What has my financial adviser done for me lately? It’s a question that more investors will find themselves asking these days amid the increasingly inexpensive and digitalized portfolio management of so-called robo-advisers.

Assets with digital registered investment advisers rose 160% from 2013 to 2014, to $5.1 billion, according to Aite Group, a research and advisory firm that focuses on the financial services industry. At their most basic, these services provide automated portfolio construction and management: an algorithm allocates investors’ assets among low-cost funds and then periodically rebalances the portfolio.

With these low-cost alternatives on the market, traditional advisers are going to have to provide more to justify their 1% fees than portfolio construction and management and an annual sit-down review.

“Not everyone can justify why their fees are higher,” said Michael Kitces, partner and director of research for Pinnacle Advisory Group in Columbia, Md.

Read: We asked 4 robo advisers and 4 human advisers for portfolios for the same investor

Algorithms

The robo systems, which first started appearing a few years ago, make professional investment advice accessible to those without huge investment balances. Basic automated portfolio construction is particularly well suited to young people in the early, “accumulation” stage of their careers, who need to establish good saving and investing habits before their lives get more complicated.

Read: Can you tell a human financial adviser from a robot?

Yet the robo-advising landscape has quickly evolved, and early pioneers such as Betterment have rolled out offerings like tax loss harvesting that appeal to more sophisticated investors. Some have also targeted offerings to those preparing for and in retirement.

Industry behemoths Vanguard and Schwab recently entered the fray with hybrid offerings that pair digital portfolio advice and with human interaction, all for a very low cost. Schwab charges no management fee and makes money through fund fees; Vanguard also makes money through fund fees and charges 0.3% of assets as an annual management fee.

Both companies built new software for their platforms, with a focus on streamlining back-end transaction processes and creating mobile-device friendly interfaces. “The whole client experience is paperless and very mobile friendly,” said Tobin McDaniel, president of Schwab Wealth Investment Advisory.

The backstory

The rise of digital advisory services reflects the confluence of two long-term trends in the financial planning business, said Sophie Schmitt senior analyst with the Aite Group: the rise of low-cost investing, exemplified by exchange-traded funds, and the increasing sophistication of technology.

Exchange-traded funds are baskets of securities that trade like an individual stock. They track an index and, as such, are known as passive investments that aim to mimic market returns. While some traditional advisers invest client assets in ETFs, many gravitate to so-called active management, either by managing client portfolios themselves or by placing clients in actively managed funds. Actively managing money—and attempting to steer clients away from whatever dangers lurk in the broad market—is one way that advisers seek to justify their fees, despite repeated evidence that active managers have a hard time beating the market.

Read: Want to be psychoanalyzed by an investing algorithm? Take this test

Do-it-yourself investors have long put together their own portfolios of low-cost passive funds, aided by investing sites such as Morningstar.com or by their peers in discussion boards like the one on Bogleheads.org. The real value in automated investment services lies in the management of those portfolios—that is, their automated portfolio rebalancing and tax-loss harvesting, said Adam Nash, CEO of Wealthfront, one of the earliest players in the space.

Plenty of do-it-yourself investors don’t bother with these portfolio housekeeping tasks. And for those who do, “It’s very easy to make simple mistakes,” Nash said. Wealthfront charges 0.25% on assets over $10,000 to handle all trades in the account, as well as periodic rebalancing and daily tax-loss harvesting. There is no advisory fee on the first $10,000 of assets under management; Wealthfront’s account minimum is $500.

Traditional financial advisers also handle portfolio construction and tax-loss harvesting, of course. Many of them charge an annual fee of 1% of assets under management to do so. (Stock brokers, by contrast, may not charge upfront for advice, but they are more focused on selling products on commission than on holistic portfolio management and financial planning.)

The question then becomes, what else do advisers offer for that 1% that an automated service can’t? Plenty, proponents argue. Retirement planning in particular involves many complex moving parts—Social Security claiming strategies, tax planning, and the decision of where and how to live, to name just a few—that can’t easily be boiled down into an algorithm. “I don’t see robo-advisers doing very well with that at all,” said Dave Littell, retirement income program director at The American College.

What’s more, most digital advisers don’t look at the entirety of an investor’s financial life. They’re not going to advise on an estate plan, insurance purchases, or how to maximize employee benefits, for example. While they handle 401(k) rollovers, for the most part they don’t manage assets in clients’ 401(k)s, even though many Americans hold the bulk of their retirement savings in these accounts.

