Investment Company Directors
ICI Global Members
Investment Advisers Committee
Pension Committee
SEC Rules Committee
SUBJECTS:
Disclosure
Investment Advisers
The SEC’s Division of Investment Management recently published a Guidance Update on potential considerations for automated advisers or “robo-advisers” as they seek to meet their legal obligations under the Investment Advisers Act of 1940.[1] The staff based the Guidance on observations in coordination with the Office of Compliance Inspections and Examinations, and on feedback received at a Fintech Forum the Commission held in November 2016.
The Guidance notes that robo-advisers typically are registered as investment advisers under the Advisers Act, and explains that robo-advisers, like all registered investment advisers, are subject to the substantive and fiduciary obligations of the Act. The Guidance focuses on the following three areas and provides suggestions for how robo-advisers may address them:
- The substance and presentation of disclosures to clients about the robo-adviser and the investment advisory services it offers;
- The obligation to obtain information from clients to support the robo-adviser’s duty to provide suitable advice; and
- The adoption and implementation of effective compliance programs reasonably designed to address particular concerns relevant to providing automated advice.
While the Guidance focuses on the obligations of robo-advisers under the Advisers Act, the staff notes that robo-advisers should consider whether the organization and operation of their programs may raise any issues under other federal securities laws, including the Investment Company Act of 1940, particularly Rule 3a-4 thereunder.
Sarah A. Bessin
Associate General Counsel
Linda French
Counsel
endnotes
[1] See Robo-Advisers, IM Guidance Update No. 2017-02 (February 2017), available at https://www.sec.gov/investment/im-guidance-2017-02.pdf.