Online Broker vs Robo Advisor: Which Option Fits Your Investment Style?

Choosing between an online broker and a robo-advisor can shape how you manage your investments. One offers complete control, while the other provides automated guidance based on algorithms. Understanding their differences helps align your choice with your financial goals and experience level.

Each option has trade-offs in cost, investment choices, and support. Identifying what matters most—whether hands-on decision-making or a simplified approach—can determine which platform suits your needs.

Minimum Funding Requirements

The amount required to open an account varies. Some platforms let you start with as little as $1, while others require thousands.

Many online brokers, like Fidelity and Charles Schwab, have eliminated minimum deposit requirements, making it easier for beginners. Others, such as Interactive Brokers, require minimums for certain accounts, particularly margin accounts.

Robo-advisors often have set minimums. Wealthfront requires $500, while Betterment has no minimum for its basic plan but requires $100,000 for its premium service. These minimums reflect the automated nature of robo-advisors, which allocate funds into diversified portfolios rather than allowing individual trades.

Commissions and Fees

The cost of investing has dropped significantly, with many online brokers eliminating commissions on stocks and ETFs. Firms like TD Ameritrade, ETRADE, and Schwab offer commission-free trading for most securities. However, options contracts and some mutual funds still carry charges. Options trading typically includes a per-contract fee of around $0.65, while some mutual funds impose transaction fees or sales loads ranging from 0.25% to 5.75%.

Robo-advisors charge a management fee based on assets under management (AUM), usually expressed as an annual percentage. Betterment and Wealthfront charge 0.25% for basic services, while Betterment’s premium plan costs 0.40% and Personal Capital’s tiered structure starts at 0.89%. These fees add up over time—a $50,000 balance at a 0.25% fee costs $125 annually, while a 0.89% fee amounts to $445 per year.

Beyond management fees, robo-advisors invest in ETFs, which have expense ratios typically ranging from 0.03% to 0.25% annually. While these fees are not charged by the robo-advisor directly, they impact overall returns. Some robo-advisors, like SoFi Automated Investing, waive management fees but still invest in ETFs with associated costs.

Range of Investments

Online brokers provide access to a broad selection of securities, including stocks, bonds, options, ETFs, mutual funds, futures, and cryptocurrencies. Investors can build customized portfolios, trade sector-specific funds, or invest in fixed-income instruments. Some brokers also offer access to IPOs and over-the-counter (OTC) securities.

Robo-advisors focus on predefined portfolios built from ETFs and, in some cases, mutual funds. These portfolios align with an investor’s risk tolerance and financial goals, rebalancing automatically. While this simplifies investing, it limits flexibility for those wanting to select individual securities or explore niche asset classes. Some robo-advisors, like M1 Finance, offer a hybrid model, allowing users to customize portfolios while still benefiting from automation. Others, such as Betterment and Wealthfront, have expanded their offerings to include socially responsible investing (SRI) and tax-efficient strategies.

Self-Directed vs Automated Approach

Online brokers require a self-directed approach, where investors research, analyze, and execute trades. This allows for active trading, value investing, or sector-specific allocations but demands time and financial literacy. Tools like technical charting, earnings reports, and financial ratios such as price-to-earnings (P/E) and return on equity (ROE) help investors evaluate opportunities. Those without a well-defined strategy or the ability to monitor market movements may struggle with risk management and portfolio rebalancing.

Robo-advisors automate portfolio management, using algorithms to optimize asset allocation based on risk tolerance. Some platforms integrate tax-loss harvesting, strategically selling underperforming assets to offset capital gains. This hands-off model appeals to investors looking for simplicity but limits customization in security selection and trading frequency.

Customer Support Options

The level of assistance available can influence an investor’s experience, particularly when dealing with technical issues or complex financial decisions. Online brokers generally offer multiple support channels, including phone, live chat, and email, with some providing 24/7 availability. Firms like Fidelity and Charles Schwab also have physical branches where clients can speak with representatives. Some brokers offer dedicated advisors for high-net-worth clients, providing personalized portfolio reviews and financial planning services.

Robo-advisors, emphasizing automation, typically have limited human interaction. Most offer email and chat support, but phone assistance may be restricted to specific account tiers. Betterment provides human advisors only for premium clients, while Wealthfront relies entirely on digital tools and FAQs. While this keeps costs low, it may not be ideal for those who prefer real-time assistance when making investment decisions. Investors needing frequent guidance may find the lack of direct human support a drawback, particularly when dealing with account transfers, tax optimization, or market downturns.