Introduction

If you’re looking to buy or sell stocks, you’ll need an intermediary or brokerage platform to do it. That’s where stockbrokers and robo-advisors come in. They both can help you purchase and manage stocks, but they work a little differently and have unique benefits and drawbacks. The best option for you will depend on the type of support you’re looking for as an investor. Here’s a closer look at how stockbrokers and robo-advisors are alike and different.

What Is a Stockbroker?

A stockbroker can be a licensed professional or brokerage firm that’s authorized to buy and sell securities on your behalf. That may include stocks, bonds, exchange-traded funds (ETFs), mutual funds, and more. Stockbrokers may also manage your investment portfolio and provide strategic investment advice.

Individual Stockbrokers

Also known as investment advisors, these licensed professionals work for full-service brokerage firms and interact directly with investors. They may earn a commission on a per-trade basis. Alternatively, they may be compensated by taking a percentage of the interest you earn on uninvested cash, or by charging an annual fee based on a percentage of your investment portfolio.

Online Brokerages

These online trading platforms allow investors to buy and sell securities on their own through a brokerage account. Some may offer commission-free trading, though most discount brokerages charge per trade. This option is more hands-off when compared to working with an individual stockbroker or a full-service brokerage firm.

Pros of Stockbrokers

• Dedicated stockbrokers can explain your investment choices and answer your questions.
• They may create and manage your investment portfolio for you.
• Some stockbrokers offer personalized investment advice.

Cons of Stockbrokers

• Higher fees compared to robo-advisors.
• Potential conflicts of interest based on how they’re compensated.
• Minimum investment requirements can be high.

What Is a Robo-Advisor?

A robo-advisor is an automated digital investment platform that allows you to buy and sell securities like stocks, bonds, and ETFs without working with a financial advisor or stockbroker. You’ll likely complete an online questionnaire about your investment timeline, financial goals, risk tolerance, income, assets, and more. The robo-advisor will then use algorithms to generate and manage your portfolio, including automatically rebalancing it in response to changes in economic conditions.

Pros of Robo-Advisors

• Lower fees compared to human advisors.
• Automated portfolio management and rebalancing.
• Good for investors who prefer a hands-off approach.

Cons of Robo-Advisors

• Reliance on algorithms can be confusing for beginners.
• Less flexibility and fewer investment products.
• May not suit experienced investors who prefer active management.

Other Investment Options

Stockbrokers and robo-advisors aren’t the only ways to invest. Below are some other entry points to the stock market:

Workplace Retirement Accounts

Employer-sponsored retirement accounts, like 401(k)s, are typically funded with automatic payroll deductions. A wide array of securities may be available to you, and many 401(k)s are set up as target-date funds. Contact your plan administrator to understand your investment options.

Individual Retirement Accounts (IRAs)

You can open a traditional or Roth IRA through a brokerage firm and make contributions on your own. You can also take an active role in your investment decisions if you choose. Like 401(k)s, IRAs offer unique tax advantages and are designed specifically for retirement.

Real Estate Investment Trusts (REITs)

REITs allow you to invest in companies that own income-producing properties. Shares of REITs are available on major stock exchanges, and their risk is generally lower compared with investment properties. REITs are also required to distribute at least 90% of their income in the form of dividends.

The Bottom Line

Both stockbrokers and robo-advisors provide access to the stock market—it’s the way they do it that’s unique. Robo-advisors are different in that they use digital tools to create and manage an investor’s portfolio. That means there’s little, if any, human involvement. That may be a pro or a con, depending on how you look at it.

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