Glossary
Robo-Advisor
A robo-advisor is an online investment service that builds and manages a diversified portfolio automatically with software, based on a questionnaire about goals and risk, typically for a fee lower than traditional human advice.
Under the hood, most robo-advisors are registered investment advisers whose algorithm allocates client money across low-cost index ETFs, then rebalances and, at some firms, harvests tax losses automatically. Fees commonly run around 0.25% of assets plus fund expenses; account minimums are low or zero.
Why it matters in practice
Robo-advisors made disciplined, diversified investing accessible at small account sizes the traditional industry ignored — a genuine improvement over both do-nothing and product sales. Their boundary is the questionnaire: software allocates well but does not notice an unclaimed 401(k) match, a pension election, a tax opportunity, or a panicking client, which is where human planning still earns its higher fee. Robo firms file Form ADV like any adviser, so their fees and services are checkable the same way.
Related terms: Registered Investment Adviser (RIA) · Index Fund · Passive Investing · Rebalancing · Tax-Loss Harvesting