The Securities and Exchange Commission’s Division of Investment Management issued guidance regarding best practices investment advisers should follow when utilizing automated systems to provide discretionary asset management services through online algorithmic-based programs, sometimes called “robo-advisers.” DIM alerted such advisers to ensure (1) their disclosure to customers is sufficiently specific so that a client could comprehend the adviser’s business practices and potential conflicts of interest; (2) that questionnaires used to collect client information to base the automated investment advice obtain sufficient information to enable the robo-adviser to provide suitable and appropriate advice; and (3) their compliance program adequately reflects the unique nature of their business model. Among other things, this program should address the development, testing and back testing of algorithmic code and the oversight of third parties that develop, own or manage code used by the robo-adviser.

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