RIA Compliance Blog
The Financial Industry Regulatory Authority (“FINRA”) recently released guidance on effective practices for financial services firms that provide digital investment advice services. While the report analyzed rules of the securities industry that relate to such services, it discusses effective practices that “may be valuable to financial professionals generally,” including registered investment advisers. With the increasing use of digital investment advice tools in the financial services industry, FINRA undertook to review a broad range of these tools to ensure broker dealers as well as investment advisers are complying with their legal obligations.
The digital investment advice tools FINRA is referring to include both financial professional-facing tools and client-facing tools. These tools typically perform the necessary functions involved in managing an investor’s portfolio, including customer profile development, asset allocation, portfolio selection, trade execution, portfolio rebalancing, and tax-loss harvesting. Client-facing tools which perform these functions are commonly known as “robo advisors.” Financial professional-facing tools usually include portfolio analysis capabilities in addition to those listed functions.