In February, the SEC staff issued a guidance update focusing on "robo-advisers," i.e., registered investment advisers (RIAs) who provide online, automated investment advice, through the use of an algorithmic program. As RIAs, robo-advisers are subject to the fiduciary and other substantive requirements under the Investment Advisers Act of 1940. Unlike other RIAs, robo-advisers have little, if any, face-to-face interaction with clients.

This, among other factors, has led the SEC staff to assert that robo-advisers should consider providing the following disclosures to their clients:

• A statement that an algorithm is used to manage individual client accounts;
• The functions performed by the algorithm;
• The limitations and particular risks of using the algorithm;
• Any circumstances that might cause the robo-adviser to override the algorithm;
• Any third-party involvement in the development, management, or ownership of the algorithm, including an explanation of any related conflicts of interest;
• Fees and costs that the client will pay, directly or indirectly;
• The degree of human involvement in the oversight and management of client accounts; and
• How the robo-adviser uses the information gathered from the client to create recommendations, and how and when a client should update such information.

The guidance update also emphasizes, among other things, that disclosures should be in plain English and reminds robo-advisers to carefully consider whether their disclosures are presented in a way conducive to client understanding. For example, the staff stated that advisers may wish to consider:

• Presenting certain disclosures to prospective clients before they sign up for an account;
• Using design features such as pop-up boxes, and interactive text to emphasize key disclosures or provide additional information; and
• Whether the presentation and formatting of any disclosure made available on a mobile platform have been appropriately adapted for that platform.