Robo-Advisors vs. Discount Brokers - What You Need to Know
When it comes to investing, we all have different preferences. So, when it comes to robo-advisors vs. brokers, we have everything you need to know.
If you want to get started investing but have no clue where to start, you’re not alone. One common question many beginner investors have is what’s the difference between a robo-advisor and a discount broker?

While both types of firms allow you to invest money, they focus on very different things. Let’s explore the differences between robo-advisors and discount brokers, and then look at some examples of each.

What is a robo-advisor?

A robo-advisor is an investment firm that manages your money for you on your behalf. They typically help you with investment selection, rebalancing your portfolio on a regular basis and may even try to optimize your returns using methods such as tax harvesting.

These firms usually charge a management fee in addition to any underlying investment fees you’d normally be charged on your investments.

Why they’re perfect for beginners

Beginner investors may like that robo-advisors help deal with some of the complexities of investing that you may not tackle until a few years after you start investing. However, robo-advisors charge for these services that you may not benefit from very much in the first few years you invest.

Low fees

Even so, the fees robo-advisors charge are typically much lower than a traditional financial advisor would charge.

Low minimum investment requirements

Additionally, many robo-advisors have no or lower minimum investment requirements while financial advisors may have higher initial investment requirements that could scare off beginner investors.

That said, robo-advisors could still charge more than what a brokerage firm would charge if you took care of the robo-advisor functions yourself. Over time, the additional fees could add up to thousands of dollars when you consider the compounding returns you may miss out on.

Who should use a robo-advisor

As you can see from above, robo-advisors are great for beginners, but they’re also great for those who want hands-off investing and/or those with little to invest. Robo-advisors typically have a lower minimum investment than big brokerage firms.

You should also use a robo-advisor if:

You understand and don’t mind paying fees

Again, as we said above, fees are a big concern when considering a robo-advisor. Those fees may be worth it for someone who understands the importance of investing, but doesn’t have the time to (or simply doesn’t want to) pay close attention to what they’re investing in.

That brings us to our next point.

You’re okay with someone else doing ALL of your investing

Robo-advisors offers great peace of mind, because they choose your investments based on what you tell them, and they automatically keep you diversified. This means less risk for you.

What is a discount broker?

A traditional brokerage firm allows you to pick and choose your individual investments. They can hold your money before you decide what to purchase and may charge fees for you to buy and sell investments.

You’re on your own as an investor

These companies do not help you choose what to invest in based on your risk tolerance and won’t automatically rebalance your portfolio for you. Everything is completely up to you at a traditional brokerage firm.

With a traditional broker, you may be charged a fee to purchase or sell certain investments and be able to purchase and sell other investments for free. If you want to rebalance your portfolio or attempt tax harvesting, you’ll have to learn to do it yourself and request the necessary transactions to make it happen.

They typically have minimum investment requirements

Traditional brokers may also have minimum investment requirements to invest in certain mutual funds or other investments. If you don’t have the minimum required amount, they usually offer other investments with a very low or no minimum investment requirement that you can use until you reach the higher minimums of the funds you want to invest in.

Who should use a discount broker

A discount broker is best for the hands-on investor. You can choose the investments you want to make, including socially responsible investments. The broker is there simply to help you.

So, you should only use a discount broker if:

You have a lot of money to invest

Traditional discount brokers typically have a minimum investment balance somewhere in the hundreds of thousands of dollars range. When it comes to that much money, it makes sense to have an actual person handle it.

You don’t want to make online transactions

Some people like to know the person who handles their money—and for good reason. If you’re one of those people, using a robo-advisor makes no sense since everything is conducted online.

Examples of robo-advisors

Robo-advisors are fairly new to the investing world. In fact, the first robo-advisors appeared in 2008. Here are some of the more popular robo-advisors and how they work.

Betterment

Getting started  betterment 210with Betterment

To get started with Betterment, you’ll tell the robo-advisor a bit about your investing goals. Betterment will then recommend how much you need to save to meet those goals both now and over time.

They’ll also assess your risk tolerance and suggest how much of your investments should be allocated to stocks and bonds. Then, you simply invest and let Betterment take care of purchasing the correct funds and rebalancing using tax-smart technology.

