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What is a robo-adviser?

A robo-adviser (also sometimes known as an automated adviser) is a digital platform that provides automated, algorithm-driven financial planning services. Replacing much of the human interaction you would have with a financial adviser, robo-advisers invest for you by utilizing artificial intelligence and information you provide them ranging from your financial situation, risk tolerance and your long and short-term goals.

With lower fees and 24/7 accessibility, robo-advisers have been gaining significant popularity and have become very common; but like any qualified professional, it’s important you understand the relationship and risks involved.

Considerations before using a robo-adviser

  • Human interaction: While some programs have investment professionals available to answer questions, others may just have technical support staff, leaving you to rely on other sources for investment questions.
  • Limited information: Robo-advisers only know what you tell them and what they’ve been programmed to do with that information. This means they may be making financial decisions with limited information.
  • Investment choices: Robo-advisers have different, and potentially limited, investment products depending on which platform you choose.
  • Unique business model: Algorithmic decision-making and limited human interaction may increase your exposure to risk; this should be addressed through the company’s written policies and procedures.
  • Regulation: There isn’t a separate registration process or exemption for robo-advisers, and Know-Your-Client (KYC) and suitability obligations of portfolio managers also apply to robo-advisers.