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Could a Financial Robo-Advisor Be Right for You?

In this episode of Motley Fool Answers, Fool.com and The Ascent contributor Matt Frankel breaks down the important criteria when looking at discount brokers and robo-advisors. Plus, host Alison Southwick digs into the research about how working from home affects productivity.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

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This video was recorded on June 15, 2021.

Alison Southwick: This is Motley Fool Answers. I'm Alison Southwick, and I'm joined as always by Robert Brokamp, Personal Finance Expert here at The Motley Fool. Hey, Bro.

Robert Brokamp: Hey, Alison.

Southwick: In this week's episode, Matt Frankel from The Motley Fool Ascent team joins us to talk about choosing the best broker of Robo-advisor for you. I'm going to explore if working remotely is a career-limiting move. All that, and well, really not much more than that, on this week's episode of Motley Fool Answers.

[...]

Brokamp: Alison, what's up?

Southwick: Well, Bro, you could say there have been a number of workplace revolutions over the course of history. From agrarian to industrial, from factory floor to behind the computer, and now we are amid another. A million years ago, in the spring of 2020, many Americans would go into an office spending their days tapping at a computer, collaborating at a conference table, and Monday morning quarterbacking the big game at the water cooler. But then everything changed and they had to figure out how to do it all from home. It was awful, we hated it, we were so miserable. Zoom fatigue became a thing people suffered from, our backs were killing us from working at the kitchen table all day. If we wanted to talk about last night's episode of Mare of Easttown, we had to accost our coworkers online with Slack DMs like, "I think it was the priest who killed her, but why is Guy Pierce even here?" That's now a written thing, forever in your company's logs for HR to read, as opposed to the ephemeral conversation in the elevator, which is what sentences like that should be. But then something weird happened. It turns out, Americans really liked working in their pajamas, having flexibility to do other things during the day, or even moving entirely to a new town.

According to a recent CBS News poll, 60% of working Americans, say ideally they want to work remotely at least part of the time. This is even more true here at The Motley Fool where less than 10% of our employees want to return to an office every day, the rest want to stay fully remote or only come in a few days a week. While employees love working remotely, some CEOs are less than eager to embrace it. Take, for example, the kerfuffle caused by the CEO of the Washingtonian, which is a great magazine here in the DMV. The CEO decided to write an op-ed in the Washington Post about her concerns for her employees should they choose to work remotely. She wrote, "I'm concerned about the unfortunate common office worker who wants to continue working at home and just go into the office on occasion." Side note, common is always a bad word choice if you're talking about people. She goes on to share her theories on work, including that 20% of someone's job is "extra" and outside their core job. Things like helping a colleague, mentoring more junior people, celebrating someone's birthday, things that drive office culture. She adds, "If the employee is rarely around to participate in those extras, management has a strong incentive to change their status to contractor which, of course, would mean losing benefits, like health insurance, a 401(k), and more." Instead of coming across like a sincere message of concern, it sounded more like a threat. That's an awfully nice career you have there, it would be a shame if something happened to it. It doesn't help that the op-ed was originally titled, "As a CEO, I Want my Employees to Understand the Risks of Not Returning to Work in the Office." It was later changed to "As a CEO, I Worry About The Erosion Of Office Culture With More Remote Work." But that was after the employees of the Washingtonian made it very clear they didn't appreciate the op-ed and decided to go on strike and protest. What I wanted to know is, is the CEO right? Is going remote a career-limiting move? Is the so-called "remote work penalty" true? Does remote work erode office culture? For that, I'm going to lean on Olga Khazan, yes, The Atlantic, Rick, they are good at what they do, OK?

Brokamp: As is Olga, by the way, she's outstanding.

Southwick: Yeah, isn't she great? She's fantastic. Anyway, let's start by looking at productivity. It turns out that there's research showing that remote work actually increases productivity. A 2020 survey by the University of Central Florida found that respondents said that both they and their subordinates, if they had any, were more productive while working from home during the pandemic. Another study from researchers at the Instituto Tecnologico Autonomo de Mexico and Stanford University and the University of Chicago and Hoover Institute said that the work-from-home boom will lift productivity in the U.S. economy by 5%, mostly because of saving time in commute, they argue. Yet another study from Stanford of 16,000 workers over nine months found that working from home increased productivity by 13%. This increase, they said, was due to a quieter, convenient working environment and working more minutes because of fewer breaks or sick days.

