Galvin scrutinizing ‘robo-advisers’

Massachusetts Secretary of the Commonwealth William F. Galvin has raised concerns as to whether and how a robo-adviser can act as a fiduciary.
Massachusetts Secretary of the Commonwealth William F. Galvin has raised concerns as to whether and how a robo-adviser can act as a fiduciary.

BOSTON – The Massachusetts secretary of the commonwealth’s office last week issued a laundry list of regulatory guidelines for the use of third-party ‘robo-advisers’ used by state-registered investment advisers.
The new guidelines call for advisers to meet the “fiduciary duties owed to their clients.”
The guidelines, issued by the Massachusetts Securities Division, an arm of the secretary of the Commonwealth’s Office, come in response to an increased number of state-registered investment advisers who’re using third-party robo-advisers for asset allocations, according to a press release.
“The purpose of this policy statement is to give guidance to those registering in Massachusetts as investment advisers who intend to use third-party, robo-advisers to manage their clients’ assets,” said William F. Galvin, secretary of the commonwealth. “My office has recently raised serious concerns as to whether and how a robo-adviser can act as a fiduciary, given the structure in which they work. If the state-registered investment adviser fills that gap and provides services not provided by the robo-adviser that is a positive step.”
The disclosures call for state-registered advisers to:

  • Clearly identify the sub-adviser as a robo-adviser and explain the services provided by the third-party robo-advisers
  • Inform clients that they could receive asset allocation services directly from the third-party robo-adviser
  • Detail the ways in which state-registered advisers provide value to the client for its fees
  • Specifically identify the services that the adviser cannot provide to the client
  • Make clear to the client that the third-party robo-adviser may be limited in the types of investment products available to the client
  • Use unique, distinguishable language to describe the services of the investment adviser and the third-party robo-adviser
  • The guidelines also call for advisers to inform clients of fees connected with the use of the third-party robo-advisers, according to the release. The office estimates there are about 700 investment advisers with a principal place of business in Massachusetts.
    “It is vital … that investors are fully aware of the role robo-advisers play in the handling of their accounts and the limitations, restrictions and fees which result,” Galvin added.

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