SEC Guidance Seeks Enhanced Disclosures By Robo-Advisers

In February, the SEC staff issued a guidance update focusing on "robo-advisers," i.e., registered investment advisers (RIAs) who provide online, automated investment advice, through the use of an algorithmic program. As RIAs, robo-advisers are subject to the fiduciary and other substantive requirements under the Investment Advisers Act of 1940. Unlike other RIAs, robo-advisers have little, if any, face-to-face interaction with clients.

This, among other factors, has led the SEC staff to assert that robo-advisers should consider providing the following disclosures to their clients:

• A statement that an algorithm is used to manage individual client accounts;
• The functions performed by the algorithm;