On November 9, 2021, the U.S. Securities and Exchange Commission (SEC) Division of Examinations (EXAMS) released a risk alert (Risk Alert) concerning deficiencies it observed in its examinations of advisers providing electronic advisory services, including advisers known as “robo-advisers.”1 Those deficiencies were in the areas of the robo-advisers’ compliance programs, portfolio management practices (including advisers’ fiduciary obligations), and marketing/performance advertising.
The Risk Alert also identified issues related to many robo-advisers’ registration with the SEC as an investment adviser, particularly firms registering on the basis of Rule 203A2(e) of the Investment Advisers Act of 1940, as amended (Advisers Act). The Risk Alert also highlights concerns with robo-advisers’ reliance on, or adherence to, Rule 3a-4 under the Investment Company Act of 1940, as amended (Company Act). Specifically, the EXAMS staff reminded robo-advisers of the need to follow applicable registration requirements, exemptions, and safe harbors, both under (1) the Advisers Act, to be properly registered with the SEC, either as an Internet adviser relying on Advisers Act Rule 203A2(e) or another applicable provision or exemption, and (2) the Company Act, to avoid having their discretionary investment program deemed an unregistered investment company.
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