In the same study, workers also reported improved work satisfaction and attrition rates were cut by 50%. Let's say remote work makes you more productive. That means your boss should take note and reward you with raises and promotions. Well, unfortunately, as Khazan at The Atlantic points out, a 2015 travel agency study found that people who worked from home liked their job more but weren't promoted as much. A more recent study of tech company employees found that remote workers received as many promotions as in-office workers, but that their salaries grew at a slower rate, and the more people telecommuted, the greater the hit to the salaries. They think this could be because HQs are more often in big cities, metro areas where it's more expensive and so if you live in a more remote place from a major metro area then your cost of living and subsequent pay could be less. But there's potentially a bigger issue here. The problem seems to be that here in the U.S, at least, we still seem to equate but in the chair time with a hardworking streak, productivity, and devotion to the job. You come in early, you leave late, you're always at your desk where your boss can see you and assumes you're crushing it. Never mind that instead of filing your TPS reports, you are actually up to your eyeballs in Mare of Easttown subreddits. Did you see how Guy Pierce drank from that beer bottle, it's so weird?

Anyway, isn't this thinking just a vestige of the time before computers when we worked in factories and had to be literally on the assembly line to make the thing. Now, the thing is pivot tables and Excel and drafting emails where we try to hide our frustrations with emojis and one-to-many playful exclamation points. Joseph Grenny, the Chief Development Officer at VitalSmarts, a training and organization development company, told The Atlantic, "Co-location was just a coercion strategy of the 19th century. We forced people into offices, we forced them to arrive at the same time and have lunch at the same time," and here's where we get to the good part, "Having a building," Grenny said, "Enables lazy leaders." It's true, it's lazy managing for your boss to tell you, you're not performing just because you come in late to the office. It's a hard working boss who's going to dig deeper, help you prioritize, and understand what and where you need to deliver on. Who actually cares when or where you're being productive so long as you are being productive. Actually, let's go back to that op-ed by the Washingtonian CEO, who inadvertently makes the exact same point as she wrote, "Professional development is hard to do remotely." She's probably right, but why isn't that her problem to solve? I assume as CEO, they're paying her the big bucks to overcome challenges like these. Why shouldn't she work harder for her employees to motivate them and let them work when and where they work best?

But we're in the midst of a revolution here and maybe the workplace of the future really will never be the same, but is that seriously so bad? Let's say you decide to go back into the office, but if your boss decided to work remotely and isn't there to witness your next level, but in the chair's presence, does it matter? Do you still have a leg up? Or does working remotely with a forward-thinking boss actually create a more equitable and inclusive workplace, where it doesn't matter if you don't go to happy hours and get smashed on a Tuesday with the cool guys from middle management? Because you know what? The cool guys from middle management actually suck, and it's maybe not fair that they benefit from a system that lets them help each other rise faster and farther than those who don't want to do shots of Jager. Jager is gross, why do we do this to ourselves? To sum it up, well yes, it's possible that going remote could be a career-limiting move, it only has to be that way because your boss isn't ready for change, isn't ready for the future, and isn't willing to put in the effort to be a good boss. If you're going to ask your boss to keep working remotely and he or she says, "I just don't think you'll work as hard." You can say, "It's you who needs to work harder." That, Bro is what's up.

[...]

Brokamp: We surely love investing here at The Motley Fool, just can't get enough of it. But unfortunately, you can't just run down to the local Target or Walmart to pick up some shares of Apple. To invest, you have to first choose a broker that will do all the transactions for you. How do you choose the right broker for you, and what's all these about robots managing portfolios? Here to help us answer these questions is Matt Frankel, Certified Financial Planner practitioner and a contributor to fool.com and The Ascent, which is a Motley Fool website that rates and reviews essential products for your everyday money matters including bank accounts, credit cards, brokers, and robo-advisor. Welcome, Matt.

Frankel: Hey, Bro, thanks for having me. I think you have a really good idea, that Target should offer brokerage accounts. It would make it a lot easier.

