The Financial Industry Regulatory Authority (FINRA) issued a release urging firms that provide digital investment advice, including “robo advisors,” to implement tools to ensure that clients are being treated fairly as the demand for automated service continues to grow.
What are Robo Advisors?
Robo advisors involve automated portfolios that create an asset allocation and adjust holdings over time based on client preferences, which is determined based on a series of questions answered by the client in order to identify investment objectives, risk tolerance, and other priorities.
Although no new legal requirements or obligations were imposed by the regulatory agency, firms that dispense investment advice were reminded of a series of effective practices governing robo advisors.
How the SEC is Supervising Robo Advisors
For example, FINRA has suggested that firms keep an eye on the algorithms used in dispensing automated advice to ensure they do not stray from their intended use, including making sure the formulas are consistent with the firm’s approach to profiling investors, tax-loss harvesting, and account rebalancing, among other concerns.
FINRA also warned against potential conflicts of interest when constructing portfolios, if the firm provides both automated advice as well as access to actual financial advisers. The agency is also recommending that firms reevaluate their current methods to make sure that they are gathering enough information about their clients to understand their needs and risk tolerance.
Did You Suffer an Investment Loss due to a Robo Advisor?
If you suffered an investment loss based on the recommendation of a robo advisor, you may have certain legal rights that require your immediate attention. Contact an experienced Los Angeles investment fraud attorney as soon as possible to discuss your rights.