Robo-advisers expected to meet fiduciary rule

Robo-advisers in the US will be subject to the same fiduciary obligations as regular human advisers, the US Securities and Exchange Commission has said.

According to reports the new chairman of the SEC, Jay Clayton, is directing the SEC Division of Investment Management - in co-ordination with the Staff of the Office of Compliance Inspections and Examinations - to scrutinise algorithmic based advisers and the people who operate them.

The push follows announcements the SEC made in February that robo advisers will not be exempted from any of the legal obligations that apply to other advisers.

"An investment adviser's fiduciary duty includes an obligation to act in the best interests of its clients and to provide only suitable investment advice," the SEC noted in its February 2017 investment management guidance.

"Robo-advisers, like all registered investment advisers, are subject to the substantive and fiduciary obligations of the Advisers Act. Because robo-advisers rely on algorithms, provide advisory services over the internet, and may offer limited, if any, direct human interaction to their clients, their unique business models may raise certain considerations when seeking to comply with the Advisers Act."

The toughening policy stance by the SEC will by extension draw robo-advisers into the same regulatory framework that now requires retirement advisers are subject to fiduciary obligations under the Department of Labor's Fiduciary Rule.

The SEC's position on the issue is continuing despite the broader push by the Trump administration to relax financial regulation. It reinforces speculation that the SEC's new chair will be focused on enhancing protections of retail consumers.

In Australia ASIC has so far adopted a more relaxed position on digital advice, yet the SEC's hardening attitude plus the launch of several app-based superannuation products purporting to offer advisory support is likely to influence the future direction of this policy.

According to reports in the US Financial Planning news service, the Aite Group estimates digital advice in the US could reach A$600 billion by next year.

Read more: AdvisersSECUSSecuritiesFiduciary RuleFinancialAustraliaASICDepartment of LaborJay ClaytonTrumpPlanning
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