US securities and exchange commission’s division of investment management issues guidance regarding robo-advisers

Abstract

Purpose

To explain a guidance update issued in February 2017 by the staff of the Division of Investment Management (Staff) at the US Securities and Exchange Commission (SEC) on how robo-advisers may meet their disclosure, suitability and compliance obligations under the Investment Advisers Act of 1940 (Advisers Act).

Design/methodology/approach

Examines the update’s guidance on three areas – the substance and presentation of disclosures, the provision of suitable investment advice, and the adoption and implementation of effective compliance programs – and then raises practical considerations for robo-advisers.

Findings

The update reflects the Staff’s increasing concern about the potential risks of the robo-adviser platform and provides a listing of key issues that the SEC’s Office of Compliance Inspections and Examinations (OCIE) – which recently added “electronic investment advice” as a new focus for its 2017 examinations – may zero in on when examining robo-advisory firms.

Practical implications

Robo-advisers should carefully review the Staff’s update to evaluate whether their firms’ operations address the guidance.

Originality/value

Practical advice from experienced securities regulatory lawyers.

Citation

Monaco, S.M., Pershkow, A.W., Cruz, L.S., McCamman, P.M., Getsinger, A.D. and Kanter, A. (2017), "US securities and exchange commission’s division of investment management issues guidance regarding robo-advisers", Journal of Investment Compliance, Vol. 18 No. 3, pp. 26-33. https://doi.org/10.1108/JOIC-06-2017-0035