Brokers Vs Robo-Advisors: How to Decide

Choosing where to invest your money is a crucial step. Online brokers and robo-advisors will help you get your money into the market in very different ways. Let's explore the differences between the two, so you can decide which would be best for you.

Table of Contents

  • The difference between a robo-advisor and a broker

  • When you should consider robo-advisor

  • Investment implications of using a robo-advisor

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What is a robo-advisor?

A robo-adviser is a firm that will manage your money for you. They usually help with investment selection and rebalancing of your investment portfolio. Robo-advisors may even use tax harvesting to maximize your returns.

Robo advisers are a relatively new investment option, and they can be a great way to get started with investing. They make recommendations about what investments to make and manage your stock portfolio for you.

Robo-advisers can help to manage some of the complexities of investing that may arise. The fees are generally pretty low. They would be much lower than hiring a financial advisor. Also, they may have no, or very low, minimum investment requirements.

What is a broker?

Discount brokerages will allow you to choose your own investments. They can hold your money while you decide what to invest in. They may charge a fee for you to buy and sell investments. These companies won't help you decide what to invest in or balance your portfolio. You will need to learn these things for yourself.

Stockbrokers will require a minimum investment fee for certain investments. If you don't have the required amount, they can offer other investment opportunities with no, or a much lower, investment minimum.

Let's look at what questions you need to ask yourself before deciding which option would be best for you.

Difference between robo-advisors and brokers

Robo advisors differ from brokers in that they offer automated investment advice based on your personal goals and risk tolerance rather than providing personalized advice from a human advisor.

The first robo-advisor, Wealthfront, was founded in 2008. Since then, the industry has grown rapidly, with over $65 billion in assets under management as of early 2022. There are now dozens of robo-advisors to choose from, including well-known players like Betterment and Vanguard, as well as a growing number of regional and specialized players.

Robo-advisors are a boon for investors with a small amount to invest. Betterment and Folio Investing are some of the zero and near-zero minimum balance technology-enhanced robo-advisors.

Brokers, on the other hand, offer a more personalized service. They have been in the market for decades, and they understand the devil in the detail. Furthermore, as compared to robo-advisors, where you can start with very small investments, brokers would generally entertain the investors with a good amount of investment.

Would you prefer to manage your own funds?

Signing up with an online broker will mean making your own trading decisions. This will definitely require time and effort. You will need to think about what kind of assets you would like to invest in, research specific assets, and build a healthy and diverse portfolio.

A robo-advisor would ask you about your investment goals and your risk tolerance. They then manage everything and provide a solution that is totally hands-off. This may be a good option if you don't have the time or inclination to learn lots about investing.

How do you feel about paying investment fees?

Robo-advisors will be charging a fee for managing your money. This would usually be around 0.25% or 0.3%. It may not seem huge, but over time it will eat away at your returns. If you are investing over a long period, this could add up to a lot. You could be losing potential money from your retirement fund.

If you don't want to pay fees, using a broker could be the better option. Most of them no longer ask for commissions or inactivity fees. Bear in mind that you will still have to pay for all of the costs associated with the actual investment. For example, if you choose to invest in an exchange-traded fund (ETF), you may have to pay fees.

What would you like to invest in?

robo-advisers will invest your money in various indexes

Robo-advisers will most likely put your money into a variety of different index funds. These are funds that track financial indexes. Your money will be spread around a lot of different assets. You aren't likely to beat the market or make huge financial gains, but it could be considered a relatively safe option.

If you wanted to invest in more niche areas, you would have to use a broker. This way, you could invest in stocks of specific companies that you choose. You could also choose cryptocurrency investments and buy NFTs. This would require research on your part. There is potential for big gains but also significant losses.

Who should use a  robo-advisor?

Robo-advisors are great for beginners. They are also great for anyone who wants a more hands-off approach to investing or people with less money to invest. However, the fees involved may be a concern for those interested in using a robo-advisor.

If you want to invest but just don't have the time or inclination to do lots of research, using a robo-advisor could be perfect for you. Robo-advisors may offer a lot of peace of mind. They choose investments based on the information you provide and automatically diversify your portfolio. This makes it a lower-risk choice. However, please remember that there is always an element of risk involved with investing.

Who should use a broker?

A broker is best for anyone who wants to be hands-on with their investments. You get to choose all the investments you wish to make. The broker is simply there to help you. You should use a broker if you have more money to invest. Brokers may have a minimum investment balance of hundreds of thousands of dollars.

Using a broker may be a good option if you don't wish to make online transactions. With a robo-advisor, everything will be conducted online. With a broker, you have the option of meeting with a real person.


When deciding whether to use a broker or a robo-advisor, you need to think about your investment goals. Consider your level of interest in investing and how much time you have for fundamental research.

Both are good options, but your choice will depend on your needs and your resources. If you are looking for small investment management, robo-advisors will suit you. However, if you have a hefty investment and you want personalized management, brokers are a perfect match for you!

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