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 8 to 15 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. From there, it rebalances your mix, harvests tax losses in taxable accounts, and reinvests any dividends automatically.

On the basic plan, no person picks what's in your account. The company's investment team wrote the rules ahead of time, and the computer just follows them. When the market moves, the computer reacts based on those rules, not based on anything about your specific situation.

So what happens to the legal duty to act in your best interest (a "fiduciary duty") when a computer is making the calls? Most big robo-advisors are registered investment advisers, which means they owe you that same duty a human adviser owes. That's real, and you can check any firm's registration on the SEC's Investment Adviser Public Disclosure database (opens in new tab). But the firm meets that duty through how it built the algorithm, not by reviewing your account one on one. Worth knowing that difference before you sign up.

A basic plan can charge an advisory fee, and its ETF portfolio can carry fund expenses in addition to that fee. Minimums, service options, and planning access vary by provider and plan. Check the fee schedule and Form ADV for whichever one you're looking at before you open an account.

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. If one company has a bad quarter, it barely moves your account. 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. Many platforms sell investments that have dropped in value to offset gains elsewhere, which can lower your tax bill. It happens automatically in the background. (This gets into tax rules, so talk to your CPA about whether it actually helps your situation.)

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. Robo-advisors invest in baskets of funds, not specific stocks. If you want an account that holds individual companies you can name, that's a different kind of product.

There's no specific person assigned to your account. Questions go to a help center, chat support, or a call-center team. That's by design, and it's how they keep costs low. Just know that going in, because when something confusing happens in your portfolio, you won't have one person to call.

The questionnaire is a simplified model. A short quiz, 8 to 15 questions, sorts you into a risk category, and that category decides your mix of investments. It doesn't update on its own. If your life changes, you have to go back in and change your answers yourself. Most people never do.

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 hundreds of companies protects you if one of them 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.

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 three model portfolios at Interactive Brokers. The standard minimum is $3,000 per Model Portfolio in a non-retirement account, and $3,000 per account in a Traditional, Roth, or SEP IRA, where one account can hold more than one model portfolio. A new client may open one $100 Starter Account, which must reach $3,000 by the last day of the sixth calendar month after opening. SIMPLE IRA participant accounts have a $0 minimum and are not eligible for the Starter Account. Your assets sit with the custodian, not with us, and are covered by SIPC (opens in new tab) protection. We buy individual companies, not ETF baskets. You can reach us directly by email, not a ticket queue.

For taxable accounts: the Income portfolio is 0.60% a year, Growth is 1.20%, and Speculative is 1.60%. Traditional, Roth, Rollover, SEP, and SIMPLE 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 a focused portfolio like ours carries 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?

That question is really two questions. First: is your money safe if the robo-advisor company itself goes out of business? Usually yes. Your investments sit at a separate custodian in your name, not on the company's own books, and they're covered by SIPC just like any brokerage account. Second: can your investments still lose value? Yes, always. SIPC protects you if the broker fails. It does not protect you if the market drops. A legitimate platform and real investment risk are not opposites, both are true at once.

Do robo-advisors perform better than human advisers?

There's no simple answer here, and you should doubt anyone who gives you one. The two hold different things: broad index ETFs on one side, hand-picked companies on the other. How each one does depends on what the market does and what it's holding, not on whether a person or a computer made the call. The honest way to compare them is on structure, cost, what they hold, how you reach them, not on a promised result. Past performance doesn't tell you what happens next, for either one.

Can I lose money with a robo-advisor?

Yes. Spreading your money across many companies softens the blow if one of them fails, but your whole account still drops when the overall market drops. Anyone who invests in stocks and bonds, through any kind of product, can lose money, including all of what they put in.

Why not just buy index ETFs myself?

You can, and for some people that's the right call. A robo-advisor charges its fee to handle the rebalancing, the tax-loss harvesting, and to keep you from fiddling with your account during a bad month. Doing it yourself means no advisory fee and full control, which sounds great until "full control" also means you're free to panic and sell everything at the worst possible time. So it comes down to which mistake you're more likely to make.

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.