SEC Update Guidance and Investor Bulletin on Robo-Advisers

The Policy

What it does

Provides information and guidance for investors and the financial services industry applicable to the increasing use of robo-advisers.

Synopsis

The Securities and Exchange Commission (SEC) published information and guidance for investors and the financial services industry on the fast-growing use of robo-advisers, which are registered investment advisers that use computer algorithms to provide investment advisory services online with often limited human interaction. 

Because of the unique issues raised by robo-advisers, the Commission’s Division of Investment Management issued guidance for investment advisers with suggestions on meeting disclosure, suitability and compliance obligations under the Investment Advisers Act of 1940.

A second publication, an Investor Bulletin issued by the SEC’s Office of Investor Education and Advocacy, provides individual investors with information they may need to make informed decisions if they consider using robo-advisers.

The Investor Bulletin describes a number of issues investors should consider, including:

  • The level of human interaction important to the investor
  • The information the robo-adviser uses in formulating recommendations
  • The robo-adviser’s approach to investing
  • The fees and charges involved

Robo-advisers, as registered investment advisers, are subject to the substantive and fiduciary obligations of the Advisers Act. The Guidance Update notes that there may be a variety of means for a robo-adviser to meet its obligations to clients under the Advisers Act, and that not all of the issues addressed in the Guidance Update will be applicable to every robo-adviser.

Full details and links are provided in the SEC press release.

Context