Robo-advisers are a fast-growing segment of the investment advisory industry. In fact, they now account for an estimated $71.5 billion in assets under management. In response to their explosive growth, the SEC has made robo-advisers an examination priority and has issued regulatory guidance to them. The SEC’s guidance is summarized below.
- Disclosures to potential clients should explain the: (i) robo-adviser’s business model and how it differs from traditional investment adviser models; and (ii) limitations in the scope of the robo-adviser’s services. The robo-adviser should also consider whether its delivery of the disclosures is clear and conspicuous enough to be effective in the context of the relationship, which may be entirely web-based.
- Questionnaires used to gather client information should be designed to obtain sufficient information to support the robo-adviser’s suitability obligation. Where the client can select investments other than those the adviser recommends, the robo-adviser should provide commentary supporting its recommendations.
- Internal compliance programs should address the unique aspects of the robo-adviser business model, including limited human interaction and heightened cybersecurity risks.
Advisers who have replaced or supplemented their advisory services with robo-adviser technology in recent years may have questions after reviewing the SEC’s guidance. Please feel free to contact us with any questions you may have.
Paul J. Foley is a partner with Kilpatrick Townsend & Stockton’s New York and Winston-Salem offices. John I. Sanders is an associate based in the firm’s Winston-Salem office.
 Daisy Maxey, Spotlight on Robo Advisers’ Returns, Wall Street Journal (Nov. 1, 2016), https://www.wsj.com/articles/spotlight-on-robo-advisers-returns-1478018429.
 SEC, National Exam Program Examination Priorities for 2017 (Jan. 13, 2017), www.sec.gov/about/offices/ocie/national-examination-program-priorities-2017.pdf.