Artificial intelligence continues its run as the hottest tech topic of 2023 by becoming the latest point of contention between wealth managers and regulators.
Nearly 60 letters were submitted to the SEC this week from a variety of firms in response to a 243-page proposed rule meant to keep advisors from using new technology to put their interests ahead of investors'.
Raymond James, Morningstar, Betterment and others targeted the rule that would make financial planners responsible for eliminating or mitigating any conflicts of interest that might arise from their use of technology like AI, machine learning or sophisticated algorithms in their dealings with clients.
SEC officials worry these advanced technologies might be violating firms' fiduciary duty to put their clients' interests first without advisors even realizing that was happening. The proposal calls on financial planners to scrutinize all of their uses of technology for conflicts and to eliminate or "neutralize" any that they discover.
But letters from industry groups focused on two major complaints: The proposal threatens to upend the norms established by advisors' fiduciary duty to clients. And it's so far-reaching that it would apply to technologies far simpler than AI and predictive analytics.
"These overly broad definitions will mean that advisers will be required to have policies and procedures in place to review, test and make determinations about conflicts of interest associated with even the use of a basic spreadsheet to prepare for an in-person client meeting," wrote Catherine Newell, the general counsel and executive vice president of Austin, Texas-based Dimensional Fund Advisors, in a letter to the SEC dated Oct. 10.
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Justin

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