---
title: "Robo Advisors vs. Traditional Advisors: Should the Differences Matter to You?"
description: If you're comparing Robo Advisors vs. Traditional Advisors and wondering if there is a difference, this posts highlights which is best for your situation.
image: http://www.wrapmanager.com/hubfs/blog-files/Robo-Advisors-vs-Traditional-Advisors.png
---

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# Robo Advisors vs. Traditional Advisors: Should the Differences Matter to You?

Posted by [ Gabriel Burczyk | Founder & CEO](https://www.letsassemble.com/wealth-management-blog/author/gabriel-burczyk)  
 January 17, 2017

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![Robo-Advisors-vs-Traditional-Advisors.png](http://www.wrapmanager.com/hubfs/blog-files/Robo-Advisors-vs-Traditional-Advisors.png)Over the past few years, there’s been a technology-related buzz in the financial industry, but it’s not about the latest ‘app’ from Silicon Valley or about Snapchat’s IPO. It’s about a fairly new approach to managing money through “robo-advisors.” These “advisors” are essentially online programs that use computer algorithms – instead of real investment managers and human advice – to make portfolio allocations over time.

It sounds futuristic and perhaps promising, but there’s a problem. Robo-advisors generally only perform one function: allocating a portfolio. That may be fine for a new or novice investor that does not have complex financial needs – someone who may only be looking for a diversified portfolio in a cookie cutter format (conservative, aggressive, or somewhere in between). But what about the investor who has cash flow needs in retirement, or is looking for advice on when and how to take Social Security or how to set up an estate plan? Or what about the investor who likes speaking regularly with a financial advisor to talk about the markets, or to talk about family life and sensitive issues like medical expenses? Robots simply can’t offer [those kinds of services](http://www.wrapmanager.com/wealth-management-blog/service-from-your-financial-advisor-4-things-you-should-expect).

### **What About Performance?**

There’s also some evidence that robo-advisors aren’t delivering superior performance, either. In a research paper published by Vanguard titled, “Advisor’s Alpha,” they found *that the value added by working with a competent financial advisor is roughly 3% per year*.1 The paper indicates that 3% is not an annual, linear ‘value add’ that advisors provide. Rather, the value add is concentrated during times of profound fear and greed. In other words, the research suggests that a financial advisor plays a role in keeping investors from getting too aggressive during good times, while also preventing investors from making drastic changes during down times. There’s a value to keeping focus on long-term goals, and robo-advisors cannot help investors manage their behavioral (and often times emotional) tendencies.

Robo-advisors may fall short in a few other ways, too:

1) **Personalized Financial Planning Advice – **A robo-advisor can’t help you plan for your income needs throughout retirement, nor can it give you any advice on how to structure your beneficiaries, insurance plans, or your approach to taxes. A financial advisor can.

2) **Management That Adapts to Your Changing Financial Needs – **as you transition from working years to retirement, and throughout retirement, your financial needs are likely to change. Cash flow needs, health changes, family needs, and retirement dreams you want to achieve all require careful planning. A financial advisor can work with you to create an investment plan that changes as your needs change.

3) **Estate Planning Advice and Service – **often times your portfolio functions beyond just providing for retirement income needs – it’s also there to provide for your family for generations to come. A financial advisor should have the tools needed to give you advice on how to structure your accounts (trusts), and what legal documents you should consider to put a plan in place.

4) **Economic, Market, and Portfolio Insights – **your investment advisor should be a phone call away if you ever want to discuss what’s happening in the markets, with the economy, or with the investments in your portfolio.

5) **A Trusted Advisor for Your Family** – if your assets are for your family, we think it makes sense for your investment advisor to develop a relationship with family members at your request. That way if anything happens to you, the family knows what to do and where to go to get the needed help.

### **Work with a Real-Life Advisor**** **

If your investment needs go beyond just needing a simple diversified portfolio, then you should consider working with a real-life financial advisor. The Wealth Advisors at WrapManager develop client relationships that span years, and we aim to speak with our clients at least once quarterly to keep you updated on your investment plan and to make sure everything remains on track. To learn more about the WrapManager difference, simply give us a call at 1-800-541-7774 or send a note to [wealth@wrapmanager.com](mailto:wealth@wrapmanager.com).

Source:

1. [Barrons](http://www.barrons.com/articles/behavioral-alpha-the-true-power-of-financial-advice-1476396872)

 

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