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Article
Publication date: 4 September 2017

Stephanie M. Monaco, Amy Ward Pershkow, Leslie S. Cruz, Peter M. McCamman, Andrew D. Getsinger and Adam Kanter

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…

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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.

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