Read: Here is the advice you get from Vanguard’s new robot-human hybrid

The value of handholding

A computer isn’t going to take an investor’s call when the market tanks and he wants to race into cash. This type of handholding is one of the most valuable services that traditional advisers provide, proponents say. But it’s one that’s decidedly less attractive to millennials. “Folks under 35 would pay you not to call,” Nash said.

Sixty percent of Wealthfront’s clients are under 35, and 90% are under 50. For the more telephonically inclined among them, Wealthfront offers access to a customer service team with financial credentials including the Series 7 exam. By contrast, Betterment’s New York City-based support team does not hold any particular financial credentials, since they don’t provide investment advice, a spokesman said.

Clearly, some sort of handholding—maybe hand restraints?—is in order. In 2014, the average equity mutual fund investor unperformed the Standard & Poor’s 500 by a margin of 8.2%, while the average fixed income mutual fund investor underperformed the Barclays Aggregate Bond Index by 4.8%, according to Dalbar, a Boston-based financial services market research firm.

The Dalbar study reflects the total universe of U.S. registered mutual funds, which encompasses investors from do-it-yourselfers to those with full service advisers, said Cory Clark, head of research and due diligence at Dalbar. So while a relationship with a human adviser doesn’t guarantee stellar investment results, it may help avert the worst kind of panic responses.

Some robos are trying their own versions of talking clients off the ledge. Betterment, for example, offers a “tax impact preview” of trades that a client is considering. In one test, 60% of clients who were shown a negative impact decided not to proceed with the trade.

The hybrid threat

The biggest threat to the traditional financial planning industry will likely come from Vanguard and Schwab’s new services, which combine human-adviser interaction and low-cost portfolio services, Kitces said. At Vanguard’s Personal Advisor Services, investors with $50,000 to $500,000 work with a team of advisers, while those with more than $500,000 have a dedicated adviser. There’s no cap on the number of times that investors of any asset level can communicate with their advisers, which they typically do over the phone or via videoconference.

Vanguard built its hybrid with boomers approaching retirement in mind, said spokeswoman Katie Henderson. Clients receive a full financial plan that encompasses estate planning and Social Security. “It’s not just a portfolio recommendation,” she said.

Most of Vanguard’s advisers either have their certified financial planner designation—one of the most rigorous in the industry— or are working toward it, Henderson said. As such, advisers are equipped to discuss the complex, emotional topics that retirement planning brings up, Henderson said. With Schwab’s service, called Schwab Intelligent Portfolios, investors don’t get a dedicated adviser or team of advisers but can go into any Schwab branch and talk to an adviser there, or call a member of the Schwab Intelligent Portfolios advice group on the phone; most of these advisers have earned the certified financial planner designation, a spokesman said.

Rebalance IRA is another hybrid service aimed at helping people prepare for and live in retirement. “If you’re over 45, your life is complicated,” said Mitch Tuchman, managing director and a MarketWatch RetireMentor columnist. “We dish out hard advice.” He’s told 62 -year-olds that they have to go back to work, for example, since their assets aren’t sufficient to support their retirement lifestyle. Rebalance IRA, which Tuchman describes as a “boutique” version of Vanguard’s hybrid, charges clients an annual fee of 0.70% of assets.

Over time, the industry could see a bifurcation among traditional advisers, Kitces said. To stay afloat amid the competition, they might have to specialize in a niche—think an adviser who helps doctors manage their finances and their practices—or in affluent clients with at least a few million in assets, whose financial lives will continue to defy algorithmic advice.

If you can’t beat ‘em...

Steve Kaufman, 65, a self-employed public relations professional in The Villages, Fl., pays 0.8% per year to have his Individual Retirement Account assets managed by Fidelity.

Absent any concrete evidence that robos are better, Kaufman’s staying put for now. “If you’re a heavy-duty investment buff and you’ve got the spread sheet, you would probably plow through the weeds,” he said, diving into a deep analysis of the fees and returns. “But I don’t get that into it, because in the end it’s not that much money.”

It’s not all us-versus-them in the world of automated investment services. Advisers now have the option of putting their own stamp on digital advice through adviser-facing offerings from Betterment Institutional and Schwab Institutional Intelligent Portfolios.

Both of these services allow advisers to put their own brand on offerings delivered through Betterment and Schwab; advisers using Schwab ‘s service can also build their own customized portfolios for clients using Schwab’s platform. Advisers can then focus the bulk of their energies on the services that robos don’t offer, such as estate planning and handholding.