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Robo-advisors bring cheap investment management to the masses

If you need help managing your investments, it may be time to take a look at so-called "robo-advisors."

Digital investment advice has entered the mainstream, as Vanguard and Schwab have joined several startups in offering automated services that build and manage low-cost portfolios at a fraction of what investors typically pay human advisors.

The typical robo-advisor charges around half a percentage point for its services and the underlying cost of the investments. The average mutual fund has an expense ratio of around 1 percent each year, while an advisor can cost another 1 percent.

Based on a series of questions you answer, the digital advisor assembles a portfolio of ultra-cheap exchange traded funds that track stock or bond benchmarks. The advisor automatically rebalances the investments if they stray too far from the target asset allocation.

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Digital advisors have their limits. Most aren't offering comprehensive financial planning or regular contact with a human advisor. So if you need a lot of hand-holding or help with other financial issues, such as insurance or taxes, a robo-advisor may not be the answer. Digital advisors also typically can't help you manage money that's not invested with them, such as your company 401(k) or other outside account.

Some services, though, are trying to combine the cheap, objective approach of algorithms with a more personal touch. Vanguard, which recently lowered the minimum required investment for its Personal Advisor Services to $50,000, partners each digital service client with a human financial advisor. Those who invest more than $500,000 get a dedicated advisor. Vanguard charges 0.3 percent for the advice and investors get access to the company's extremely low-cost Admiral Shares, which have expense ratios as low as 0.05 percent.

Those who have at least $5,000 to invest have other choices, including Schwab Intelligent Portfolios, which charges no advice fee, and Wealthfront, which doesn't charge an advice fee on the first $10,000 and charges just 0.25 percent above that amount. Betterment, meanwhile, has fees of 0.15 percent to 0.35 percent and no minimum required investment, although investors who deposit at least $100 automatically avoid a $3 monthly fee. Betterment also has a partnership with Fidelity, which allows its affiliated advisors to use the digital service to manage client portfolios.

Many financial planners who once dismissed digital advisors as a toy for techies now view them as a real threat to their pricing structures -- and their livelihoods. Advocates, meanwhile, celebrate the services as an affordable alternative to conflicted or expensive financial advice.

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