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Choosing Between Robo Advice vs. Full Service Advisers

1. Decide How Much Advice You Need

If you need tailored advice on anything from budgeting to managing your money, preparing for retirement or estate planning, a professional financial adviser can help.

You can choose advice related to one-off matters, or you may want a complete financial plan.  If you’re looking for investment advice, an adviser can recommend a portfolio that’s bespoke for you, and if you choose, manage the portfolio on your behalf.

However, if you know what your goals are, and how long you’d like to invest for – or if you are starting out with a small amount of capital, Robo Advice is a very low cost way to get started and grow your investments, with minimal cost and effort.

Robo Advice uses technology to help you select the portfolio best-suited to your needs and goals, with your portfolio automatically rebalanced so it always reflects your aims and risk tolerance.

2. Compare the Cost

Traditional advisors can charge a range of fees depending on the service you’re looking for.

For one-off advice, you could pay $100 to $400 per hour. For more comprehensive advice, you may pay an average of $2,250 in up-front fees the first time you see a planner, with average ongoing advice fees of $3,450 annually[1].

By contrast, Robo Advice is based on technology. So the cost is much lower than for a face to face adviser.

Fees average about 0.3% p.a., based on a $10,000 investment. Add in investment costs such as the fees charged by exchange traded funds, and you can expect to pay in the order of 0.4% to 0.5% p.a.[2].  On a $100,000 investment that works out to about $500 annually.

3. Assess the Impact of Fees

Fees matter. Every dollar less in fees means more money towards growing your wealth. More money for dividends, more money for capital growth.

Data modelling by Robo Advice service InvestSMART[3] shows someone who invested $100,000 in Australian shares over the 30 years to June 2018 at an annual fee of 0.5% would have accumulated $1.207 million at the end of the period.

However, if the same investor had paid fees of 1.5%, they would walk away after 30 years with just $896,508 – almost 26% less.

This illustrates how fees can have such a significant impact on investment outcomes. In most cases, fees – not returns – can make the biggest difference to your portfolio over time.

This highlights the need to be aware of fees, and look for low-cost alternatives.