Brokamp: Actually, I think you can buy these gift cards that let you buy stock. When I was writing this up I was like, maybe there is a way to do it. But generally speaking, you can't.

Frankel: Right. It makes it more complicated. We don't want to complicate things, we want to make them easier for you.

Brokamp: That's true. That would make total sense. There's an ATM right there and then you just go in there and buy stock, that'd be a great idea. I'm patenting it right now. But in the meantime, we have to talk about discount brokers. Let's start with a walk down memory lane. Many years ago when you shopped for a discount broker, you almost always started with the commissions. Back in the day it started off at $50 a share then $30, then $15, and $10. But then came Robinhood in 2013, offering free trades through its app, and then other brokers gradually eliminated commissions. With really 2019 being the year that the dam really broke, several big-name companies joined the free trade movement. Let's start there. Let's say a listener is looking for a discount broker and they're thinking, should I worry about commissions at this point? The question really is, do any of them charge commissions anymore?

Frankel: Well, yes and no. Most mainstream brokers have gotten rid of commissions for online stock trades. That's not the only way you're going to pay commissions or fees to your broker. First of all, if a broker tries to charge you commissions on a stock trade, find another broker. But other than that, options trading, for example, there are still usually per contract commissions. Robinhood doesn't charge them, but there's still the exception not the rule with that mutual funds. A lot of brokers, as we'll talk about in a little while, offer a list of no-transaction-fee mutual funds but if your fund is not on there, you'll end up paying a commission for that and those can be expensive, up to $49 in a lot of cases. There are some commissions available, and there are some fees as well. If you have the wire money into or out of your account, a lot of brokers still charge a fee for that. If you want paper statements, these days, a lot of brokers charge a fee for that. There's a fee schedule every broker still has, so it's not exactly free to invest.

Brokamp: Also back in the day, there were account minimums. You had to have a certain amount of money to open up an account. These days, not so much anymore.

Frankel: No. In fact, none of our brokers on The Ascent's top broker list have a minimum these days. There are some, if you want a full service brokerage, but that's not really not what we're talking about, that still have the account minimums and some of the Robo-advisors we're going to talk about do. But as far as just opening an account to buy stocks, you can do that with $10 if you want to right now.

Brokamp: When people think of, OK, I can open an account with $10. But what stocks could I buy for $10? Then you get to the question of whether some brokers allow you to buy basically portions of a stock which they will call fractional shares. Tell us a little bit about those.

Frankel: Yeah. This isn't necessarily a new idea. Brokers have let people buy fractional shares through dividend reinvestment for years and years. At least 10 years ago, I was buying fractional shares through dividend reinvestment. But a lot of companies are not allowing you to buy them directly, and that's another thing we have Robinhood to thank for. Robinhood is an obvious example of that. But even if you weren't one of the more mainstream full featured brokers, Schwab and Fidelity are some that offer fractional share trading. Schwab has a big wide range, I think Fidelity limits it to just S&P 500 stocks. SoFi investing is another that allows fractional shares. There's a good list, and I think TD Ameritrade will at some point because Schwab acquired them. I think that will be integrated at some point in the not-too-distant future. Apple is $140 a share, fractional shares can let you buy Apples stock for $1 if you want to.

Brokamp: Right. Amazon is trading over $3,000 a share. Certainly if you are a newer investor and you're just investing a relatively small amount of money, you would definitely be looking for a broker that's offering fractional shares. Of course, but you can buy other investments from brokers, for example, exchange-traded funds. These days, most of those fall under that umbrella of free trades, correct?

Frankel: Correct. Exchange traded funds are generally free. They all have expense ratios, which I'm sure you've talked about on your show before. They're not exactly free to invest in on an ongoing basis. But as far as commissions, ETFs have generally joined the commission-free list.

Brokamp: Then we have mutual funds. These are the traditional open-end mutual funds offered by all kinds of companies from Vanguard and Fidelity, even Schwab down to more specialized providers. This does get a little tricky as you hinted at previously. First of all, to get your mutual fund on a platform, you often have to basically play a game, some sort of revenue sharing game with the discount broker. If you don't want to play that game, then you have to pay a commission or at least the investors will have to pay a commission to buy your funds. Famously, Vanguard does this. Vanguard does not do any revenue sharing. Generally speaking, if you want to buy a Vanguard fund from a discount broker other than Vanguard, you're probably going to pay a transaction fee, and it can be high, as you mentioned $40, in some cases $75. How should someone look at mutual funds if they're thinking, I like mutual funds, I do want to invest in mutual funds. How do I put that into the mix and determine what's the best broker for me.

