Robo-advisers sound off to SEC about rule changes for automated advice

Digital-advice firms tell the Securities and Exchange Commission they put clients' interests first and that some regulatory updates are needed as digitization of the industry grows

Nov 14, 2016 @ 1:02 pm

By Liz Skinner

Online-advice providers told regulators that they uphold the nation's securities laws, including the fiduciary standard of care for investors, but think some rule updates are needed as digitization of the industry grows.

The SEC hosted a forum of financial technology experts Monday to discuss the impact of innovations in investment advice and other financial services. SEC staff is considering whether further guidance or even new rules are needed to protect investors.

“We are looking at how advisers provide investment advice with limited, if any, human interaction,” said Mary Jo White, chairwoman of the SEC, in opening remarks. “We also are considering how automated advisers are designing their compliance programs to address the particular challenges relevant to providing automated advice and how these firms safeguard client data and address business continuity in the event of a disruption.”

Automated-advice providers, often called robo-advisers, register with the Securities and Exchange Commission as investment advisers and are subject to the Investment Advisers Act, which requires clients' interests to come first when providing recommendations, among other standards.

Regulators have questions about how that happens when recommendations are generated by algorithms, and in May the SEC and the Financial Industry Regulatory Authority Inc. alerted investors to the risks associated with using a digital provider over a human.

Representatives of several automated-advice providers said Monday they provide high-quality financial advice that puts clients' best interests at the forefront.

"We take the fiduciary responsibility very seriously," said Ben Alden, general counsel for Betterment. "It's really what this whole movement is about."

In fact, live advisers had better start using technology like the robo-advisers have developed if they expect to deliver advice that takes into consideration a client's full financial picture, said Mark Goines, vice chairman of Personal Capital, which combines digital and human advice.

“Advisers must move forward and use technology to be holistically advising clients properly,” he said. “If you don't, you're going to miss something, as things happen too quickly today and clients' lives are too complicated.”

Mr. Goines said the average Personal Capital client has 15 accounts.

(More: How fintech aims to make DOL fiduciary rule manageable)

Mr. Goines said there are two areas where securities rules demand updating.

First as regards adviser examinations the SEC staff carries out.

“What we do is different than the way they've examined the companies that are in our space before,” he said.

During the one examination of Personal Capital, some of the questions SEC examiners asked didn't really apply, and some of the questions that the probe generated didn't really make sense, he said.

(More: Why robos should be an 'eye-opener' for advisers)

How to deploy digital advertising is another area where the rules need clarification for companies that are delivering an automated service, he said.

Bo Lu, co-founder and chief executive of FutureAdvisor, Blackrock's digital wealth platform, said the rules need to remain flexible to accommodate emerging and not-yet-developed technologies, such as connected digital devices that are always on and adding to data about a client.

Jim Allen, the CFA Institute's head of the capital markets policy group, said his members question whether the advice that digital providers offer can be comprehensive enough to consider real-world factors going on in clients' lives.

“It's [in] the many and varied circumstances of investors that they may not receive the appropriate, personalized advice that you would hope they would have,” he said during the morning panel. “Of course, that similar lack of imagination affects human advisers as well.”

[Correction: An earlier version of this story mistakenly attributed the comments about live advisers needing to adopt technology to be holistic with clients, and the average number of client accounts of 15, to Ben Alden of Betterment. They were actually the comments of Mark Goines of Personal Capital.]


What do you think?

View comments

Recommended for you

Upcoming Event

Nov 13


Best Practices Workshop

For the sixth year, InvestmentNews will host the Best Practices Workshop & Awards, bringing together the industry’s top-performing and most influential firms in one room for a full-day. This exclusive workshop and awards program for the... Learn more

Featured video


How interest rates have affected different types of insurance

Social media and engagement editor Scott Kleinberg and reporter Greg Iacurci discuss a common theme in this week's popular insurance stories.

Latest news & opinion

Trump said 'you're fired' to this adviser on TV in 2005, then LPL fired him for real in 2018

Louisville adviser Mark Lamkin was terminated by LPL, in part for failing to disclose outside business activities.

What not to do when working with couples

These are moves advisers should avoid when they are working with couples as clients.

Private Ocean grows to $2.2 billion with acquisition of Mosaic Financial

Combined financial planning operation gives the firm an expanded footprint in the San Francisco area.

Joe Duran has a game plan, and anyone can play

The CEO of United Capital built a formula for holistic financial planning that any firm can tap into — for a price.

LPL video about private equity looks like a swipe at Cetera

Recruiting video warns about potential consequences for advisers when a PE firm buys a broker-dealer.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print