An online brokerage is generally for investors who want to choose investments and place trades themselves; a robo-adviser is an automated advisory service that uses information about your goals and circumstances to build and manage a portfolio. Neither is universally better. Compare the actual account services, decision-making control, access to people, investment choices and total costs—not just the account label or advertised trading commission.
Brokerage or advisory account: what is the difference?
The key distinction is the service you receive, not whether you use an app or website. A broker generally accepts and executes orders to buy and sell securities. A robo-adviser is an automated digital investment advisory program: it typically asks about your goals, time horizon, finances and risk tolerance, then recommends or manages a portfolio. See the SEC’s explanations of brokers and robo-advisers.
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These categories can overlap at a firm. A company may offer self-directed brokerage accounts as well as advisory services, and a professional or firm can act in different capacities. Find out which service and account agreement apply to the account you are considering. FINRA’s account-choice guidance recommends considering your circumstances, goals, trading frequency, costs and desired service level.
Who makes decisions and manages the portfolio?
| Question | Online brokerage | Robo-adviser |
|---|---|---|
| Who chooses investments? | In a self-directed account, you generally choose what to buy or sell. | The service typically uses your answers to recommend or select a portfolio; the amount of customization varies by provider. |
| Who places trades? | You submit orders and the broker executes them. | Depending on the service and agreement, the program may manage the portfolio and carry out transactions for you. |
| Is the account monitored or rebalanced? | Do not assume ongoing portfolio management in a self-directed brokerage account; check the account terms. | Ongoing management or rebalancing may be part of the service, but confirm exactly what the provider promises. |
| Can you speak with a person? | Availability depends on the firm and service level. | Some services offer limited or no human interaction; availability varies. |
| What can you invest in? | The available securities depend on the brokerage and account. | The service may offer a limited or preset portfolio; available investments and customization vary. |
A robo-adviser’s recommendation is only as good as the information it asks for and receives. Review what its questionnaire covers, what it leaves out, how you can update your answers, and how the firm uses those answers to choose a portfolio. Do not assume the service knows about a changed goal, new debt or liquidity need unless you tell it.
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How much does a robo-adviser cost—and what should you compare?
There is no single market-wide price that can responsibly be called typical for either service. Brokerage charges, advisory fees and account terms vary, so use current firm disclosures rather than a general headline about “free” trades. A commission-free trade does not establish that the whole account is free.
Compare costs in dollars for the balance you expect to hold, and include the services covered by each charge. Relevant costs can include:
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- Trading commissions or other transaction costs.
- Recurring advisory or subscription fees, which may apply whether or not you trade.
- Expense ratios and other costs charged by funds in the portfolio.
- Account, service, cash-management, transfer or closure charges.
- Potential tax consequences associated with account activity.
In a 2023 investor bulletin, the SEC gave $3, $5 and $10 per month as examples of subscription-based advisory fees a robo-adviser might charge a smaller account. It also illustrated annual asset-based fees of 0.25%, 1% and 2%. These are examples, not current quotes or a claim about what providers generally charge. A monthly fee that looks small in dollars can consume a substantial share of a lower-balance account. The SEC explains this issue in Subscription-Based Advisory Fees.
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Which option fits your way of investing?
A self-directed brokerage may fit if you want control
A brokerage account may suit someone who wants to select investments, decide when to trade and take responsibility for monitoring the portfolio. Before choosing it, consider whether you have the knowledge and time to make those decisions and whether you are comfortable managing the account without ongoing advice.
A robo-adviser may fit if you want an automated service
A robo-adviser may suit someone who prefers a guided process and wants the provider to recommend or manage a portfolio within the service’s rules. Check whether its investment menu, customization, monitoring and human support match your needs. Automated management does not mean a portfolio can account for details the provider never asks you about.
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Compare the account to your circumstances
Consider your goals, time horizon, risk tolerance, debts and other assets, liquidity needs, investment experience, desired decision-making role and monitoring needs. These are relevant factors when evaluating an account recommendation, not a substitute for individualized advice. A firm’s account recommendation should be assessed in light of the services and costs involved.
How to check a provider and understand its obligations
- Identify the account and service. Ask whether the account is self-directed brokerage, advisory, or another arrangement, and what monitoring, rebalancing or discretionary authority the agreement includes.
- Read the disclosures. Review Form CRS, relevant Form ADV materials, the account agreement and fee schedule. Look for services, costs, conflicts of interest, limits and conditions.
- Check registration and disciplinary information. Use Investor.gov’s tools for checking firms and professionals. For investment advisers, the SEC’s robo-adviser bulletin also points investors to IAPD. Registration is not a guarantee of investment performance or protection from losses.
- Ask what incentives may influence the service. The SEC advises robo-adviser customers to consider whether a provider receives referral or marketing fees.
The rules relevant to a recommendation depend on the firm’s capacity and the service involved. In its March 30, 2022 staff bulletin on standards of conduct, the SEC states: “Both Reg BI and the IA fiduciary standard require your account recommendations to be in the retail investor’s best interest and require you not to place your or your firm’s interests ahead of the retail investor’s interest.” Read the SEC staff bulletin for its explanation of those standards and account recommendations.
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SIPC protection, as described by Investor.gov, concerns specified brokerage-firm failures or missing securities; it does not cover investment losses caused by market declines. Check the SEC’s explanation of SIPC protection to understand its scope.
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