Frankel: Sure. There's a few variables to look at. The total fund selection, as you mentioned, a lot of fund managers just don't have their funds listed on every brokerage. The mutual fund commissions is the standard that the broker charges. These can range from$9.99 to, like you said, $75 in some cases. You wanted to look at what's called the NTF list, which stands for no-transaction-fee mutual funds. Two examples from our best brokerage list. Ally Invest is the lowest mutual fund commission I know. They charged a $9.99 flat commission. They offer over 12,000 mutual funds, which is one of the best selections in the business. None of them are no-transaction-fee, so that's the catch. If you're willing to pay $9.95 a mutual fund for any mutual fund you'll ever want, they are a great choice for you. E-trade on the other hand offers a total of 9,000 mutual funds, 4,400 of which are on their no-transaction-fee list so commission-free. But their standard mutual fund commission is $19.99. If you have specific funds in mind, you can really narrow down your brokers to the best mutual fund broker for you.

Brokamp: No transaction fee. NTF is the key thing because whenever you go to the websites and you look at their list of funds, it'll say NTF next to the ones that do not have commissions.

Frankel: Don't confuse NTF with no load mutual funds. Those are two completely different things. A lot of times if you run a screener on your broker, there will be two checkboxes. One will say no load funds, one will say NTF funds. A mutual fund load is also known as a sales charge, meaning like an upfront, 2%-3%-5% commission that you're going to pay to buy the mutual fund in addition to any commission you pay the broker. Under no circumstances should you pay one of those. Automatically uncheck that box when you're doing your screener. But be aware that no load mutual fund and no transaction fee mutual fund are two very different things.

Brokamp: Yeah, excellent point. Let's move on to the platforms themselves. Here, you're talking about websites, but you could also be talking about apps or something like that.

Frankel: This is really where it comes and starts to get really taste specific as to what's the best broker. If you want just something simple, to be able to click a button, buy a stock, and be done with it, something like Robinhood is probably the best answer for you. I mean, that's one thing they really have gotten right. They're very easy to use. So far there's another one that's very easy to use. They don't have a ton of other features. If you want to learn how Options Trading works, there are limited in terms of educational resources. If you want research reports that analysts have done on stocks that you're considering, you might have a tough time finding things like that on the simplest platforms. Then on the other end of the spectrum, if you want to be an active trader, there are some that have very high powered trading apps. TD Ameritrade, for example, acquired Thinkorswim a few years ago and has one of the most powerful trading platforms in the industry. It's not as user-friendly as something like a Robinhood. It can be very tough to learn and navigate. It really depends on what you want to do. If you want just the ability to occasionally buy or sell stocks, or if you want to become the next Warren Buffett or the next great Motley Fool investor, then you have some different considerations to take into account.

Brokamp: Is it still the case that Robinhood does not offer IRAs, just taxable brokerage accounts?

Frankel: It's in the works. They're planning to, but as of at least as far as I know, they are not offering them yet.

Brokamp: Got it. You've mentioned research and that's another thing to look at, not only in terms of the research reports that they might provide, but also other tools like screeners.

Frankel: Yeah, screeners, like I mentioned, mutual fund screeners. Robinhood doesn't offer mutual funds. You will need a more full featured platform if you want to be able to screen investments. For example, if I want financial sector stocks that are trading less than 20 times earnings or have at least one four-star rating by a major analyst firm, my TD Ameritrade account let's me find those. Most of the full featured brokers, the ones that up until recently charged commissions and really held out as long as they could charging commissions because they have that extra added value of their functionality, you can really do a lot with these screeners and narrow down and get some great stock ideas. If you think your favorite tech stock is too expensive, you want cheaper alternatives, a full-featured broker can help you find that.

