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Markets and Securities Services |
United States
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or on a more frequent basis than the client
might expect and that the algorithm may
not address prolonged changes in market
conditions.
And any circumstances that might cause
the robo-adviser to override the algorithm
used to manage client accounts, e.g. that the
robo-adviser might halt trading or take other
temporary defensive measures in stressed
market conditions.
• With respect to disclosure regarding the robo-
adviser’s scope of services, there should be
a statement that the robo-adviser does not
provide a comprehensive financial plan, e.g. the
robo-adviser does not take into consideration a
client’s tax situation or debt obligations, or the
advice is only targeted to meet a specific goal,
such as paying for a large purchase or college
tuition, without regard to the client’s broader
financial situation.
• And with respect to the presentation of
disclosures, robo-advisers should emphasize key
disclosures, e.g. through design features on the
robo-adviser’s website such as pop-up boxes.
Provision of suitable investment advice
Like all investment advisers, robo-advisers have a
fiduciary duty to act in the best interests of clients
and to provide only suitable investment advice.
According to the IM Staff, the typical robo-adviser
business model creates a number of challenges
with respect to the robo-adviser’s obligation to
provide suitable investment advice, including:
The client questionnaire a robo-adviser may
use to elicit critical information needed to
understand the client’s financial situation, goals
and investment objective might not provide a
client with an opportunity to give additional
information or context for the client’s responses.
A robo-adviser may not be designed so that
advisory personnel may ask follow-up or clarifying
questions about a client’s responses, address
inconsistencies in the responses or provide a
client with help when filling out the questionnaire.
And a client may have the option of selecting a
portfolio other than what is recommended by
the algorithm, but may not have the opportunity
to consult with investment advisory personnel
about the suitability of that portfolio.