Takeaways
- Robo-advisors are digital platforms that automate investing and financial planning.
- Setting up a robo-advisor account involves filling out a detailed personal questionnaire.
- Robo-advisors manage over $1.46 trillion in investment capital for investors.
- Robo-advisors have adopted entirely virtual or hybrid models to support clients.
- Robo-advisors are the preferred advisory route for young and beginner investors.
What Is a Robo-Advisor?
A robo-advisor is a digital platform providing automated investment or financial planning services with little human intervention.[1] They have ballooned in popularity over the last several decades and are projected to have over $1.46 trillion in assets under management in 2024.[2] Complicated and proprietary algorithms drive these platforms. To provide helpful advice, robo-advisor accounts start collecting data and financial information about you with an online survey.
This survey is an essential start to your relationship with the robo-advisor because it provides the robo-advisor with critical information about you, such as your financial goals, current financial makeup of debt and investments, and preferred risk profile. The robo-advisor offers financial advice or pre-configured investment plans using the data gathered from this questionnaire.
In addition to complex algorithms, robo-advisors leverage modern portfolio theory to build a personalized portfolio. In many cases, your robo-advisor can also manage your portfolio based on your risk tolerance, investment preferences, and when you plan on starting retirement.
Many investors use robo-advisors to help them automate their finances. Ultimately, robo-advisors are designed to make effective investments more accessible. Because they harness the power of technology (and don’t need a team of active portfolio managers), they pass on these savings with a very low-cost and straightforward fee structure. Robo-advisors are terrific for beginner investors and those who want to use technology to streamline their finances.
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How to Choose a Robo-Advisor Account
Choosing the right robo-advisor involves weighing many factors to ensure the account aligns with your personal investment goals and needs. As part of the due diligence process, you need to assess the platform's reputation and reliability. This assessment involves researching reviews and ratings of other users and examining the range of services the platform offers (retirement planning, tax optimization, or access to human advisors).
Here are some critical variables to consider when trying to choose the best robo-advisor for your personal situation:
Minimum Investment Requirement
Robo-advisors have minimum investment requirements that vary from one platform to the next. These minimums range from $0 to over $1,000.
Make sure the robo-advisor you are considering fits your investment capacity and liquidity. Low-minimum platforms are more accessible and approachable if you are investing in stocks and fixed-income investments for the first time. Alternatively, platforms with higher minimums tend to offer a more comprehensive buffet of investment options.
Account Fees
How advisors structure their fees is a significant variable for many investors. In most cases, robo-advisor platforms offer lower fees than human advisors. This is because they use algorithms and pre-built models to guide your investment approach, and they pass those savings onto you.
Ensure the platform you choose does not charge your account endless fees that eat into your investment gains. Excessive fees could impede your ability to boost your net worth.
Investment Options
Another major variable to consider is the suite of investment options offered on the platform. Most robo-advisors offer you a mix of low-cost ETFs, mutual funds, and index funds.
In addition to having access to the best types of investments, robo-advisors can offer access to environmental, social, and governance (ESG) funds. More advanced platforms also provide strategies for tax-loss harvesting, automatic portfolio rebalancing, and more.
Hybrid Alternative
A hybrid robo-advisor combines the low-cost, easy-to-use automation of a typical robo-advisor with access to human advisors (just in case you want to chat). This approach offers the best of both worlds by giving you the raw, algorithm-driven, autopilot automation performance with personalized investment advice that only an experienced financial advisor can provide.
This approach benefits investors who want a human touch to portfolio guidance and interaction. Investors with more complex financial planning needs, like managing estates and trusts or leveraging advanced tax strategies, often prefer the hybrid method. While hybrid platforms tend to have higher fees than pure-play robo-advisor platforms, they can also offer curated insights and expertly tailored advice.
7 Steps to Set Up a Robo-Advisor Account
Choosing the best robo-advisor account can feel overwhelming. Try following these seven steps to streamline the process to help you get your robo-advisor account up and running:
1. Decide the Best Robo-Advisor for You
Before signing up for a robo-advisor account, you first need to determine if a robo-advisor is right for your personal finance needs. Variables include your comfort with automated investment services, the fees you are willing to pay, and where you are building your investment portfolio.
When it comes down to it, a robo-advisor is ideal if you are looking for a hands-off approach to portfolio management. Getting a personalized portfolio recommendation could be the catalyst for building your emergency fund, paying off your credit card debt, or investing in dividend-yielding stocks.
2. Select Your Account
Choose a robo-advisor platform that fits your financial goals, investment approach, and budgeting strategy. While most robo-advisors are going to be close in terms of platform costs and fees, there will be some slight, considerable differences, so make sure you consider all the factors that are important to you.
For example, if you want to start investing in stocks, a platform like Acorns that helps you invest your spare change in stocks could be a perfect entry point into the world of investing.
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3. Begin the Application Process
To create an account, go to the robo-advisor's website. You will need to provide some of the usual basic personal information.
You will need your name, email, contact details, and some form of verification for fraud prevention. Once you have completed all of this, you will be funneled to fill out your online survey.
4. Complete the Online Survey
Most robo-advisor platforms use an online questionnaire to gather detailed information about your financial situation, investment risk tolerance, aspirational goals, and long-term retirement objectives.
To get the best experience possible, answer these questions honestly and thoroughly so your robo-advisor has all the information it needs to create a portfolio or investment plan tailored to your precise needs.
5. Link Investment Funds
Once you have set up your account and logged in, you can start linking all your external accounts. To get the best-recommended investment advice, here are some accounts to remember to link:
- Online Stock Brokerage Account
- Certificate of Deposits Accounts
- 401(k) Retirement Accounts
- Traditional IRA Accounts
- Roth IRA Accounts
Once your accounts are linked, you can initiate an online transfer into your investment account. Make sure you keep an eye on minimum investment requirements. If you are like most investors, you want to automate your finances. You can do this by turning on automatic deposits to take the hassle out of remembering to invest, which can be an excellent strategy for implementing dollar-cost averaging.
6. Sync Other Financial Accounts
To get a more comprehensive picture of your finances and investments, you can link other financial accounts to your robo-advisor account. To get the best investment advice, here are some accounts to remember to link:
- High-Yield Checking Account
- High-Yield Savings Account
- Credit Card Accounts
- Student Loan Accounts
- Personal Loan Accounts
It will also allow your robo-advisor to refine the advice or planning it provides in real-time and help you keep track of all your investments in one place.
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7. Monitor Your Progress
Now that your funds are invested, the real work begins. Regularly monitoring your portfolio and investment progress is a smart money move.
Robo-advisor platforms offer net worth and investment dashboards on their websites and mobile apps, which give users a bird's-eye view of their overall performance in real time.
Even though robo-advisors help highlight investment risks, you should still monitor your account to ensure it stays aligned with your goals.
Smart Summary
Robo-advisors are technology-driven platforms that automate investing, financial planning, and advisory services. They give beginner investors access to a low-cost advisory solution and offer a basket of perfect investment options if you are trying to increase your net worth. Once you set up your robo-advisor account, you can link your account to your online stock brokerage account, high-yield savings accounts, and other accounts to give you a real-time pulse on your finances.
(1) Investor.gov. Robo-advisor. Last Accessed January 14, 2025.
(2) Statistica. Robo-Advisors – United States. Last Accessed January 14, 2025.