Brokamp: What other services might people be considering? One that occurred to me is financial planning services. This varies greatly. Some just don't offer it at all, some offer it at an additional cost, some will offer it to any account holders. But basically you have to expect that when you call them up and ask for the financial advice it may not be a full-fledged certified financial planner and you should probably expect a certain amount of sales mission involved.

Frankel: Sure. This is also very apparent in the Robo-advisory industry as we're going to get into it a little bit. To be clear, when we're talking about financial advice, we're not just talking about having a customer service line you can call and ask questions. We're talking about somebody like me or you who's on the other end of the phone who can answer actual financial questions and provide personal advice, which is really the key word. Yes, you're right. Some have financial planners on staff. SoFi, for example, is a great example of one that offers this for free to every account holder. They're not necessarily certified financial planners, but every financial advisor they have is a registered advisor that is bound to the fiduciary standard and it's free for every account holder. Some will give you financial advice for a cost. I know Ellevest is a newer company. They charge $125 an hour for financial planning, but they have them, and then a lot of companies don't have them at all. It depends what kind of client you are. Like Ellevest is a Robo-advisor so if you're a Robo-advisory client, you might have certain access that you don't because you're paying a management fee, whereas if you're a brokerage client, you're not paying any type of commissions or anything at all. It really depends on the broker, but it is out there if that's a priority for you.

Brokamp: You brought up Robo-advising a couple of times so let's get into that. Some of these firms offer it, some of them don't. But let's start with just a basic question. What is a Robo-advisor?

Frankel: Robo-advisor, think of this as putting your investments on autopilot. They all have different little characteristics. But the general recipe is a Robo-advisor will ask a client a series of questions meant to gauge their risk level, their investment goals, their time to retirement, things like that. From there, they will construct an ideal age appropriate portfolio for that client and automatically invest their money and will rebalance it and maintain that portfolio overtime. Some do this a little differently. Some will let you make tweaks to the proposed investment portfolio. If they recommended a standard 40 year old portfolio for me and I say my risk tolerance is a little bit greater than the average 40 year old, I can adjust it up or down based on what I want. Some don't let you do that. Some are just basic index fund investors and some have other types of more exciting products, as we'll talk about in a little bit but that's the general idea. A Robo-advisor will assess your personal situation automatically, not a person, through a computer program and will invest your money into a portfolio of index funds according to your answers.

Brokamp: As you pointed out previously, unlike discount brokers, Robo-advisors are not free and many of them have minimums.

Frankel: First on the not free part, there are generally two types of fees you have to worry about with the Robo-advisory. Most either charge an asset under management fee, which is a percentage of the amount of money in your account based on an annualized basis. Usually it's done quarterly, say like 0.2% or something like that. Or some flat fee like $5 a month. Acorns is an example that does the flat fee model. In addition, because they invest your money in a portfolio of ETFs, those underlying ETFs often have their own expense ratios that are an ongoing cost in an investing so it's two sides. Most Robo-advisors will publish the all-in costs which combine the two. Then on minimums, most Robo-advisors don't have minimum investments. But if you do, and it's really worth pointing out that a few of the really good ones do, Wealthfront is one of our topics at The Ascent. They have a $500 minimum investment. Goldman Sachs just rolled out its markets invest Robo-advisory platform, which I just wrote a review on, and they have a $500 minimum and some really exciting, unique products. Just because a Robo-advisor has a minimum investment doesn't mean it should be automatically checked off your list. Some of them add extra value to that.

Brokamp: Looking just at their all-in cost, most of our assets under management, you mentioned Acorns is an exception. But one of the benefits is that it is cheaper than if you went to a financial advisor in your town. Those folks charge about one to 1%, 1.5% but you're generally not going to get anywhere near that with a Robo-advisor.

Frankel: Sure. That's the whole point of the Robo-advisor model. It's to offer something that is traditionally offered by people like you and me, being honest, for a lot more money.

Brokamp: Good looking, smart people. Is that what you mean?

Frankel: Yes, exactly. At a fraction of the cost that you would traditionally pay. Yes, there is an asset under management fee, but it's a lot less than you're going to pay for even a cheap in-person financial planner.

Brokamp: You had suggested previously that most of these are index ETFs, so talk a little bit about the strategy, are they pretty much all the same or is there some differentiation?

