Hidden Costs of Robo-Advisors and How to Avoid Them
Hidden Costs of Robo-Advisors and How to Avoid Them Robo-advisors have revolutionized the investment landscape, offering automated portfolio management at a fraction of the cost of traditional financial advisors. However, beneath their appealing low-fee structures lie hidden costs that can erode your returns over time. Understanding these costs is crucial for making informed investment decisions. Table of Contents Management Fees Expense Ratios Cash Drag Additional Services Proprietary Products How to Avoid Hidden Costs Management Fees Most robo-advisors charge an annual management fee, typically ranging from 0.25% to 0.50% of assets under management (AUM). While this is lower than the 1%–2% charged by traditional advisors, it's still a recurring cost that can add up over time. For example, managing a $100,000 portfolio at a 0.25% fee would cost $250 annually. Over 20 years, assuming a 6% annual return, this could amount to over $10,000...