Robo-Advisers Under the Advisers Act: A Complete Framework for Building, Registering, and Governing a Digital Investment Adviser

I have spent a considerable amount of time writing and speaking on the regulatory framework governing robo-advisers, and more importantly, guiding clients through it in practice. That work has ranged from helping founders structure and register fully digital investment advisers from inception, to advising established firms on how to transition from a traditional, human-driven advisory model into a true robo platform capable of standing on its own under the Advisers Act. Those experiences have made one point unmistakably clear: the challenge is not understanding that robo-advisers are regulated. The challenge is understanding how the regulation applies once the human element is removed and the system itself becomes the adviser.

There is a quiet but persistent misunderstanding in the market about robo-advisers. It usually shows up in the same form. A founder will say, with some confidence, that a robo platform is “lighter,” that it avoids the traditional burdens of running an investment advisory business, that it replaces people with code and therefore simplifies the regulatory equation. That instinct is incomplete.

A robo-adviser is lighter in the way a well-engineered system is lighter than a labor-intensive one. It removes layers of human infrastructure. It compresses operations. It scales cleanly. But the law does not disappear with those efficiencies. It relocates itself into the system. The result is not a lighter regulatory regime. It is a different one, and in certain respects a more exacting one.

To understand robo-advisers properly, you have to begin where the SEC begins. Not with technology, but with the Advisers Act.

I. The Starting Point: There Is No Robo Exception to Fiduciary Duty

A robo-adviser is, at its core, an investment adviser. That is not a label. It is a legal conclusion with consequences.

The Investment Advisers Act of 1940 imposes a fiduciary standard that governs the relationship between adviser and client. That standard requires the adviser to act in the client’s best interest, to provide advice that is appropriate in light of the client’s circumstances, and to make full and fair disclosure of all material facts and conflicts. The SEC has been explicit that these obligations apply equally to robo-advisers.

That single point resolves a large portion of the confusion. A robo-adviser is not a different regulatory creature. It is the same creature operating through a different medium.

The more interesting question is what that means in practice.

II. The Structural Decision That Shapes Everything

Before any discussion of algorithms, onboarding flows, or compliance manuals, there is a threshold decision that determines the regulatory posture of the entire business. That decision is where and how the adviser will register.

There are two viable paths, and they reflect two fundamentally different conceptions of the business.

The first is the traditional path. The adviser registers at the state level unless and until it meets the threshold for SEC registration, typically around $100 million in regulatory assets under management. This model is flexible. It accommodates human advisers, hybrid delivery, and incremental development. It is the path of least resistance for firms that are not yet certain what their final product will look like.

The second is the internet adviser exemption under Rule 203A-2(e). This is the path that most people associate with robo-advisers, though it is often misunderstood. It is not an exemption from regulation. It is an exemption from the normal restriction on SEC registration. It allows a firm to register with the SEC even if it has not yet reached the usual AUM thresholds.

That benefit comes with conditions, and those conditions have tightened in a meaningful way following the SEC’s 2024 amendments.

To rely on the rule today, the adviser must provide advice exclusively through an operational, interactive digital platform. The platform must be continuously available. The advice must be generated by software, not by personnel. The adviser must have more than one client, and it must eliminate any meaningful non-internet advisory activity. The SEC removed the prior de minimis allowance that had permitted a small number of non-digital clients. That removal is not cosmetic. It reflects a deliberate effort to ensure that only true robo-advisers rely on the rule.

This is the first inflection point for a client. It forces an honest answer to a simple question. Is this business truly digital, or is it a traditional advisory practice with a technology interface layered on top?

The answer determines everything that follows.

III. Why Robo-Advisers Feel Lighter

The appeal of the robo model is not theoretical. It is operational.

In a traditional advisory firm, complexity accumulates through people. You need portfolio managers. You need investment committees. You need licensed representatives who interact with clients, deliver advice, and maintain relationships. Each of those functions introduces cost, coordination, and supervisory obligations.