Betterment’s fees

  • Digital package—Betterment currently charges an annual management fee of 0.25 percent of your account balance for their Digital package, which has a $0 minimum balance requirement.
  • Premium package—Offers in-depth advice on investments outside of your Betterment account and access to a CFP for guidance on life events. The Premium package has an annual management fee of 0.40 percent of your account balance and a $100,000 minimum balance requirement.

Best for

Betterment’s simple layout and low minimum account balance make it perfect for investing beginners.

Read our full Betterment review or visit Betterment to open an account.

Personal Capital

Personal capital new logo

Getting started with Personal Capital

Personal Capital is a robo-advisor that comes with traditional financial advisor advice. Your first step will be registering for a Personal Capital account, then linking your assets so they can see where you’re currently invested.

Next, you’ll talk to a personal advisor that discusses your investing goals, risk tolerance and other big life events to help you decide where to invest. From there, a plan is created and their technology takes charge of making sure you invest in a tax-efficient manner. They’ll also properly rebalance your portfolio as necessary and be available to give investment advice when you need it.

Personal Capital’s fees

Personal Capital charges you nothing to use their financial tools. However, if you want Personal Capital to manage your investments, they charge a 0.89 percent annual fee on investments up to the first $1,000,000. Personal Capital requires a minimum of a $100,000 investment.

Clients with over $1,000,000 managed by Personal Capital pay a lower fee. Investments within Personal Capital may charge fund fees, too.

Best for

Personal Capital is a fantastic robo advisor – perhaps the best on the market – for people with a high net worth.

Read our full Personal Capital review or visit Personal Capital to open an account.

Blooom

 blooom_210

Getting started with Blooom

When you sign up for a paid account with Blooom, you’ll answer a few questions about yourself then link your 401(k) account so Blooom can analyze your account.

Once the analysis is complete, Blooom will show you your 401(k)’s health based on your mix of stocks and bonds, your diversification and fees you may be paying. They’ll make suggestions on how to optimize your 401(k), allow you to choose your stock and bond allocation and then make all of the necessary adjustments as long as you remain a paying customer.

Blooom’s fees

Blooom doesn’t charge the typical percentage of assets fee that many other robo-advisors use. Instead, they charge you $10 per month for your first account and $7.50 per month for each additional account.

Best for

Blooom’s offering is centered around 401(k) accounts – they’ll help choose your stock/bond allocation, optimize your fund and more. If you’re looking to invest for retirement, go with blooom.

Read our full Blooom review or visit Blooom to open an account today and get $15 off your first year of Blooom with code BLMSMART.

Examples of discount brokers

Discount brokers have been around for centuries to help people buy and sell investments. You’re likely familiar with at least a few brokerages whether you realize it or not. Here are some of the more popular discount brokers and how they work.

You Invest by J.P. Morgan

You InvestGetting started with You Invest by J.P. Morgan

You Invest by J.P. Morgan makes setting up your portfolio easy. You’ll have two big choices from the start: You Invest Trades, which has you setting up and managing your own investments, and You Invest Portfolios, which creates an expertly-built portfolio based on your goals and manages it for you.

Once you’ve set up your account, you’ll be walked through the process of building your portfolio. You can see the level of risk and projected reward you’ll get with various choices, based on J.P. Morgan data. You’ll be able to tweak these options at any time, even after you’ve set up your portfolio.

You Invest by J.P. Morgan’s fees

If you choose the self-directed portfolio option, you’ll pay no advisory fees and have no investment minimums. You can get started with as little as $1.

The You Invest Portfolios option comes with a 0.35% annual advisory fee, which is $0.18 per month on a $500 investment. You will have to come up with at least $500 as an initial investment with this option, as well as maintain a $250 minimum balance.

Best for

You Invest by J.P. Morgan is perfect for new investors who want to start slowly. Not only can you get started with as little as $1, the research-based interface makes it ideal for those who interested in learning the market.

Disclosure – INVESTMENT PRODUCTS: NOT A DEPOSIT • NOT FDIC INSURED • NO BANK GUARANTEE • MAY LOSE VALUE

Read our full You Invest review or visit You Invest to open an account.

