Free for 90 days: Sign up now and get 90 days managed free after your first deposit. See offer details

<title>Dismiss</title>
Financial Advisors

7 Habits Of Highly Effective Online Financial Advisors

Online financial advisors, like Betterment, use sophisticated software to invest in a low-cost diversified portfolio, with personalized advice.

Articles by Betterment Editors

By the Editorial Staff
Betterment Resource Center  |  Published: October 15, 2013

Algorithmic rebalancing and dividend reinvesting keep short-term capital gains to a minimum.

Lower cost than brick-and-mortar outifts.

When you want to book an airplane ticket, chances are you check out Orbitz or a similar website, not a travel agent. Traveling down the highway? You might zip through tolls with E-ZPass instead of slowing to pay cash at every booth.

These days, money and investing are no different. Automation is making life more efficient.

You may have heard some new investment companies referred to as online financial advisors. What does that mean?

Online financial advising is a whole new game compared to the tradition of live financial advisors or do-it-yourself investing, where the judgement of one person (or a team of people) determines the outcome of your investments.

Instead, online financial advisors offer sophisticated software that individuals can use to invest in a diversified portfolio with a personalized allocation.

While there are specific differences between each of the financial companies that offer these services, together they are all part of a bigger tech movement toward automated investing—and improved expected returns (net of fees and taxes, of course) for customers.

There are excellent traditional financial advisors and planners out there who provide holistic advice for investors and encourage low-cost, passive investing. But online financial advisors are a new alternative for investors who want the assurance of an advisor for portfolio investing but the efficiency and ease of an automated system.

7 ways online financial advisors are different from traditional advisors:

1. Online advisors lower your tax bill and other costs: With algorithmic rebalancing and dividend reinvesting, shares can be allocated in the smartest way possible to keep short-term capital gains to a minimum. (Read more about how Betterment inoculates you against higher taxes.) Also, live financial advisors may have a minimum balance and higher fee structure (as much as 2% of the portfolio balance, including management fees and mutual fund expenses). Online advisors are a fraction of the cost with flat, all-inclusive fees.

2. Online advisors are never biased: Investing doesn’t operate based on human emotions like fear or indecision. Instead, programs make decisions based solely on data. That means it doesn’t freak out and sell when the data says hold, or vice versa. Eliminating bias means there’s less room for human, impulse-driven errors.

3. Online advisors are not swayed by incentives: According to a 2012 report from the National Bureau of Economic Research, most of the financial advisors surveyed who received a commission for the products they brokered, recommended strategies that maximized fees and in turn, their personal payout, rather than low-cost index-fund type portfolios. Not all financial advisors charge fees this way, but for those that do, those costs cut into your returns.

4. Online advisors are transparent and accessible: Never have to leave a message and wait for a call back for account information. View exactly what funds and the percentage you are invested in with a click of a mouse. See dividend and transaction histories in one place, and have immediate up-to-date status on account balance.

5. Online advisors save you time: Software uses your personal investing goals to create a personalized allocation for your investing goal—in just minutes.

6. Online advisors are not spending their time looking for new clients: Some financial advisors—yep, human ones—spend up to 75% of their time marketing themselves and looking for new clients.

7. Online advisors work 365 days, 24 hours of the day: Software never sleeps. Not on Thanksgiving, not during New Year’s, not in August when everyone is at the beach. Software works all day, every day to make sure your investments are performing optimally.

As a growing number of investors are discovering, it’s better to leave the tasks that require financial heavy lifting to digital systems that are more efficient—so you can enjoy the rewards.

Recommended Content

View All Resources
Betterment’s Model for Financial Advice: An Overview

Betterment’s Model for Financial Advice: An Overview

Achieving your financial goals is only possible if you plan effectively. Saving enough, choosing the right accounts, deciding when you can buy a house or when to retire—all of these are essential decisions even before you build an optimal portfolio.

Betterment Advisor Network: Getting Matched With a Dedicated Advisor

Betterment Advisor Network: Getting Matched With a Dedicated Advisor

Through our network of vetted independent CERTIFIED FINANCIAL PLANNER™ professionals, you can leverage Betterment's tax‑efficient smart technology, while also working alongside a dedicated financial advisor.

Reducing Your Biggest Retirement Expense: Where You Live

Reducing Your Biggest Retirement Expense: Where You Live

You’ll probably want to retire somewhere different than where you live right now. Let’s make that part of your retirement plan.

Explore your first goal

Safety Net

This is a great place to start—an emergency fund for life's unplanned hiccups. A safety net is a conservative portfolio.

Retirement

Whether it's a long way off or just around the corner, we'll help you save for the retirement you deserve.

General Investing

If you want to invest and build wealth over time, then this is the goal for you. This is an excellent goal type for unknown future needs or money you plan to pass to future generations.

Smart Saver

You could earn 20X more than a typical savings account with our low-risk investing account for your extra cash.

<title>Close</title>

Search our site

For more information and disclosures about the Betterment Resource Center, click here. | See our contributors.