Consumer Reports: Robo-advisers

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Robo advisers (WLS)

In this era of self-driving cars, what decisions are you comfortable entrusting to a computer? How about financial advice? New digital platforms can manage your portfolio and charge less than a human financial adviser. Consumer Reports examined whether it's time to make the switch to arobo-adviser.

When Allison Cohen began investing, she opened an account, with a robo-adviser: a relatively new breed of online financial advisers that use computer algorithms - based on your risk tolerance and timeline - to recommend investments for you, for a fraction of the cost of a human adviser.

"It didn't feel old or stodgy or conservative. It felt really on the cutting edge of the future of investing," said Allison Cohen, an investor.

Cohen is not alone. Consumer Reports said robo-advisers have become big business.

"Robo-advisers manage an estimated $53 billion. That number is expected to grow to between $5 trillion and $7 trillion in the next 10 years," said Margot Gilman, Consumer Reports Chief Money Editor.

Some of the players include companies like Wealthfront and Betterment. Asset-management giant Schwab is also getting into the game.

But experts at Consumer Reports said going robo requires a fair amount of faith in the technology. Especially in a rocky market.

"There's no real track record. Robo services haven't been around that long, and haven't been tested in a true bear market," Gilman siad.

Plus, robos don't account for the human element of advising. A robo-adviser cannot help you prioritize several financial goals. Should you pay down debt or save more? Nor can it help you navigate tricky financial situations like divorce or saving for college or handling the finances of an aging parent.

Still, for someone like Cohen, a robo-adviser could be the way to go, particularly as a way to jump into the market.

Deciding between a costlier human adviser and a cheaper computer solution depends on a variety of factors, including your financial circumstances, your reaction to risk and your comfort level with recently developed technology.

Consumer Reports has put together a free quiz to help you figure out what kind of adviser might suit you best. You'll find it here: http://www.consumerreports.org/personal-investing/find-the-adviser-that-suits-your-style/
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