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SEC, FINRA Issue Robo-Advisor Warning

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Robo-advisors have been newsworthy for some time, but a new level was reached in early May when Vanguard announced the launch of Vanguard Personal Advisor Services, a hybrid approach that combines robo-advisor technology and real advisors.

Just a week later, the SEC and FINRA released a joint alert warning investors to make sure they understand the risks, limitations and fees charged by automated investment tools, including robo-advisors, before using them.

The alert, issued by the SEC’s Office of Investor Education and Advocacy and FINRA, noted the rising popularity of various online tools such as online calculators, portfolio selection or asset optimization services that provide recommendations on how to allocate 401(k)s or brokerage accounts, as well as online investment management programs like robo-advisors that select and manage investment portfolios.

Cipperman Compliance Services noted that firms that sponsor or utilize automated investment tools “should consider the alert’s warnings as guidelines to create a compliance program with the knowledge that the SEC/FINRA will review these issues during exams.”


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