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SEC guidance on roboadvice

The US Securities and Exchange Commission’s staff has published information and guidance for investors and the financial services industry on the fast-growing use of “robo-advisers,” a catch-all term for investment advisers that use computer algorithms to provide investment advisory services online, often with limited human interaction. In light of the unique issues raised by robo-advisers, the SEC’s Division of Investment Management issued a Guidance Update on 23 February 2017 for investment advisers with suggestions on how robo-advisers can best comply with disclosure, suitability and compliance obligations imposed by the Investment Advisers Act of 1940. A second publication, an Investor Bulletin issued by the SEC’s Office of Investor Education and Advocacy, provides individual investors with information they may need to make informed decisions if they consider using robo-advisers.

The Investor Bulletin describes a number of issues that investors should consider, including:

  • The level of human interaction and its importance to the investor

  • The information the robo-adviser uses in formulating recommendations

  • The robo-adviser’s approach to investing

  • The fees and charges involved

Investors can use the SEC’s Investment Adviser Public Disclosure (IAPD) database, which is available on Investor.gov, to research the background of any investment adviser, including registration or license status and disciplinary history.  This includes robo-advisers, which are typically registered as investment advisers with either the SEC or one or more US state securities authorities.

Copyright 2020 K & L GatesNational Law Review, Volume VII, Number 61

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About this Author

Todd Gibson, Investment Management Group, Attorney, KL Gates Law Firm
Partner

Mr. Gibson is a member of the firm’s Investment Management Group, and his practice focuses primarily on international aspects of investment management services and globally-distributed fund products. His clients include U.S. and non-U.S. investment managers, U.S. broker/dealers, hedge funds, and private equity funds, and he acts as special U.S. counsel to funds organized under the European UCITS directive. Mr. Gibson also acts as fund counsel to U.S. registered investment advisers and U.S. mutual funds registered under the Investment Company Act of 1940. He also...

412-355-8315
Michael W. McGrath, Investment Management, Securities, Commodities Attorney, KL Gates, Law Firm
Partner

Michael McGrath is a partner in the firm’s Boston office. He practices in the areas of investment management, securities, and commodities law, including the representation of institutional investment firms, registered investment companies, private equity and hedge funds, and emerging financial technology firms. 

Mr. McGrath counsels financial institutions regarding SEC, CFTC, NFA, and FINRA regulation. His practice is focused on helping financial institutions design their compliance programs, supporting trading and investment management issues including best execution, soft dollars, control of nonpublic information, and derivatives trading, and assisting with SEC and NFA staff examinations. 

617-951-9123