The latest fad in investment advice is the use of automated, computer-driven investment programs to keep your portfolio in balance through constant adjustment initiated by the system and not requiring any human action. The term used for these programs, which number in the dozens, is “robo-advisor,” a word play on the robotic nature of the system. These firms are heavy advertisers with point and click ads on the internet and in print publications.

I am all for a disciplined approach to investing and the robo-advisors would seem to provide that discipline. The question is whether this particular discipline is the right one for you. Let’s take a look at the differences between using a robo-advisor and one with more of a human touch.

Cost – The robo-advisors tend to have lower fees. They are certainly less expensive than most human advisors who work with clients on a personal level. Management fees at a robo firm could be under .5 percent on an annual basis, less than the usual 1 percent or so that a typical fee-based advisor charges on an average account. Interestingly, one of the larger firms advertises the automated investment program with a human advisor to talk to when you have questions. The cost is about 1 percent a year – the typical prevailing rate. So if minimizing fees is important to you and no personal advice is needed, perhaps a robo-advisor might be a good choice for you.

Personal relationship – The right answer to a particular financial question might be totally different for two clients depending on their personal situations. Opening an account online with a robo-advisor may be fine for simple situations or investors just getting started, but with no qualified human to speak to at the low cost firms, you are on your own to make financial decisions that may have significant impact on your financial future. Some financial advisors use robo-advisors to manage assets, but charge a retainer fee to continue to act as the clients overall financial advisor.

Will it work? – The jury is still out on how the robo-advisors will function and perform over time. When all is calm and financial markets are rolling along like we’ve seen the last few years I suspect the results will be good. But throw unusual market patterns in to the mix and only time will tell.

Back in 2006 and 2007 some large investment banks developed computerized trading schemes and were raking in large profits. When the 2008 financial crisis hit and the stock market declined substantially, these firms lost their shirts. Their formula-based trading methodology had not taken into account the possibility of such an event. We’ll have to see how the robo-advisors trading processes handle the next unpleasant time for the financial markets – whenever that time comes.

Tom Breiter is president of Breiter Capital Management, Inc., an Anna Maria based investment advisor. He can be reached at 778-1900. Some of the investment concepts highlighted in this column may carry the risk of loss of principal, and investors should determine appropriateness for their personal situation before investing. www.breitercapital.com

Tom Breiter is president of Breiter Capital Management, Inc., an Anna Maria based investment advisor. He can be reached at 778-1900. Some of the investment concepts highlighted in this column may carry the risk of loss of principal, and investors should determine appropriateness for their personal situation before investing. Visit www.breitercapital.com.