Frankel: They're all the same and they generally use a portfolio of ETFs. Most use index funds, for example, someone who's a 40-year old investor like me with a standard risk tolerance, they might put say, 50% of my portfolio in an S&P Index fund, 20% in the small cap index fund, 10% in the real estate fund, and the rest in a fixed income fund, something to that effect. Some of them offer index funds but more uniquely tailored portfolios. For example, if you offer ESG portfolios, or if you're a socially conscious investor, you can choose to have your money only invested in environmentally, socially, and governed ESG friendly stocks, I'll just say, it's a tongue twister. But I tend to stick to socially conscious stocks, so investors like me would enjoy that. Some years more active models, like I just mentioned, Goldman Sachs launch Marcus Invest. They offer investors access to Goldman Sachs proprietary, what they call the Smart Beta ETFs that aim to not only meet an index's performance over time but to beat it over time. For more adventurous investors, there are some Robo-advisor options to achieve those goals as well. It's not just like buying an S&P index fund and putting your money on autopilot, which is also a popular and valid strategy, there are some ways you can really modify your risk tolerance and even try to beat the market over time with some of these Robo-advisors.

Brokamp: Someone looking into these might want to look at, what are the returns like? You would want to look what's past performance and all that. Is that something people can really look at? The first Robo-advisor came out in 2008. They have somewhat of a decent track record in terms of the length of history, but for some of these, they're really pretty new.

Frankel: Yeah, and that's especially true in the ones that are like the Goldman Sachs Smart Beta portfolios. The ones that are launching portfolios that are meant to deviate for B-indices, are all pretty new. I don't know if any of those that have been around for a long time really have a goal of beating the market over time. Even if you could track the performance of one of the Robo-advisor that uses index funds, is it really fair to judge them on the performance of an underlying index fund that really is tied to a benchmark unless they did something really out of left field and put you in a portfolio that wasn't appropriate for your risk tolerance. Every Robo-advisor portfolio lost money in March 2020, for example. When it comes to performance, it's really tough to judge. But as these newer, more innovative ones age, it's going to be really interesting to see if the Smart Beta is actually beating the market over time. If there's any big difference between these ESG portfolios and overall market returns are down because one of the big thesis with ESG investing is not only that it's a socially responsible thing to do, it's that these companies have a leg up because they're acting in everybody's best interest and things like that, so it would be really interesting over time to see how those do.

Brokamp: I think it's also important to keep in mind that for most of these portfolios, it is going to be very diversified. You're going to have at least a little bit that's out of the stock market, so it's either they're going to be cash or bonds. There's going to be some international, there's going to be some small cap, maybe some value. If you look at the returns of these over the last five years, certainly over the last 10, they may not look very good compared to the S&P 500 because U.S. large cap stocks have done so well compared to other asset classes. I think that's a grain of salt to keep in mind whenever you look at the historical performance of some of these.

Frankel: Sure, a 40-year-old investor like me, theoretically, should have about 30% in fixed income. That's going to under perform the stock market especially over the bull run of the last five years or so. At Ally Investors, one that offers a Robo-advisory feature, they keep 30% of the portfolio or something to that effect in cash, by design to be like an investment portfolio and an emergency funded one, That's something that's going to underperform the S&P over time even though it might be doing exactly what it's supposed to be doing. Take these performances with a grain of salt because these are diversified portfolios not just S&P index funds.

Brokamp: Yeah, another way to put it over to just make sure we're making an apples-to-apples comparison with those. What some of these providers might say is, "We're not just providing performance, we're providing some other things such as tax loss harvesting and rebalancing.

Frankel: Rebalancing has become actually pretty industry standard over the past couple of years. But companies do it in different ways. A lot of companies will just rebalance, which means realigning your portfolio with your goals every year, every six months, something like that. Some do it as needed, some do it more frequently, some will actually make the decision not to rebalance if they think it's not in the investors best interest. Like I mentioned, March 2020, imagine if they had completely rebalanced the portfolio of stocks and bonds at that point, that wouldn't really have reflected your risk tolerance to do that after a big temporary plunge. But that has become an industry standard. Tax loss harvesting becomes much more important if you're a higher net-worth investor. It essentially means they automatically move your portfolio around in ways that will lower your taxes without really getting into the weeds on that discussion. That becomes really important if you're in one of the higher tax brackets. But for anyone who has a taxable investment account, that could be a big long-term benefit, don't underestimate the power of short-term tax-saving when compounded over a 30-year investing career.

