What are the Legal Rules to Estate Investment Robo-advisory Services?

Robo-advisers are transforming the investment industry, including the estate advisory and planning segment. Algorithms present cost-effectiveness that translates to further savings for the investor by eliminating the “middleman.” Human advisers charge significantly more than these alternative wealth management services, making traditional services less appealing of an option for younger investors sold on technology and rapid returns. How does this bode for retirement investors, and especially the estate planning segment of the market?


Robo-Adviser Investment Services

The more complex the management of a fund, product, or portfolio of services, the less likely an investor will be fully-satisfied with robo-advisory services one hundred percent of the time. Major investment firms piloting robo platform as part of their consumer services offerings, are finding artificial intelligence to be a support feature rather than an obstacle to delivery of high-quality investment advisory services. Robo-advisers offer the kind of on-demand attention that a “living trust” requires; collecting the current financial position and investing goals of a client without the imposition of human delays. According to industry experts, the best is yet to come. Now that robo-advisers are capable of handling sophisticated tasks like retirement and estate planning, both investors and human advisers benefit from an obsolescence of human error. It is perhaps for this reason that legislators have been laissez faire in creation of new regulatory rules associated with robo-adviser practice.   

FINRA & SEC Regulation of Robo-advisers

Robo-adviser regulation to present has been limited. Rules of investment advisory in compliance with U.S. federal regulation in the Investment Advisers Act of 1940 are recognized by the Financial Industry Regulatory Authority (FINRA), the private regulatory body responsible for the oversight of broker-dealers operating in the estate planning and investment services industry. Regulation of advisory services by the Securities Exchange Commission (SEC) is described in the Sarbanes-Oxley Act enacted by executive order in 2002. The question is, are robo-adviser automated platforms in adherence with regulatory rules to fiduciaries?

Robo-Adviser as Fiduciary

In 2017, the U.S. Congress amended the federal Department of Labor Employee Retirement Income Security Act of 1974 (ERISA) to mandate fiduciary rules to all financial advisors. The rule expands the Act to “robo-advisers”. Legal obligation to accountability for acts performed by a technical adviser are is covered under ERISA rules of institutional liability. The recent rule reform states that all financial professionals be bonded fiduciaries. A prudential measure meant to enforce fiduciary “duty to a reasonable standard of care” in professional dealings, the reform is “in the best interests of the client” and emphasizes transparency and accountability. ERISA protects investment clients from illicit deals or transactions that would otherwise compromise their interests.

Contact a Probate Attorney

Ettinger Law Firm is a licensed New York attorney practice specializing in estate law matters. Contact Ettinger Law Firm for consultation about an estate investment practice lawsuit.

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