Flawed Algorithms
If the algorithms that drive the robo-advisers' advices are flawed, the risk will be big. But for a retail investor, do you really understand your robo-adviser's algorithms?
There was a study by Asset Dedication, a San Francisco firm that provides turnkey asset management for financial planners, found that equity portfolios recommended by robo-advisers for "moderate" investors were "most strongly correlated to portfolios designed for one to three years". For a young moderate investor, apparently such portfolio recommendation will sacrifice the long term return for short term risk avoidance.
Trading Risks
In the wake of Britain's exit of EU, stock market decline significantly. Betterment halted its trading on June 24 2016 in U.S. stocks until roughly noon Eastern time.
Betterment notified its decision to more than 200 financial firms that uses its platform, but made no disclosure to its direct retail clients. Imagine as a client of robo-adviser and you wanted to buy or sell but found trading is halted, only for you!