You should probably have given your financial future some thought, and part of that is you wonder on how you will create a long-term plan so that you can attain your goal and sustain it.
One of your consideration will be hiring a financial advisor, wherein it is an umbrella term that is usually used to refer to financial planners, although this includes other sorts of financial professionals as well. If you really are serious with the attainment of your long-term financial goals, working with a financial advisor is one idea that you should not scoff at. In fact, working with a financial advisor is not that cost-prohibitive as once it was, thus, it might be high time that you hire one.
In the early years, the rise of digital advisors tends to be strange for those who have been used to traditional advisors. But now, digital advisors have already made their mark and have paved their place in the world of investment.
There are even traditional brokers who are having online counterparts that are already managing billions of dollars’ worth of investment. The financial pieces of advice of these firms are now being taken to the masses by charging low management fees for services that were once only be availed of by the wealthy – these are things like customized asset allocation, automatic rebalancing, and tax-loss harvesting.
If you are deciding whether you want to be in that momentum or not, the first step that you have to decide on is as to which is the best online advisor that is fit for you. This is already becoming an increasingly crowded field, and the options are varying from complete automation or also known as Robo-advisors wherein the true sense of the word is that it hybrids the pair computer algorithms with financial advisors.
To narrow down your decision, it is best that you may want to consider the following criteria
1. How much is the management fees?
These digital advisors are usually charging for annual management fees and the amount is assessed as a percentage to the assets that you have invested. Thus, if the management fee is 0.25%, then you will have to pay $25 if you have a $10,000 balance to your investment. Bear in mind that every dollar that you pay towards your fees is a dollar that you will not get in investment returns.
The range of management fees for these digital advisors range from 0% (yes, there are digital advisors that do not charge you with management fees) up to 1%, but the usual window for these management fees is at 0.25% up to 0.50%.
There are also some digital advisors that will manage the first $10,000 of your assets, free of charge, so, if you will only invest an amount of less than $10,000, then it would be smart that you consider starting investing with them. In general, these digital advisors are not going to charge you with account closing fees, so, if you find another digital advisor wherein you are qualified for lower fees, then you can move your money to them.
2. What are the services that they are offering?
The payment of fees is just one piece to the digital advisor puzzle. It is significant that you also consider the type of services that the digital advisor is going to provide. There are some digital advisors who have the potential to increase or improve your returns, and this can help make up with the fees that you paid.
Standard services that are being provided to your goals and risk appetite are the automatic rebalancing, tax-loss harvesting, and portfolio allocation. There may be other services that are specifically provided by the digital advisor like direct indexing of account with a value of more than $100,000 which will yield a bigger tax advantage through investing in individual securities.
There are digital advisors that link your credit or debit cards to round up your purchases, and then investing the change into a digital advisor-managed portfolio. While there are other digital advisors that have a behavioral finance focus that comes with a lot of goal-based tools that are designed to motivate you to save even more.
3. Difference between Digital vs. Human Advice
There are also advisors that are employing a mix of digital and real live humans that is either in the form of a rotating company of financial advisors that are changing every time you call or by offering your clients with dedicated advisors which is usually more expensive.
If having human intervention is essential to you, you may want to consider to engage in these kinds of companies. You may be required to pay for additional fees because of the hybrid service or you might have to pay for a higher minimum.
You will also have to ensure that you have compared and contrasted them because the credentials of these advisors also vary, there are some who are registered investment advisors, while some are full-fledged certified financial planners. It is also important to note that the amount and the level of access that you will receive may be limited.
4. What investment options do you have?
These companies that offer digital financial advice are still relatively young to be making accurate judgments on performance. In fact, the existed almost entirely in a bullish market, wherein any outperformance by one advisor over the other could have been easy being attributed to the asset classes that the advisor has weight more heavily, instead of a long-term track record of success.
However, you can judge them based on the investment options that this digital advisor offers. This can be done by looking at the expense ratios of those investments.
5. How much are the account minimums?
The account minimums for digital advisors range from $0 to as much as $100,000, therefore the account minimum should be one of your key components in your decision process. If you are just starting up, then you might want to consider advisors who have no minimums. In this essence, the higher the level of the personalized service is, say, a dedicated financial advisor, the higher the minimum initial investment is going to be.