WHO IS RESPONSIBLE FOR A ROBO-ADVISER’S ADVICE?

The Financial Services Board (FSB) has made it clear that companies operating robo-advisers need a financial services provider licence and are responsible for the advice, because they make an investment recommendation based on your stated goal and risk tolerance, Magda Wierzycka, the chief executive of Sygnia, says.

She says the terms and conditions under which you use Sygnia’s robo-adviser are standard, but the terms of the investment are provided to you when you sign up for an investment.

Wierzycka says there is little need to explain the investment terms because your investment goal is simple.

Theo Vorster, the co-founder of Galileo, says Galileo’s robo-adviser, SmartRand, has a rules-based process that involves getting your agreement to every step. The company then has proof of the information you supplied and what was explained to you, and it can show why it came to the conclusion that an investment was suitable for you and that you made an informed decision to invest.

Marius Kilian, a director at 2IP, says that in the United States the selfregulatory body, the Financial Industry Regulatory Authority, has warned consumers to be aware of what robo-advisers can and cannot do for them.

He says in South Africa the FSB is encouraging the use of robo-advisers because there is large market of consumers who do not have access to financial advice. However, he says the FSB is unlikely to do a due diligence on any robo-adviser. Instead, it will hold the provider responsible for whatever advice is given.

In the US, however, the regulator is considering due diligences on the robo-adviser investment programs.