilege.

The best decision is one that is right for you personally. If you are still on the fence, check out the technology-based advisor websites, and call a human advisor to ask some questions. You will find out fairly quickly which option you most trust.

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