Like any new financial trend, robo-advisors should be met with caution. Although it may seem easy to have a robo-advisor select a few index funds for your portfolio, it is crucial to take a personalized approach when planning for your financial future.

As individuals look for ways to plan for college and retirement, it is important to acknowledge the realities of using a robo-advisor and what you should know before entrusting this technology to manage your savings. 

What exactly are robo-advisors?

In its most basic form, a robo-advisor is a web-based program offering automated investment tools that require little to no human interaction. In other words, referring to this technology as an "advisor" is somewhat of a misnomer.

Typically, robo-advisors utilize algorithms that are standardized by the financial services company managing the portfolio. The algorithms are modified for each customer based upon a questionnaire that assesses their demographic and risk profile, typically focusing on popular or trendy funds that track against the top indexes.

Due to their cookie-cutter approach, robo-advisors often provide limited portfolio diversification, making little or no attempt to adjust their investment profiles along market trends.

Looking past automated portfolio management, the true bottom line when it comes to robo-advisors is their inability to work with customers one-on-one.

Robo-advisors don't have the ability to get involved in more personal areas of wealth management, or to answer questions such as: Are you on track to meet your retirement goals? Do you and your partner have different comfort levels with market risk?

While the capabilities of each robo-advisor program varies on a case-by-case basis, robo-advisors may also lack the capacity to provide advice on taxes, insurance or estate planning, not to mention budgeting and cash flow management – all critical components of a comprehensive financial plan.

While they may offer management at a fraction of the cost of a dedicated financial planner, investors must ask themselves at what point does the lack of personal touch affect long-term success?

Deserving a dedicated financial partner

Investing and planning for one's financial future is a very personal experience that relies on more than simply allocating funds across a variety of asset classes.

While it is easy to have a robo-advisor manage a portfolio in a strong market, during a recession or a period of extended volatility, many investors find reassurance in being able to pick up the phone and speak with a personal financial advisor to make sense of the current situation and lay out a plan for going forward.

The investor/advisor relationship requires a critical balance of emotional support and practical thinking, being a support system and providing counsel on how to make financial decisions that give the investor a competitive advantage over the rest of the market.

For younger investors who are just beginning to build their financial profile and want to save money in a Roth IRA, using a robo-advisor can provide an effective and cost-efficient way to get started.

Robo-advisors can also help individuals with smaller savings or simplified tax circumstances save for retirement. As with any financial investment, it is important for individuals to research a robo-advisor, looking at the associated fees and services, before making a selection. This recent article in Time may be helpful.

Investors looking for more personalized long-term management may find that working with an advisor, preferably a certified financial planner, better provides them with investment and financial planning advice.

In the end, it is up to the individual to determine the investment strategy that works best for them.