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January 30, 2017 at 07:00 PM
The cover story in the February 2017 issue of Investment Advisor, Can a Robot Be a Fiduciary?, focuses on digital advice providers, aka robo-advisors, in which First Ascent’s Scott MacKillop explores two primary questions. One is whether a robo-advisor can be a fiduciary; the other, related question is whether robo-advisors are operating as unregistered mutual funds in violation of the Investment Company Act of 1940.
In his article, MacKillop reports on how the now departed SEC Chairwoman Mary Jo White and Labor Dept. Secretary Thomas Perez, the Massachusetts securities regulator and two prestigious law firms weighed in on the question.
More recently, the SEC has addressed the question as well. In her Feb. 24 news article, SEC Issues Guidance for Robo-Advisors, Investors, Danielle Andrus reports that the commission issued guidance for advisory firms that offer automated advice platforms to help them meet disclosure, suitability and compliance obligations under the Investment Advisers Act of 1940.
In exploring the question of whether a ‘Robot can be a fiduciary?’ in his article MacKillop primarily focuses on pure business-to-consumer robo-advisors, but how should the other robos be regulated? That is,the ones that combine technology with human advice, and those that sell their technology to advisors for use in their practices?–Ed.
Robos like Vanguard and Personal Capital that combine technology with human advice should be regulated as investment advisors under the Advisers Act. That is how they are currently regulated.
The regulators should make sure, however, that these firms are truly giving clients access to qualified advisors and not simply to customer service reps or sales people who don’t have the training or credentials to provide personalized advice.
