Definition of Robo-Advisor

What does the term "robo-advisor" mean in the world of finance? What is meant by the term "robo-advisor"?

In the world of finance, a "robo-advisor" is essentially an automated financial advisor.

Instead of a human financial advisor giving you advice as to how you should structure and allocate and maintain your portfolio, the "robo-advisor" will advise and execute using rules and algorithms.

The benefit to a "robo-advisor" is the ease of use and reduced costs, as the "robo-advisor" can provide its services for a fraction of the cost of a human financial advisor.

Using proprietary software algorithms, the "robo-advisor" can provide such services as asset allocation and tax loss harvesting to millions of investors. There is obviously a limit as to how many people a human financial advisor can provide advice to, though the "robo-advisor" can work tirelessly, advising millions of people every day.

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Investors can benefit from much lower fees by using a robo-advisor, and they can also benefit from the instantaneous and automated implementation of their strategy. You don't have to worry about your human financial advisor being in Hawaii when it comes time to harvest tax losses at the end of the year - instead, your robo-advisor can perform these tasks automatically.

Some of the biggest robo-advisors in the world include Betterment and Wealthfront.

Thanks to the surging stock market over the past decade, robo-advisors have also surged in popularity.

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