Robo-Advisor vs Fee-Only Advisor: Who Each One Fits

In practice, you answer a questionnaire, the platform puts you into a ready-made mix of ETFs (funds that each hold many companies at once), and a computer manages it from there. Some plans offer little or no individual contact, while others include access to a person. The computer handles the rebalancing (keeping your mix on target) and, on some platforms, a tax move called tax-loss harvesting. Costs and service levels vary, so check what your specific provider actually offers instead of assuming.

You sign up online and answer questions about your goals, your timeline, and how much ups and downs you can stomach. Based on your answers, the platform puts you into a model portfolio, which is just a mix of stock and bond ETFs built for a certain risk level. Depending on the service, it may rebalance, reinvest dividends, and offer tax-loss harvesting in taxable accounts.

On an automated plan, the firm's investment team sets the rules and the software applies them to information collected about you. That information may include your goals, timeline, and risk preferences. A questionnaire may not capture your full financial situation. Check how you can update your information and whether the service includes individual review.

A robo-adviser registered as an investment adviser owes the fiduciary duties applicable to that registration. Check the firm on the SEC's Investment Adviser Public Disclosure database (opens in new tab). Its duties involve more than algorithm design: disclosures, recommendations, compliance, and ongoing service matter as applicable. Ask what monitoring and human support your agreement includes. Fiduciary duty does not prevent investment losses.

A basic plan can charge an advisory fee, and its funds can carry expenses in addition to that fee. The SEC's robo-adviser bulletin (opens in new tab) recommends comparing all direct and indirect costs, human support, investment approach, and conflicts. Check the current fee schedule and Form ADV for the provider and plan you are considering. For the underlying investments, see ETFs vs. mutual funds.

Potentially lower-cost service model. A plan with less individual advice may cost less than one with more personalized support. Compare the provider's current advisory fee, fund expenses, and service level before deciding.

Broad diversification. Most platforms spread your money across hundreds or thousands of companies through a handful of ETFs. Diversification can reduce the impact of one company, but it does not prevent losses, and concentrated funds may provide less diversification. You're not picking companies, you're buying a slice of the whole market.

Automatic rebalancing. When your mix drifts from the target, the platform corrects it. You don't have to log in or decide anything.

Tax-loss harvesting in taxable accounts. Some platforms sell investments at a loss to offset taxable gains. The value depends on your tax situation, and wash-sale rules can disallow a loss, including when related purchases occur in another account. Confirm whether the service considers your other accounts, and consult a tax professional.

Simple setup. Most robo-advisors use an online questionnaire and automated onboarding. Check the account requirements before opening one. If you want to start investing without a lot of friction, that can be a good fit.

You own ETFs, not individual companies. Many robo-advisors use funds, while some offer individual-stock or direct-indexing services. If you want an account that holds individual companies you can name, that's a different kind of product.

A dedicated adviser may not be included. Human support varies by provider and plan. Ask whether questions reach a technical support team, an investment professional, or a person assigned to your account, and whether that access costs extra.

The questionnaire is a simplified model. The information collected helps determine your investment mix, but may not capture your full finances. Providers differ in whether they prompt updates, monitor changes, or offer individual review. Ask how to update your information when your goals, income, or circumstances change.

Spreading your money around limits single-company risk. It doesn't remove market risk. When the broader market drops, a diversified ETF portfolio drops with it. Holding many companies can reduce the impact if one fails. A crash like 2008 hits almost everything at once. All investing carries the real risk of losing money.

Service tiers differ. Some platforms offer access to a real adviser through particular plans. Read the current pricing and service description before assuming a plan includes the support you want.

Questions the SEC suggests asking. The SEC's investor bulletin on robo-advisers (opens in new tab) suggests questions worth asking any provider. Can the service freeze sales, so you cannot sell your investments for cash for a period of time? Does it pay anyone referral or marketing fees? Are there fees or penalties to withdraw money, transfer the account, or close it, and what are the tax effects of each? Can its costs change? The bulletin also notes that robo-advisers may not have been tested in stressed market conditions. Get the answers in writing. Asking these questions does not remove market risk, and they are worth asking a human adviser too, including us.

Advisory fee. The provider may describe an advisory fee based on account value, a flat fee, or another arrangement. Read the current fee schedule for the plan you are considering.

Fund expenses. The ETFs in a portfolio can have their own expenses, which are separate from an advisory fee. The provider's disclosures and fund documents explain those costs.

Service tier. Access to planning or an adviser may be included only with a particular plan. Compare the service description and fee schedule using your own account balance and needs.

Marketing labels. If a plan is described as free or low cost, read the current fee schedule, Form ADV, and fund documents to understand the services, fund expenses, cash treatment, and compensation disclosures that apply.

One thing worth keeping separate: the fee you pay doesn't decide how your investments do. A cheaper robo-advisor can still lose money in a falling market, and a pricier one can too. Cost is one thing to compare between options; it doesn't predict results.

