Risk #3: Five Considerations For Advisers Implementing AI In Investment Decisions

Use of technology referred to as "artificial intelligence" is fast finding its way into many aspects of commercial life. Registered investment advisers are no exception as AI tools are already being used for screening and research, portfolio construction, trading and drafting client communications. As advisers integrate these tools into their investment processes, they face a familiar set of questions under the federal securities laws.

Though the SEC's "predictive data analytics" (or "PDA") proposal, which focused on the use of AI through the lens of conflicts of interest has now been withdrawn, this does not signal a retreat from AI as a supervisory priority. Going forward, the SEC seems likely instead to evaluate use of AI through the lens of an adviser's fiduciary duty of care, as opposed to the conflicts-focused PDA rule centering on an adviser's duty of loyalty. That is, instead of scrubbing through an AI tool's inputs to evaluate whether it could potentially