Webull

Robo-Advisors vs. Discount Brokers---What You Need to Know - Webull

Getting started with Webull

Webull keeps trading costs low, with no commissions or minimum required balance. You’ll manage the portfolio yourself, but Webull equips you with all the tools you’ll need to research various stocks so that you make fully-informed decisions.

To get started with Webull, you’ll set up an account and wait for approval. You’ll need to provide a government-issued photo ID for security purposes, but the application process is fairly easy overall. Once approved, you can add items to your watchlist and monitor the market in real-time before you start putting money in.

Webull’s fees

On Webull’s end, there are no fees or commissions for your trades. However, there’s no getting around the fees charged by regulatory agencies and exchanges. You’ll pay transaction fees to the SEC, for instance, no matter which investment tool you use.

Best for

With its easy-to-use dashboard, Webull will give you an ongoing glimpse into how the market, as well as individual stocks, perform. You can identify trends and even watch stocks you’re interested in before contributing. Over time, you’ll gain insight into the market that you wouldn’t have with many other platforms.

Read our full Webull review or download the Webull app to open an account.

Vanguard

Investments offered by Vanguard

Vanguard also offers brokerage services. They offer free investing in Vanguard mutual funds and ETFs as long as you meet the fund minimums. This is where Vanguard shines as their ETFs and mutual funds usually offer low cost investing options.

  • You can buy stocks and non-Vanguard ETFs for $7 per trade for the first 25 trades and $20 for each additional trade.
  • Option trades start at $7 plus $1 per option contract. If you wish to buy a mutual fund that requires a transaction fee, you’ll pay $20 per trade. If you have an account balance of over $50,000, your fees may be lower.

Fidelity

Fidelity_210

Investments Fidelity offers

Fidelity is another highly respected company that offers brokerage services. They offer:

  • US stock and ETF trades for $4.95 and option trades for $4.95 plus $0.65 per contract.
  • Certain fee-free ETFs and mutual funds. However, if you want to purchase a different mutual fund, there is a $49.95 fee to purchase the fund and no fee for redemption.

Fidelity’s robo-advisor

Fidelity also offers a digital advisory service for an annual fee of 0.35 percent. Based on answering a few questions, Fidelity will suggest an investment strategy and manage your money using that strategy, making adjustments as necessary.

Read our full Fidelity review.

Summary

Now that you understand the difference between robo-advisors and discount brokers, you can decide which is right for you.

While some discount brokers offer robo-advisory services, not all do. On the other hand, robo-advisors typically don’t offer traditional brokerage features. Once you’ve made your decision, compare multiple robo-advisors and brokerages to find the one that’s best for you.

We mentioned a couple above, but here is a complete list of our favorite robo-advisors.

Recommended Investing Partners

  • Recommended M1 Finance 120 M1 Finance gives you the benefits of a robo-advisor with the control of a traditional brokerage. M1 charges no commissions or management fees, and their minimum starting balance is just $100. Visit Site
  • No Minimum Betterment 120 Low-fee robo-advisor with no minimum investment. Creates fully-automated portfolios based upon your desired allocation. Visit Site
  • $500 Minimum wealthfront_120 Wealthfront requires a $500 minimum investment and charges a very competitive fee of 0.25% per year on portfolios over $10,000. Visit Site

About the

Total Articles: 61
Lance Cothern is the founder of Money Manifesto, a personal finance blog that helps people to master their money so they can live their ideal life. In addition to blogging, he enjoys spending time at the beach with his wife and son. You can connect with Lance on Twitter, Facebook, Pinterest and Reddit. Feel free to choose from the attached images.

Article comments

We invite readers to respond with questions or comments. Comments may be held for moderation and will be published according to our comment policy. Comments are the opinions of their s; they do not represent the views or opinions of Money Under 30. Comments have not been reviewed or approved by any advertiser, nor are they reviewed, approved, or endorsed by our partners. It is not our partner’s responsibility to ensure all posts or questions are answered.
2 comments
Thomas says:

What do you think about Robinhood? Isn’t it a lot easier platform to approach for beginners looking to invest long term? There are no commission fees and its not a bad platform unless you are looking to day trade or swing trade.

Reply
Sarmistha kundu says:

Can i invest money index fund and for trading directly at the same time and same account??

Reply

Cancel reply