Neither column is better across the board. The costs, holdings, and availability of personal contact differ. Both can lose money. Neither one predicts how your investments will do. The right choice depends on which trade-offs actually fit how you want to invest.

A robo-advisor is probably a good fit if:

• You want broad exposure to stocks and bonds through ETFs.
• You want to set it up and not think about it. No day-to-day decisions.
• Cost and service trade-offs matter to you, and you are prepared to compare the provider's current disclosures.
• You don't need direct access to one specific person. Chat support or a help center is enough for you.
• You're just starting out and want a simple way to begin.

If that sounds like you, a robo-advisor is a solid, well-built choice. For plenty of investors, it's genuinely the right product, and we'll say so even though it's not what we sell.

Some investors want individual stocks in a focused portfolio. They want to know exactly what they own and why it's there. They have questions a short questionnaire doesn't touch, and they want a specific person they can reach when those questions come up. Fund baskets and a help-center ticket aren't what they're after.

Those are legitimate preferences. They just describe a different product.

Narstar is a fee-only registered investment adviser, meaning we only get paid by you, never by selling you a product. We manage four model portfolios at Interactive Brokers. The standard minimum is $3,000 per account, whether taxable or retirement and whether it holds one or several model portfolios. SIMPLE IRA participant accounts have no minimum. Your assets sit with the custodian, not with us, and eligible assets have SIPC custody protection (opens in new tab) subject to its limits. SIPC does not protect against market losses. Income, Growth, and Speculative buy individual companies; Trend uses exchange-traded products and can suffer sudden and significant losses, including from trend reversals; some products it may hold can lose their entire value. You can reach us directly by email, not a ticket queue.

A taxable account with one model portfolio pays 0.60% annually for Income, 1.00% for Trend, 1.20% for Growth, or 1.60% for Speculative. Taxable accounts with two or more model portfolios pay 1.00% on the whole account, including cash. Traditional, Roth, Rollover, SEP, SIMPLE, and inherited IRA accounts pay a uniform 1.00% a year regardless of model portfolio mix. All advisory fees are billed quarterly in arrears, and Interactive Brokers may charge its own separate brokerage commissions and fees on top. Compare total costs using the current disclosures for the specific robo-adviser and Narstar plan you are considering. A higher fee does not mean better results, and our stock portfolios carry more risk from any single company than a broadly diversified fund does. The homepage shows what our fee works out to at any balance.

NarStar LLC is registered with the State of Utah (CRD #337496) and conditionally registered with the State of Texas. You can check both on the public database at adviserinfo.sec.gov (opens in new tab).

If a robo-advisor is actually the better fit for your situation, we'll say so.

Are robo-advisors safe?

Separate custody risk from investment risk. Check the actual brokerage custodian, its SIPC membership, and how assets are held. SIPC can help restore missing eligible cash and securities if a member brokerage fails, subject to limits. It does not cover market declines, bad advice, or every type of asset. A legitimate robo-adviser can still lose money.

Do robo-advisors perform better than human advisers?

Neither service label predicts investment results. Compare the actual holdings, fees, investment process, monitoring, and access to help. Both automated and human services can use funds or individual securities, depending on the provider. Past performance does not establish future results, and either approach can lose money.

Can I lose money with a robo-advisor?

Yes. Diversification can reduce dependence on one company, but a robo-adviser account can still lose value. The result depends on its holdings and market conditions. Some investments can lose their entire value. Automation and fiduciary duties do not guarantee returns or protect against losses.

Why not just buy index ETFs myself?

You can buy index ETFs yourself and avoid a separate advisory fee, though fund expenses and trading costs may remain. A robo-adviser may provide rebalancing and, on some plans, tax-loss harvesting. Features, account eligibility, and human support vary. Compare the actual service with the work you would do yourself. Neither approach prevents investment losses.

How much do robo advisors charge?

A robo-adviser may charge an advisory fee, and the underlying funds can have their own expenses. Fee structures, service tiers, and terms vary by provider. Read the provider's current fee schedule and Form ADV before comparing costs or opening an account.

What are typical robo advisor fees?

There is no universal robo-adviser fee. Some providers charge an advisory fee based on account value, offer a flat-fee plan, or offer different service tiers. Fund expenses may be separate. Review the current fee schedule and Form ADV for the provider and plan you are considering.

What is the difference between an online broker and a robo advisor?

An online broker gives you a self-directed account: you choose every investment and place every trade yourself. Some charge no commission on online stock trades. A robo-adviser is an automated investment advisory program that builds and manages a portfolio for you. Many charge an advisory fee, and some online brokers offer one alongside self-directed accounts. The SEC (opens in new tab) notes that robo-advisers are typically registered as investment advisers, file Form ADV, and often use ETFs. Narstar also charges an advisory fee. A human investment adviser manages its model portfolios, and each client is matched to one or more of them. Its Trend portfolio follows price-trend and momentum rules. Your investments can lose value with any of the three.