Chapter 10: The Regulation Of Robo-Advisors

In recent years, automated financial product advisors, more commonly known as “Robo-advisors” have begun to disrupt the global financial services industry. Using sophisticated algorithms, Robo-advisors are able to advise customers in selecting product offerings including investments, banking products, and insurance policies. Notably, though, the growth of Robo-advisors has posed a challenge to regulators, which have traditionally regulated human intermediaries rather than code.¹

In early 2017, Michael Piwowar, the acting Chairman of the U.S. Securities and Exchange Commission (the “SEC”), noted:

Chairman Piwowar’s sentiments were echoed in guidance the SEC later published to the public and registered investment advisers on the growing field of Robo-advisors.³ This guidance is welcome in an industry that has seen rapid growth over the last couple of years, setting forth a series of recommendations for Robo- advisors to help them meet the disclosure, suitability, and compliance obligations under the Investment Advisers Act of 1940 (the “Advisers Act”). The growth of Robo-advisors has been an international phenomenon, however, and has posed similar challenges for regulators in other countries as they attempt to ensure that their respective regulatory frameworks suit modern technologies.