SCM NEWS & OPINIONS

Robo-Advisers: A Fast Growing Trend

Contact: Daniel D. Hill

or a number of reasons, Robo-Advisers are a fast growing trend.  Among other things, they provide retail investors with more affordable access to investment advisory services.  As a result, they are also causing changes to the competitive landscape of investment advisers.  If you or your firm is using, or is considering using Robo-Advisers, be aware they are, like any other RIA, subject to the substantive and fiduciary obligations of the Investment Advisers Act.

Broadly speaking, Robo-Advisers provide discretionary asset management services through the use of algorithmic-based programs.  A client who wishes to use a Robo-Adviser enters personal information and other data into an interactive, digital platform.  Based on the information entered, the Robo-Adviser generates a portfolio for the client, and thereafter monitors and manages the account.  Some Robo-Advisers involve little to no human interaction, while they are also used by traditional advisers as another resource.

Although a relatively recent innovation, the SEC has not failed to provide guidance for the use of Robo-Advisers.  In particular, the SEC has issued written guidance which suggests that those using Robo-Advisers focus on at least three distinct areas.  First, it is critical to pay close attention to what disclosures are made to Robo-Adviser users, when and how those disclosures are presented.  Second, users of Robo-Advisers should also recognize their obligation to collect accurate and sufficient information from the client to ensure that a resulting portfolio is suitable.  Third, users of Robo-Advisers need to ensure their compliance programs are reasonably designed and updated to address the unique concerns presented by automated advice.

In both a written Guidance and also a subsequent Update publication, the SEC provides more detailed information on how to be compliant when using Robo-Advisers.  If you would like direction to those publications, they are available online, or you can contact me.

When you need a securities services law firm in Utah

Our securities law attorneys are ready to help.  For more information about the services SCM provides in this area, contact Daniel D. Hill

Daniel D. Hill