Can robo-advisors replace financial advisors?
Image source: Getty Images  Many of us are comfortable with trusting a computer to manage our wealth in the form of robo-advisors. Compare stocks and shares ISAs If youre planning to open a stocks and shares ISA, choosing the right platform is important. To help you narrow down the choices, weve created a list of some of the top stocks and shares ISAs. Before answering the main question, lets understand how robo-advisors work. Robo-advisors rely on algorithms to choose assets for you to invest in. To do this, robo-advisors ask questions in order to determine your appetite for risk. Give the impression that youre risk averse and your suggested portfolio will likely allocate you a high number of bonds, which are less prone to steep falls. On the flip side, if your answers suggest that youre more open to risk, youll probably be allocated a greater number of shares. This is because shares are more volatile than bonds, but offer higher potential returns in the short term. Robo-advisors essentially do the work for you, so you dont need to have any real investing knowledge to use them. Reports suggest that automatic investment tools managed $460 billion in 2020. This figure has grown by a massive 30% since 2019. Furthermore, a recent Vanguard survey in the United States suggests millennials are twice as likely as baby boomers to consider using a robo-advisor. The survey also mentions that the majority of millennials and Gen Z see robo-advisors as a convenient way to invest. Aside from the convenience factor, Robo-advisors offer a number of other benefits. With a robo-advisor, you dont need to pick and choose your own investments. This can be a boon for those who know little about investing. A robo-advisor also allows you to save tax free. To do this, make sure you open an account within a Stock and Shares ISA wrapper. Transparent fees are another plus, which may not be the case with other investing solutions. For more on these positives, as well as the drawbacks, see our full article on the benefits of a robo-advisor. These all-too-common investing errors can cause you to miss out on the long-term wealth-building power that shares can hold. To help you side-step these pitfalls, and move forward on your path to wealth-building, weve created a free report, The 3 Worst Mistakes New Investors Make. Just enter you best email below for instant access to your free copy. Click here! To answer this question, its important to outline that robo-advisors essentially target two customer groups:  Those with limited knowledge of investing (see investing basics to grow your knowledge)  Those who want to passively invest  Human financial advisors also target those with limited knowledge of investing. However, a key difference is that human advisors also target those who seek to actively invest their wealth. This means that if you want someone to pay close attention to your investments, a robo-advisor may not fit the bill. For more on the two main types of investing, see our article on whether active vs passive investing is better. Financial advisors can offer emotional guidance too  As well as offering a way to actively invest, human advisors are better at understanding emotions. For example, if you are planning a life-changing event, such as a wedding, a human advisor can offer tailored advice to suit your circumstances. This may involve increasing your holding of bonds to minimise the risk of a market crash affecting your plans. While a robo-advisor may ask intelligent questions based on your risk appetite, trusting a computer to react to your specific investing goals  especially those with an emotional connection  may prove more tricky. On this front alone, its likely that the demand for human financial advisors will continue. However, if you are looking to actively invest, theres nothing stopping you from picking and choosing investments yourself, cutting out the middleman. If this appeals, take some time to explore the best share dealing solutions. Get a free initial review lasting up to 1 hour, plus 50 off any follow-up advice. MyWalletHero has sourced you a 50 discount off the cost of advice when you find an independent or whole-of-market financial adviser through Unbiased.co.uk*. All advisers are FCA-regulated, qualified and give fully unbiased advice. To find yourself an adviser fast and for free  use the Unbiased matching tool. Find an adviser now! *This is an offer from one of our affiliate partners. For more information on why and how we work with partners, click here. About the author Karl Talbot