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117 Colum. L. Rev. 1543 (2017)
Are Robots Good Fiduciaries: Regulating Robo-Advisors under the Investment Advisers Act of 1940

handle is hein.journals/clr117 and id is 1611 raw text is: ARE ROBOTS GOOD FIDUCIARIES? REGULATING ROBO-ADVISORS UNDER THE INVESTMENT ADVISERS ACT OF 1940 Megan Ji* In the past decade, robo-advisors-online platforms providing investment advice driven by algorithms-have emerged as a low-cost alternative to traditional, human investment advisers. This presents a regulatory wrinkle for the Investment Advisers Act, the primary federal statute governing investment advice. Enacted in 1940, the Advisers Act was devised with human behavior in mind. Regulators now must determine how an automated alternative fits into the Act's framework. A popular narrative, driven by investment advice professionals and the popular press, argues that robo-advisors are inherently structurally incapable of exercising enough care to meet Advisers Act standards. This Note draws upon common law principles and interpretations of the Advisers Act to argue against this narrative. It then finds that regulators should instead focus on robo-advisor duty of loyalty issues because algorithms can be programmed to reflect a firm's existing conflicts of interest. The Note concludes by arguing for a shift in regulatory focus and proposing a two-part heightened disclosure rule that would make robo-advisor conflicts of interest more transparent. INTRODUCTION As software eats the world,' the law must adapt legal frameworks that were designed for traditional businesses to new, technology-based business models. In the financial services sector, the emergence of robo- advisors-online services that use algorithms to generate investment recommendations for clients'-has raised questions regarding the regulation of digital advice. Regulators must grapple with whether entities that provide algorithmic investment recommendations can fulfill * J.D. Candidate 2018, Columbia Law School. 1. Technology entrepreneur and venture capitalist, Marc Andreessen, coined this phrase in his seminal essay Why Software Is Eating the World. Marc Andreessen, Why Software Is Eating the World, Wall St. J. (Aug. 20, 2011), http://www.wsj.com/articles/SB10001424053111903480904576512250915629460 (on file with the Columbia Law Review). In that piece, Andreessen describes how software compa- nies are swallowing the global economy one industry at a time. Id. 2. Teresa Epperson et al., A.T. Kearney, Hype vs. Reality: The Coming Wave of Robo Adoption 2 (2015), http://www.atkearney.com/documents/10192/7132014/ Hype+vs.+RealityThe+Coming+Waves+of+Robo+Adoption.pdf [http://perma.cc/DU5Q- 2EV2] (defining robo-advisor); Lorna A. Schnase, An Investment Adviser's Fiduciary Duty, in 1 Practicing Law Inst., Investment Adviser Regulation: A Step-by-Step Guide to Compliance and the Law § 8:8.5 n.180 (Clifford E. Kirsch ed., 2007) (same). 1543

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