Securities and Exchange Commission Staff Provide Guidance to Investment Advisers on Compliance Requirements for Robo-Advisers
The Securities and Exchange Commission’s Division of Investment Management recently issued guidance for investment advisers about the use of robo-advisers, including suggestions on how to fulfill disclosure, suitability, and compliance requirements under the Investment Advisers Act of 1940, “given the unique challenges and opportunities presented by these programs."
The SEC guidance focuses on three areas, and provides suggestions on how to address them:
- DISCLOSURE. The substance and presentation of disclosures to clients about the robo-adviser and the investment advisory services it offers;
- INFORMATION & ADVICE. The obligation to obtain information from clients to support the robo-adviser’s duty to provide suitable advice; and
- COMPLIANCE PROGRAMS. The adoption and implementation of effective compliance programs reasonably designed to address particular concerns relevant to providing automated advice.
The guidance also notes that investment advisers should consider whether any of their robo-advisers raise any issues under the other federal securities laws, including the Investment Company Act of 1940, and in particular Rule 3a-4, which is a nonexclusive safe harbor from the definition of investment company for programs that provide discretionary investment advisory services to clients.
Patomak Global Partners has deep expertise in risk management and compliance to help firms evaluate and enhance existing compliance programs. If you would like to learn more about how Patomak can assist with this kind of compliance work, please contact the colleagues you normally work with at Patomak Global Partners or Ben Brown at 202-862-3922 / firstname.lastname@example.org.
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