What You Need to Know
- The exam division says it has recently seen a big rise in the number of advisors providing automated digital advice.
- More than one-half of the robo-advisors had advertisement-related deficiencies.
- The robo-advisors also made misleading or prohibited statements on their websites.
The Securities and Exchange Commission’s exam division highlighted Tuesday in a risk alert compliance deficiencies among robo-advisors — namely their advertising practices, as well as a lack of policies and procedures around rendering investment advice.
In the risk alert, the division states that while advisors have been providing automated digital investment advisory services to retirement plan participants and retail investors for more than two decades, the division “has recently observed a significant increase in the number of investment advisers choosing to provide automated digital investment advisory services to their clients.”
These advisors either exclusively provide online services or supplement their traditional investment advisory services by using proprietary software, third-party software or a combination.
“Millions of investors, individually and through their employer-sponsored retirement plans, now entrust their savings to advisers that provide their investment advisory services online, via mobile applications, or both (also known as robo-advisers),” the alert states.
The exam staff, as part of their Electronic Investment Advice Initiative, focused on how robo-advisors were upholding their fiduciary duty to provide clear and adequate disclosure regarding the nature of the advisors’ services and performance history and act in their clients’ best interests.