Could robo advisor fees be robbing you of a better ROI?
It’s hard to ignore the value a robo advisor seems to promise. They’re touted as a viable alternative to traditional financial advisors by offering more of a DIY approach.
Most robo advisors only charge an advisor fee, resulting in less hassle and cost for the savvy investor. Logically, the less you pay in fees, the more money you keep in your pocket.
But beware: not all robo advisors are created equal. Even though they can be more cost-effective, you still need to do your homework to prevent surprises from killing your returns.
Here’s what you can expect from robo advisor fees and how to choose the best financial advising option for your financial goals.
Robo Advisor Fees vs Traditional Financial Advising
Traditional financial advisors usually charge a flat rate one-time fee to create your account, which can range from $1,500 to $2,500. After that, you can expect to pay a percentage of your account assets for ongoing account management.
They may also charge an hourly rate for consultations and receive commissions or performance-based payouts based on your account activity.
These fees can quickly add up, and even negate the earnings you receive.
Robo advisors present themselves as a cost-effective alternative to circumvent the fee mountain and give you a more straightforward path to investing.
Most robo advisors only charge an advising fee. Investors will still need to pay the standard fee for owning their fund, which is required no matter who you invest with.
Still, this removes many of the fees associated with professional financial advising. In general, investors are better positioned to retain more of their gains.
How to Compare Robo Advisors
Not all robo advisors are created equal, especially when it comes to fees. For example, this look at Betterment vs Personal Capital shows how much the fee structure can vary between companies.
Also, keep in mind that the fee you pay now may not be the same percentage as what you’ll pay in the future.
As your account grows, the advisory fee is likely to change, too.
Most robo advisors will structure their fees based on the size of your account.
For example, Personal Capital charges 0.89% and requires a minimum deposit of $100,000. Betterment charges a flat rate of 0.25% regardless of your account balance.
Personal Capital structures fees on a downward sliding scale. The greater your balance grows, the less you pay in fees.
In addition, you must also consider what’s included in your advisory fee.
Companies like Betterment offer a premium service that gives you access to human advisors, not just algorithms. The fee for this service is more, but it could be more valuable to investors who want a little more expertise and guidance.
Other companies like Wealthfront and SigFig do not charge an advisory fee for accounts under $10,000. This could be a valuable opportunity for first-time investors looking for low-risk entry.
Don’t be afraid to explore your options to see where your best ROI may be.
Don’t Let Fees Rob You of Your Future!
Don’t take the modus operandi of a robo advisor for granted. They may offer a cost-effective alternative to traditional financial advisors, but individual fee structures can greatly vary.
Do your homework on robo advisor fees before you invest and keep your financial future in good health.
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