Robot-advisors are software able to provide investment advice by operating through rebalancing algorithms. They can limit themselves to advice, giving the investor the duty and the freedom to manage the investment; or they can lean on some bank accounts to get the whole portfolio management automated. They guarantee diversification, and can be fed through random deposits and dollar cost averaging (DCA).

About my experience

I found out about robo-advisors while I was exploring the world of swing trading; at that time, I was studying and investing my first amounts of money. The results were decent, but I had to spend most of my time in analysis and following news, and I also realized that my modest capital was poorly diversified. So, I decided to ask a professional for advice.

Like many others, I started with Google: I found out about independent consultants (fee-only) and then the robo-advisors. In the past, my knowledge as a developer already led me to think about some short algorithms to make a few calculations easier. Learning about firms that could diversify and automatically invest, but still with bold risk, convinced me to put my project aside and, temporarily at least, delegate the exhausting investment matter.

Pros and cons

The first benefit of robo-advisors is related to management costs. About a yearly 1–1.5% of the invested capital is due to the consultant, while the robo-advisor gets less than 1%. Traditional consulting firms often require a minimum investment of about $50,000, while some robo-advisors can even decrease down to $500.

This drastic decrease of costs is due to robo-advisors’ ability to work large-scale, by managing thousands of clients at the same time. So, the costs get reduced depending on the invested capital. There are also some free robo-advisors that benefit only from extra services. But, whereas traditional consultants work dynamically with the market, robo-advisors rely on rebalancing mechanisms of cadenced or extraordinary investments, making them appropriate for those who are looking for low-reactivity, long-term solutions.

The second benefit is greater independence. Many of the robo-advisor firms were born in the fintech space and outside the financial monopolies, therefore they’re free to invest with creativity and in the best interests of the client. Although the “independent” system is present in traditional consultancy too (through the fee-only system), robo-advisors’ higher accessibility made independence reachable for everyone.

Portfolio management typically takes place via web or mobile app; investments can be checked or edited 24/7. The apps let you build portfolios by customizing the level of risk and the asset class: for example, more conservative and less profitable if oriented towards bonds, or riskier with higher potential profit if oriented towards stocks and active management funds. The main appeal of these tools is obviously their ease of use.

Where regulation permits, like in the USA, robo-advisors can optimize tax payments, guaranteeing further savings. And naturally, like every other subject related to finance management, they’re regulated and supervised.

But robo-advisors, compared to traditional consultancy, are not able to satisfy highly customized needs. They are not meant to fully replace consultants, but to work as alternative or supplementary investment tools—compared to the disappointing bank deposit or the risky do-it-yourself approach.

Best robo-advisors of 2016

I’ve been with Moneyfarm for about 2 years now and I consider myself satisfied. In particular, the portfolio handled market instability quite well. It is possible to sign up through this link; by choosing Why Moneyfarm > Yields there’s also the opportunity to check the trend of the investment profiles available over the years.

Note (2025): This article was written in 2016. Some details (e.g., fees, platforms, providers) may have changed significantly. Please verify with updated sources before relying on specifics.