BOSTON (Reuters) - The top securities regulator in Massachusetts on Friday questioned the ability of so-called robo advisers to act as state-registered investment advisers.
"It is the position of the (Massachusetts Securities Division) that fully-automated robo-advisers, as they are
typically structured, may be inherently unable to act as fiduciaries and perform the functions of a state-registered investment adviser," William Galvin, secretary of state for Massachusetts, said in a statement.
Robo advisors offer automated investment services and have boomed in popularity over the last years with one research firm, cited by Massachusetts, forecasting their assets will jump 2,500 percent by 2020 to $489 billion.
These firms usually rely on computer programs to pick low-cost funds and manage portfolios for customers.
Massachusetts worries that these advisors may not be able to deliver personalized and "appropriate" investment advice because they work off questionnaires filled out electronically and often do not check if the information given is accurate.
"Entities that create computer-generated portfolios but fail to do the necessary due diligence to know their customers and who specifically decline most if not all the fiduciary duty are not performing the duties of investment advisers," Galvin said in the statement.
Galvin's office is mostly concerned about "fully automated" robo advisers that have no human component at all and said "each adviser must be evaluated in a case-by-case basis."