What Is a Robo-Advisor?

How Does a Robo-Advisor Work?

A robo-advisor is an investment platform that uses specialized algorithms to develop and manage a portfolio based on your stated goals and tolerance for risk. High-profile operators of robo-advisors include Ally, Betterment, Charles Schwab, Fidelity, Vanguard and Wealthfront.

Robo-advisors use answers you provide to an online questionnaire to guide investment decisions and provide advice. You may need to provide your income and assets, your investment timetable and how much money you want to invest.

Pros and Cons of Robo-Advisors

As with any type of financial services technology, robo-advisors come with pros and cons.

How Much Do Robo-Advisors Cost?

The median robo-advisor fee is .25% of the amount invested, according to Morningstar's 2025 Robo-Advisor Report. While fees vary among investing services, robo-advisors generally cost less than traditional investment advisors do. Management fees for traditional financial advisors normally range from 1% to 2%.

Other robo-advisors might not charge management fees. But you might be hit with other fees, such as a fee if your cash balance drops below a set share of your holdings.

Keep in mind that some robo-advisors invest in ETFs. These funds enable investors to pool money to invest in stocks, bonds and other assets. The typical ETF expense ratio is a little over 0.50%. So, if the expense ratio is 0.50%, you'd pay an annual fee of $50 for every $10,000 you invest in an ETF, on top of any other fees you're charged.

Are Robo-Advisors Worth It?

A robo-advisor might be worth it if you're at the early or middle stage of your career and don't have the money, need or interest to work with a traditional investment advisor. But a robo-advisor might not be worth it if you're a more seasoned investor who wants to avoid a cookie-cutter investment approach, wants to invest on your own or prefers a human advisor.

Alternatives to Robo-Advisors

If you've decided a robo-advisor isn't the right option for you, you might want to explore alternatives. These include:

• Traditional investment advisor: Not a fan of a tech-heavy investing option? You might prefer a real-life investment advisor instead. It's worth noting that it may cost significantly more to use a human advisor. A less expensive option might be a fee-only financial planner, who will charge a fee to set up your portfolio.
• Do-it-yourself (DIY) investing: Want to skip the tech and human alternatives? Then you might try selecting and managing your investments, but only if you're comfortable with it. Without proper guidance and knowledge, DIY investing could lead to financial losses.
• Real estate: Rather than purchasing investment products such as stocks and bonds, you might consider putting at least some of your investment funds toward buying and selling real estate. If that doesn't hold appeal or isn't in your budget, you might look into investing in real estate through a crowdfunding platform. But proceed carefully, as real estate investments tend to carry a lot of risk.

The Bottom Line

Any type of investing can be risky, even investing done through a robo-advisor. Nonetheless, a robo-advisor might be ideal if you want to adopt a more hands-off, low-cost approach to investing. However, a robo-advisor might not offer enough of a human touch for your liking and may not let you do much tweaking of your portfolio. Whatever you decide on, go over your financial goals and review the financial risks before parting with your cash.