A robo-adviser collapses that structure.

The portfolio manager becomes an algorithm. The investment committee becomes a set of encoded rules. The client interaction layer becomes a questionnaire and an interface. Advice is no longer delivered in meetings or calls. It is delivered through the system itself.

That shift produces real efficiencies. The firm can operate with fewer licensed individuals. It can reduce or eliminate the need for Investment Adviser Representatives who would otherwise need to be registered across multiple states. It can scale its client base without scaling its headcount in parallel. It can access SEC registration earlier than a traditional firm by relying on the internet adviser exemption rather than waiting to meet AUM thresholds.

These are not marginal advantages. They are often the economic rationale for building the business in the first place.

It is therefore entirely reasonable, and in some sense accurate, to describe the robo model as lighter.

But that description becomes misleading if it is not carefully qualified.

IV. Where the Weight Reappears

The weight that is removed from personnel does not vanish. It reappears in the system.

In a traditional advisory model, the SEC’s inquiry is often framed around people. Did the adviser understand the client? Did the adviser exercise appropriate judgment? Did the adviser disclose conflicts? Did the adviser supervise its employees?

In a robo model, those same questions are asked, but they are directed at the platform.

Did the system collect enough information to understand the client? Did the algorithm generate advice that was appropriate in light of that information? Were the assumptions and limitations of the model disclosed in a way the client could understand? Was the system monitored, tested, and updated in a controlled manner?

The substitution is subtle but consequential. The adviser has not escaped the fiduciary standard. It has embedded that standard into code.

The SEC’s 2017 guidance on robo-advisers makes this explicit. It identifies three areas of focus that remain central today: the substance and presentation of disclosures, the obligation to obtain sufficient client information to support suitable advice, and the need to adopt and implement effective compliance programs tailored to automated advice.

Each of those areas becomes more demanding in a digital context.

V. Disclosure Without a Human Interpreter

In a traditional advisory relationship, disclosure is supplemented by conversation. A client can ask questions. An adviser can clarify. Misunderstandings can be corrected in real time.

A robo-adviser does not have that luxury. Its disclosures must stand on their own.

The SEC expects robo-advisers to explain, in clear and accessible terms, how their systems operate. That includes not only the fact that an algorithm is used, but what that algorithm does, what assumptions it relies on, what its limitations are, and what risks are inherent in automated management.

This is not a superficial requirement. It goes to the core of informed consent. A client who cannot understand how the system works cannot meaningfully evaluate whether to engage with it.

The practical consequence is that disclosure drafting becomes a central discipline. It must be aligned with the actual behavior of the system. It must be written in plain English. It must be presented in a way that clients are likely to read and understand, not buried in dense text or relegated to secondary screens.

The system, in effect, must be able to explain itself.

VI. Suitability as a Design Problem

The obligation to provide suitable advice is another area where the robo model changes the nature of the task.

In a human-driven model, suitability is often a function of interaction. The adviser asks questions, probes responses, identifies inconsistencies, and forms a judgment about the client’s financial situation and objectives.

In a robo model, that process is mediated through a questionnaire.

The SEC has observed that many robo-advisers rely heavily, and sometimes exclusively, on client responses to online questionnaires. That reliance is not inherently problematic, but it places a significant burden on the design of the questionnaire itself.

The questions must elicit sufficient information to support the advice. They must be clear enough that clients understand what is being asked. The system must be capable of identifying inconsistent or illogical responses and prompting the client to revisit them. It must also be clear about what information is not being considered.

This is where product design and legal obligation converge. The onboarding flow is not merely a user experience. It is the mechanism through which the adviser satisfies its duty of care.

VII. Compliance as System Governance

The Advisers Act requires every registered adviser to adopt and implement written policies and procedures reasonably designed to prevent violations of the law, and to designate a Chief Compliance Officer to administer those policies.

That requirement applies in full to robo-advisers.

What changes is the content of the compliance program.

