Note from the Publisher: Today’s story focuses on another behemoth (we just did a piece on Goldman today), this time Blackrock, who is ENCOURAGING more regulatory scrutiny for the robo-advisor category. Their robo – FutureAdvisor – was probably a pittance to them at $152M acquisition cost – but if they encourage more regulatory scrutiny on robos via their influence with federal financial governing bodies such as the SEC, I wonder who will benefit? BIG COMPANIES like Blackrock who can afford the massive cost of the new regulatory oversight, or little robos with $2B in AUM who have yet to make money and could not shoulder such an economic burden? Pardon my skepticism, as we really do think there should be some regulatory oversight of robos as well (it’s only fair), but we also do question to some extent, Blackrock’s intentions behind the move.
“……..BlackRock Inc., the New York-based near-$5-trillion asset manager that also owns iShares, used a white paper it published last month to tell the Securities and Exchange Commission, FINRA and state regulators in no uncertain terms that they need to look harder at the dozens of automated advisors that are dotting the cyberscape.
‘Digital advisors are subject to the same framework of regulation and supervision as traditional advisors; however, the applicability and emphasis may differ in some cases,” the BlackRock paper instructs. “We suggest that regulators focus on the following key areas.’
Those key areas are: 1) obtaining information about the customer; 2) algorithm design and oversight; 3) disclosures; 4) trading practices; and 5) data protection and cybersecurity.
Seth Rosenbloom, chief counsel at New York-based robo-advisor, Betterment, endorses the BlackRock white paper as intellectual capital funded by a powerhouse that is helpful for the industry of automated financial advice. Just last week, a prominent law firm, which claims Betterment as a client, put out its own white paper stating that robo-advisors are inherently able to meet the legal standard of a fiduciary.”