Robo advisors have taken off from zero to 60 in no time at all and the SEC is trying to figure out how they should regulate them. A recent study estimated that by 2020 there will over $2 trillion dollars being managed by robo advisors. Not sure what a robo adviser is, well robo advisers allow you to use your smart phone to access automated investment advice and some even allow you to open an account through their proprietary mobile apps. Service offerings range from portfolio management to asset allocation and financial planning. There is little if any human interaction but the fees and minimum investment amounts tend to be lower than traditional brick and mortar financial advisors. You carry your financial adviser in your pocket and he/she goes everywhere with you.
As technology continues to explode, the Commission is now challenged to think through what it means to regulate a robo advisor. The laws as they exist today never contemplated a world with robo advisers in it. So they question appears to be, can robo advisers fit within the existing rules or do laws need to be created or tweaked to address the new realities. If history is any indicator, the SEC will be creating new rules to address robo advisers and how they provide investment advice. Click here to read the full content of the recent speech given by Commissioner Kara M. Stein.
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