The financial advice business is moving to a cyborg model, merging man and machine. For instance, Betterment, a standalone robo-advisor with $8 billion in assets under management, and Charles Schwab are adding human financial advisors to their online advice services.
"I think what we are seeing is a convergence," said Scott Smith, a director at Cerulli who focuses on investor behavior and advisory relationships.
Many investors try robo-advisors and then take what they have learned to their financial advisors, according to Smith's research.
"It's like going on WebMD before you see your doctor," Smith said. "People still want their hands held and to be validated."
Not every robo-advisor is playing nice with human financial helpers. Wealthfront, which has $5.5 billion in assets under management, shuns the cyborg model and doesn't plan to offer human advice to its users.
"Young people would prefer to deal with software rather than people," said Andy Rachleff, Wealthfront's president and CEO. During recent periods of market turmoil, such as when stocks reacted to the U.K.'s Brexit vote, Wealthfront clients barely changed their account activity, he said.
Rachleff may have a point about millennials. In Capital One Investing's survey, people in that generation were the least likely to say they wanted to speak with an advisor during turbulent markets, with 69 percent of millennials preferring human guidance during a downturn compared to 75 percent of Generation X and 74 percent for baby boomers.
Wealthfront plans to keep going against the crowd of robo-advisors adding human helpers. The company recently launched its Path service, which aims to connect all of a user's financial accounts to offer them a free comprehensive retirement plan without human guidance.
But don't expect machines to replacement the human touch anytime soon.
"The most important thing people look for in a financial advisor is that they are patient and that they feel like their advisor listens to them," Varas said. "People want a live financial professional and they're willing to pay for it."
Five differences between the robo and human advisors
Account minimums. You may need at least $500,000 in assets to work with many traditional financial advisory firms. Robo-advisors have low account minimums if they have them at all.
Fees. A traditional financial advisor will charge a 1 percent annual fee to manage your portfolio. Robo-advisors generally charge an annual fee between 0.25 percent and 0.50 percent of assets. Wealthfront will even manage your first $10,000 for free.
Human interaction. You can call your human advisor whenever you want; robos may charge extra for the face time. For example, Betterment charges a 0.40 percent fee if you have at least $100,000 in assets and want an annual call with a certified financial planner, and a 0.50 percent fee if you have $250,000 or more and desire unlimited access to a financial advisor. Hybrid services that connect you to a human advisor have higher annual fees. For example, Capital One Investing charges 0.9 percent a year for an account with a minimum balance of $25,000.
Investment options. Most robo-advisors build their portfolios with low-cost index funds. Going with human advisor may give you access to more investing options.
Tax-loss harvesting. Many robo-advisors, including Betterment, Charles Schwab and Wealthfront, offer automatic tax-loss harvesting, which means they sell an investment to generate a loss to offset capital gains. Betterment estimates its tax-loss harvesting service can add 0.77 percent to an average customer's after-tax returns annually. However, tax-loss harvesting is only meaningful in taxable accounts. It doesn't help your nest egg if it is in a tax-deferred account, like an IRA or 401(K) plan.