By Jim Bulling and Michelle Chasser
In Australia, robo-advisers providing personal financial product advice must comply with the statutory fiduciary duty to act in the client’s best interests. The Australian Securities and Investments Commission (ASIC) has made it clear that the duty is technology neutral and applies to robo-advisers as well as traditional advisers. ASIC also clearly stated its position that robo-advisers are able to comply with the duty (Regulatory Guide 255)
Robo-advisers in the US do not currently have the same clarity as their Australian counterparts. US advisors are subject to fiduciary duties from a number of sources depending on the type of advice given and the type of adviser giving it. The Massachusetts Securities Division (MSD) has stated that robo-advisers and traditional advisers have the same fiduciary duty. However, MSD and the Securities and Exchange Commission (SEC) have raised questions over robo-advisers’ ability to comply with the duty and hold themselves out to be fiduciaries. MSD is particularly concerned that from its research it appeared to be usual for robo-advisers not to perform any significant due diligence on their client’s circumstances which is needed to make appropriate investment decisions. The SEC is currently working on a fiduciary rule for advisers with plans to release the proposal in April 2017.
In the UK, the Financial Conduct Authority (FCA) has developed the Principles for Businesses (PRIN) which includes the requirement to pay due regard to the interests of customers and treat them fairly. The FCA has stated that the PRIN applies to all regulated firms including robo-advisers. The FCA established an Advice Unit to provide particular guidance to robo-advisers in June 2016.