Robo-Advisers vs Wealth Managers: Why Robo-Advisers Aren’t Always as Cheap as They Look

The Long-Term Cost of Robo-Advisers for UK Investors

Over the past decade, robo-advisers have become a popular part of the UK wealth management landscape. They promise low fees, simple investing, and an easy digital experience, all of which can be appealing, particularly for investors starting out. But as more people use robo-advisers for longer periods, an important question is emerging: Are robo-advisers really as cheap as they seem, and are they the best long-term solution?

The answer, as with most things in finance, is more nuanced than the headlines suggest. This article explores the true cost of robo-advisers, how fees actually work in practice, and why traditional wealth managers can still offer meaningful value over the long term.

The Appeal of Robo-Advisers

Robo-advisers are designed for efficiency and automation. Most offer:

• Online onboarding and risk questionnaires
• Algorithm-driven portfolio construction
• Passive investment funds (often ETFs)
• Automatic rebalancing
• Clear dashboards and reporting.

For many investors, especially those with simpler needs, this can feel refreshingly straightforward. And importantly, robo-advisers have helped democratise investing, making portfolios accessible to people who may never have spoken to a financial adviser before. That is a genuine positive.

The Headline Fee vs the Real Cost of Robo-Advisers

Robo-advisers often advertise annual fees of around 0.15% to 0.35%, which at first glance appears extremely competitive.

Costs Often Not Included in the Headline Fee

• Fund or ETF charges (commonly 0.15%–0.50%)
• Platform or custody fees
• Trading and transaction costs
• Foreign Exchange charges, sometimes hidden within funds

Once all costs are included, the total ongoing cost for many robo-adviser portfolios is closer to 0.50%–0.95% per year.

That is still reasonable, but it’s not dramatically cheaper than many traditional wealth management solutions, particularly for larger portfolios.

Once all costs are included, many robo-adviser portfolios end up costing far closer to traditional wealth management than investors expect

Why Lower Fees Don’t Always Lead to Better Outcomes

Cost matters. But in investing, outcomes matter more, and a slightly cheaper solution might lead to: Poor timing decisions. Emotional reactions in volatile markets and Inefficient tax outcomes which can easily cost more over time than a higher-fee solution that helps avoid those mistakes.

This is where the comparison between robo-advisers and traditional wealth managers often becomes distorted.

Behavioural Investing: The Hidden Cost Most Investors Underestimate

One of the biggest drivers of long-term investment returns is behaviour, not asset allocation, and Robo-advisers assume investors will: 

• Stay invested through market downturns
• Trust the algorithm
• Avoid reacting emotionally
• Follow the plan consistently.

In reality, many people struggle to do this, particularly during periods of market stress.

Algorithms rebalance portfolios. They don’t reassure people.

A traditional wealth manager often adds value not by outperforming markets, but by:

• Providing context during volatility
• Preventing panic decisions; and
• Helping clients stay aligned with long-term goals.

That behavioural support rarely shows up in a fee comparison, but over decades, it can be invaluable.

Algorithms rebalance portfolios. They don’t reassure people – and behaviour is one of the biggest drivers of long-term returns

Standardised Portfolios vs Personal Circumstances

Robo-advisers work best when life is simple. But wealth planning rarely stays simple for long. As circumstances change, investors often face:

• Multiple income streams
• Business interests
• Inheritance and estate planning
• Tax planning across ISAs, pensions and other assets.

Changes in risk tolerance or time horizon

Robo-advisers are designed around standardised solutions.

Traditional wealth managers can offer bespoke advice that reflects the full picture. The cost of not tailoring advice often rises as wealth and complexity increase.

Tax Efficiency: A Key Differentiator Between Robo-Advisers and Wealth Managers

One area where traditional wealth managers often add significant long-term value is tax efficiency. While many robo-advisers provide access to tax wrappers such as ISAs and pensions, they typically do not offer:

• Holistic tax planning
• Capital gains management across wrappers
• Withdrawal sequencing in retirement, and
• Coordination with accountants or estate planners.

Even modest improvements in tax efficiency, for example, saving 0.5% per year, can materially outweigh fee differences over time.

In other words, a wealth manager who reduces tax leakage may effectively pay for their own fee.

Risk Management vs Investment Performance

Risk management is not the same as performance.

Robo-advisers often focus on: Long-term expected returns. Model portfolios. And historical correlations

These frameworks are helpful, but real markets can be very messy and traditional wealth managers can apply judgment when market regimes change. volatility spikes, liquidity becomes an issue, and risk needs to be adjusted pragmatically. This doesn’t guarantee better performance every year, but it does offer flexibility and judgment when models struggle.

When Traditional Wealth Management Makes Sense

The long-term cost of “Good Enough”

Robo-advisers are often described as “good enough”. For some investors, they are. But over 20 or 30 years; multiple market cycles; changing tax rules and different life stages. “Good enough” can quietly become sub-optimal.

A difference of even 0.5% per year in net outcome, compounded over decades, can mean a substantial difference in financial flexibility later in life.

When traditional wealth management makes sense

Traditional wealth managers tend to add the most value when portfolios reach six figures and beyond. Tax planning becomes more important. Behavioural support matters. Decisions become irreversible (retirement, decumulation). Mistakes can become costly.

At that stage, the key question often shifts from: “Is this cheaper? to “Is this right for where I’m heading?” It’s not a binary choice.

The key question isn’t just ‘Is this cheaper?’ but ‘Is this right for where I’m heading?’

Final Thoughts on Robo-Advisers vs Wealth Managers

This is not about dismissing robo-advisers.

For many people, Robo-advisers are a sensible starting point. Traditional advice becomes more valuable later. Hybrid models can work well in between.

The mistake is assuming that: Lower fees always lead to better outcomes. Automation removes the need for judgment. Human advice is simply an avoidable cost.

Wealth planning is not just a technical exercise. It’s a long-term, human one.

Understanding the value of something rather than the price is an important consideration, and whilst robo-advisers have improved access, transparency and competition, that’s a good thing. But once all costs are considered, they are not always as cheap as they appear, and cost alone is not the right measure of value.

Over the long term, behaviour, judgement, tax efficiency and adaptability often matter more than a few basis points of headline fees. For many investors, the most expensive mistake isn’t paying too much, it’s paying too little for the wrong kind of help.