Name
Global FinTech Guide
Country _ Name
United States
SectionTitle
Financial advisory and broking services including robo advisory and auto-trading
Body
FinTechs belonging to this category offer advisory and broking services for investments usually via an internet platform.

Robo advisory services usually offer an investment proposition following a series of questions concerning the personal financial background and the risk-bearing capacity of the user. Sometimes the respective platform also enables the user to directly execute the proposed investment. 

Auto-trading concerns all services which automatically trade on behalf of the customer according to his or her specifications.

Apart from that some FinTechs collect and offer merely or as an ancillary service market information or operate comparison portals to increase the transparency of the capital markets and to help the investor with his decision-making.

There are also FinTech-advertising-services which advertise various financial services or products.

Introduction

Attitude of the country towards modern financial advisory and broking services

These FinTechs in this category provide advisory and brokerage services primarily through online platforms, covering a range of functionalities from investment advice to automated trading, including:

Robo-Advisory Services: Robo-advisors use algorithms to offer tailored investment recommendations based on a user’s financial background and risk tolerance. These platforms often guide users through an initial questionnaire to customize their investment strategy and, in some cases, enable users to execute transactions directly. While investment advisers who provide robo-advisory services have over $600 billion in AUM, only an estimated $7 billion of this is attributable to robo-advisory services.

Auto-Trading Services: Auto-trading platforms execute trades automatically based on pre-set criteria specified by the customer. This includes algorithmic trading and other automated investment strategies aimed at optimizing trade execution and investment returns. The U.S. market for auto-trading services is also expanding, driven by increasing adoption among both retail and institutional investors.

Market Information and Comparison Portals: Some FinTechs focus on providing market data, analytics, and comparison tools to improve market transparency and support investor decision-making. These platforms aggregate data, offer performance metrics, and may compare financial products, helping users to better understand market conditions and investment options.

The increasing adoption of these services in the U.S. reflects a broader trend towards digital financial management, as consumers seek convenience, lower costs, and enhanced decision-making tools. The shift towards technology-driven advisory and trading solutions highlights the evolving landscape of financial services.



Legal affairs

Obligations and requirements to provide financial advisory and broking services, or ancillary services described above

Robo-advisors and auto-traders are subject to distinct regulatory regimes:
Robo-advisors
: These platforms are primarily governed under the Advisers Act and regulated by the SEC. Generally, robo-advisors are exempt from state investment advisory regulations but must adhere to federal standards. However, robo-advisors must be cautious of potential oversight by the CFTC if they trade or advise on commodity interests.

Automated Traders: These services are regulated under the Exchange Act and are primarily overseen by FINRA, which administers many regulatory functions pertaining to broker-dealers delegated by the SEC. Auto-traders must also comply with state registration and licensing requirements in the jurisdictions where they operate or have customers.

While investment advisers without any AUM typically would need to register at the state level, robo-advisors are specially permitted to instead register at the federal level based on the following criteria:

  • Platform Exclusivity: The robo-advisor must offer investment advice exclusively through an operational interactive website at all times.
  • Client Limitation: All clients must now be advised exclusively through the internet, eliminating the old “15 and under” de minimis exception.
  • Independence: The robo-advisor must not be under common control with or control any other investment adviser that relies on it for advisory services.
  • Recordkeeping: The robo-advisor must maintain records demonstrating compliance with these conditions and provide them upon request.
  • Disclosure Requirements: The robo-advisor must provide clients with a Form ADV Part 2A brochure detailing its services, fees, and potential conflicts of interest.
The legal obligations of broker-dealers and investment advisers (in addition to those imposed on robo-advisors) are described in greater detail above under Asset and portfolio management—Legal affairs.



Additional comments regarding the legal situation for financial advisory and broking services, or adjacent services or what FinTech’s must be aware of in this business area

There is a significant amount of uncertainty regarding auto-trading in the context of digital assets, decentralized finance (DeFi) protocols and automated market makers (AMMs). Further, the SEC has had multiple examination initiatives specific to robo-advisors , and thus the considerations for operating a robo-advisory business are more specialized than those of an investment adviser.

Additional considerations are described in greater detail above under Asset and portfolio management—Legal affairs.



Economic conditions

Market size for financial advisory and broking services as well as adjacent services and biggest companies in this business area

The U.S. robo-advisory market, though a smaller segment relative to traditional asset management, is growing rapidly Leading robo-advisors include Vanguard, Charles Schwab, Betterment, and Wealthfront. Vanguard in particular has a significant market advantage, managing more assets than its next several competitors combined.
The adoption of robo-advisory services continues to rise, driven by advances in technology and increasing consumer acceptance of digital investment solutions. Many robo-advisors are incorporating AI and data analytics to enhance their offerings, including tax-loss harvesting and financial planning



Additional comments regarding the economic situation for financial advisory and broking services as well as adjacent services or what FinTech’s must be aware of in this business area

Robo-advisors generally experience fewer regulatory burdens compared to traditional broker-dealers, although these limitations have recently been strengthened. They are regulated under the Advisers Act, which imposes fewer requirements compared to the Exchange Act that applies to broker-dealers. However, robo-advisors must still comply with fiduciary duties, data protection regulations, and relevant state laws, which can vary depending on their operational scope and client base.

Authors

Close

Choose country