In addition to the traditional areas of focus, a robo-adviser must address issues that are specific to its reliance on technology. These include the development, testing, and ongoing monitoring of the algorithmic code; the management of changes to that code; the oversight of any third parties involved in the development or operation of the system; the protection of client data and systems from cybersecurity threats; and the use of digital channels for marketing and communication.

This is not a marginal extension of a traditional compliance program. It is a shift toward what can fairly be described as technology governance.

The firm must be able to demonstrate not only that its policies exist, but that its system behaves in accordance with those policies.

VIII. The Constraint That Comes With the Exemption

The internet adviser exemption, while valuable, imposes a structural discipline on the business.

To rely on the rule, the adviser must provide advice exclusively through its digital platform. That requirement limits the firm’s ability to introduce human advisory elements without reevaluating its regulatory basis for SEC registration.

Personnel can support the system. They can assist with technical issues, explain how the platform works, and gather feedback. But they cannot become an alternative channel for delivering personalized investment advice.

This is the tradeoff that underlies the entire model. The firm gains efficiency and early access to federal registration, but it must commit to a genuinely digital approach.

IX. The Reality of Scale

One final point deserves emphasis, because it is often underappreciated.

Automation scales.

In a human advisory model, an error is typically contained. It affects a particular client or a limited set of clients. It can be corrected through interaction.

In a robo model, an error in the system propagates immediately. It affects every client whose account is governed by that logic. It does so without friction or delay.

This is not a theoretical concern. It is a defining characteristic of the model. It is also one of the reasons the SEC has focused on areas such as algorithm testing, monitoring, and disclosure.

The system must not only work. It must work consistently, predictably, and in a manner that aligns with what clients have been told to expect.

X. Conclusion

The most accurate way to understand a robo-adviser is not as a lighter version of an investment adviser, but as a differently constructed one.

It is lighter on people. It reduces the need for licensed individuals, traditional investment personnel, and human-driven client interactions. It offers a path to scale that is difficult to achieve in a purely human model.

But it is not lighter on obligation. The fiduciary standard remains unchanged. The disclosure burden becomes more exacting. The compliance program becomes more technical. The risks associated with error become more systemic.

The law does not recede in the presence of technology. It embeds itself within it.

The firms that succeed in this space are those that recognize that reality early. They design their systems with the regulatory framework in mind. They ensure that their disclosures, their algorithms, and their compliance programs all describe and support the same underlying operation.

In doing so, they do not merely build a product. They build an adviser.

That’s all for now,

Braeden

——————————————————————————————-

About the author

K. Braeden Anderson is a Partner at Gesmer Updegrove LLP, where he leads the firm’s Securities Enforcement & Investigations practice, and chairs Mackrell International’s Blockchain & Digital Assets Group and Securities Enforcement & Investigations Group. He is a nationally recognized securities regulatory and enforcement attorney whose practice sits at the intersection of traditional financial regulation and emerging technology. He has been recognized in Best Lawyers: Ones to Watch® in America (2025) for Financial Services Regulation Law and Securities Regulation, and was named the #1 most-read fintech thought leader in the United States in Mondaq’s Spring 2025 Thought Leadership Awards.

Before joining Gesmer Updegrove, Braeden founded a Washington, D.C.–based law firm. He previously served as Assistant General Counsel at Robinhood Markets, Inc. (NASDAQ: HOOD), advising on high-stakes regulatory and enforcement matters, and earlier practiced at Kirkland & Ellis LLP and Sidley Austin LLP in New York and Washington, D.C.

Braeden is a prominent voice in securities and crypto regulation and a leading example of how lawyers can build brand through education and content. He publishes a weekly newsletter reaching more than 20,000 legal and financial professionals, runs a YouTube channel with over 160,000 subscribers, and regularly produces written and multimedia thought leadership through his blog, Anderson Insights. His work focuses on enforcement trends, fintech regulation, and the evolving role of digital assets in capital markets.