Brokamp: As we discussed previously, some of them, almost by definition, a Robo-advisor you would think you would never have access to a human being. But some of them, you actually can talk to a human being and get some financial planning advice.

Frankel: Yeah, there's three categories of this. One, Robo-advisors that don't have any access to human financial planners which most of them fall into. The whole concept of Robo-advice is just to take the human element out of it to save money. Ellevest, just one I mentioned, is in the second category that has human financial advisors but you have to pay for. Schwab's another one that's in that category. They have a pretty high minimum but if you meet that high minimum, you have the option of purchasing financial planning services. Markets Investors is another one that if you have enough in your account you can buy access to Goldman Sachs network financial advisors. Then there is the third category that has free financial planning, which are very few in there, and so far it's really the only one that gives it away for free to everybody right now. They just went public, they're in rapid growth mode. That's one thing we are trying to do to differentiate themselves, is to be the only one that's giving personal financial advice to all Robo-advisory clients. Three baskets, those that don't have it, those that make you pay for it, and those that have it for free, and the latter two baskets are really small.

Brokamp: Putting all this together, who do you think Robo-advising is for? Who is the type of person who'll be like yes, Robo-advising is for me?

Frankel: It's the people who really want to set and forget their investments. For example, you can set and forget by buying an S&P index fund and taking Warren Buffett's advice and just getting the stock market returns over time. But Robo-advisory it's really good for people who want an age appropriate, risk tolerance appropriate, mix of investments that will automatically change over time. It's truly putting your investments on autopilot. People who like putting money in their companies 401(k) plan, for example, and just buying it and having them recommend investments for them. It's people who really don't want to have any hands-on involvement with their investments, but still want good long-term returns over time.

Brokamp: Some people might be hearing this and think, isn't there a target date retirement fund? Why wouldn't I just choose a target date retirement fund?

Frankel: The name "target date" is a little bit misleading in that comparison because the Robo-advisor model is more targeted to you. Target date funds are generally in five-year increments. If you do a 2040 target date retirement fund, it's the average person who is going to retire in 2040. You're not the average person. You might have more spending ambitions in retirement, you might want to live more conservatively in retirement, you might be saving for a big purchase, you might not feel comfortable having more than half of your money in the stock market, you might not be the best candidate for that mix of investments in a target date fund for your retirement year. The big difference between a target date fund and a Robo-advisor, is the Robo-advisor is really customized for you. It'll be like a target date Bro retirement fund for you , it's your own personal target date fund.

Brokamp: Well put. I don't think there's a big market for the Bro target date fund, but this guy would love it. There you go. Any advantages to having both of your self-directed brokerage account and your Robo-advice account with the same firm?

Frankel: I'm always a big fan of keeping your finances in one place when it's practical. A lot of companies let you move money between accounts pretty easily, especially when they share an app that is really easy to move money between accounts. I use TD Ameritrade. I don't use the Robo-advisory services, but they are integrated, you can do internal transfers between accounts. That's an advantage. Don't let the fact that a Robo-advisory is not at your primary brokerage, be at a negative, is where I want to be cautious with that answer. Shop for the best Robo-advisor, and if it happens to be at the institution you're already at, then great.

Brokamp: Thank you very much, Matt. Where can folks go to see your complete reviews on discount brokers and Robo-advisors?

Frankel: You can view all of our personal financial views, including the brokers and Robo-advisors, at www.fool.com/the-ascent.

Southwick: That's the show. It's edited remotely by Rick Engdahl. Our email is answers@fool.com. For Robert Brokamp, I'm Alison Southwick. Stay Foolish, everybody!

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Alison Southwick owns shares of Amazon and Apple and has the following options: long January 2022 $135 calls on Apple and short January 2022 $140 calls on Apple. Matthew Frankel, CFP owns shares of Apple and Goldman Sachs and is short shares of Apple. Robert Brokamp, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Apple. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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