Roboadvisor

Robo-advisor, also called a digital wealth manager, is an online platform that provides automated investment management with limited or no human financial advice. Using algorithms and modern portfolio theory, it constructs diversified portfolios of low-cost funds and automatically rebalances, with some platforms offering tax-aware features to improve after-tax returns. Clients usually complete an online questionnaire to assess goals, time horizon, risk tolerance, and financial circumstances, after which the software generates a recommended portfolio. Accounts commonly include taxable accounts and various retirement accounts, with options for automatic contributions and goal tracking.

Fees are typically lower than traditional advisory services, commonly ranging from about 0.15% to 0.50% of assets per year, plus underlying fund expense ratios. Some platforms charge flat or tiered pricing and may have minimums.

Advantages include broad access with low minimums, transparent pricing, disciplined rebalancing, and tax-loss harvesting on some plans. Limitations include reduced access to personalized financial planning, potential overreliance on models, algorithmic opacity, and the fact that tax optimization is not guaranteed. They may not suit clients with complex estate or real estate needs, or those requiring nuanced planning.

In the United States, many robo-advisors operate as registered investment advisers under the SEC or state regulators and owe fiduciary duties for advisory accounts; other jurisdictions vary. The approach emerged in the early 2010s and has since expanded to include features such as tax-aware investing, socially responsible options, and direct indexing.