TY - JOUR AU - Mezzanotte, Félix, E AB - Key points This article investigated the extent to which the information provided by Swiss-based robo advisers (RAs) on their websites has been conducive to retail investor protection. Text data from 11 RA websites were collected, categorized and analysed. Findings identified various weaknesses. The nature of the services provided by RAs was unclearly conceptualized. Information on the risks of investing was poorly presented in those websites relative to information that promoted benefits. Disclosures on the workings of automation and algorithms was on average insufficient. Although the websites’ content showed that RAs were reasonably focused on satisfying the customer’s best interest, the information made available fell short of reassuring customers. These shortcomings are expected to be remedied, at least in part, following the recent entry into force of the Swiss Financial Services Act (FinSA). Compared with the MiFID II regime, however, FinSA has regulated the conduct of investment advisers and portfolio managers more leniently. It is therefore difficult to see how Swiss-based RAs can strive to dispense the higher MiFID II protection level without recourse to substantial doses of voluntary information disclosures. 1. Introduction Robo advisers (RAs) are companies that provide portfolio management and investment advice services using algorithms and digital platforms displayed in the internet and/or mobile phone applications.1 The term ‘robo’ connotes the presence of artificial intelligence making decisions on service provision (eg recommending investment products to customers). In the purest form of RAs, the service is fully automated and delivered online without the need for any corporate officer or employee to interact directly with the customers. It has often been the case, however, that robo-advisory services have involved some form of human interaction such as offering customer services via a phone call or e-mail.2 RAs have become an increasingly influential, disruptive force in the asset management industry.3 Assets under the management of RAs will reach US$1.1 trillion in 2020. With an estimated yearly growth of 26 per cent, the industry is expected to manage US$2.75 trillion in 2024. The lead provider of robo-advisory services has been the USA (US$683 billion) followed by China (US$88 billion).4 The Swiss robo-advisory industry has grown substantially in recent years to become one of the top five providers worldwide (US$23 billion).5 Despite their increasing stature, little has been known about Swiss-based RAs. A review of current literature conducted for this research identified a study on Fintech in Switzerland looking at, among other issues, market developments and trends on RAs.6 Websites providing comparative data on RAs, such as fees and charges, were also detected.7 Aside from these resources, no enquiry was found into the investor protection properties of robo-advisory services. Therefore, this article set out to investigate the extent to which the information provided by Swiss-based RAs on their websites has been conducive to retail investor protection.8 More particularly, an internet search for RAs based in Switzerland was conducted in the months of April and May 2019. Eleven RAs were identified and incorporated into the study. Text data were gathered from the RA websites using the same questionnaire for each website and, subsequently, the collected data were categorized and analysed manually. Concentrating on RAs’ information disclosure to customers, the analysis was structured around three themes: (1) providers, services and products; (2) use and disclosure of automation; and (3) product selection criteria. As reported in Section 2 of this article, the RA websites contained relevant information about the service provider, including the RA’s corporate address, place of incorporation, governance structure and contact information. However, the nature of the service provided was poorly explained in such websites. Most RAs presented themselves as asset managers, yet the service ‘asset management’ or ‘wealth management’ was very often defined unclearly. It was not obvious whether advice-giving was included in the service provided or the extent to which asset management was conducted on a ‘discretionary’ basis. Whereas the RA websites sufficiently explained the investment products available and the benefits of investing in these products, these websites drew far less attention to the risk of capital loss arising from such investments. Evidently, automation and artificial intelligence constitute the hallmark of robo advice. Automation refers to ‘the use of machines to do work that was previously done by people’.9 Automation is guided by algorithms. Strictly speaking, an algorithm has been defined as a mathematical construct.10 A broader, lay definition of the term refers to ‘the implementation of the mathematical construct into a technology, and an application of the technology configured for a particular task’.11 A basic dictionary definition explains that an algorithm represents ‘a set of rules that must be followed when solving a particular problem’.12 Algorithms have been placed in the position of actors or agents that ‘may be said to “adjudicate”, “make mistakes”, “operate with biases”, or “exercise their power and influence”’.13 As actors, algorithms make decisions that bring about impact in terms of both benefits and risks.14 In the robo-advisory segment, questions in relation to automation are various. What specific processes in the RA’s business model have been automated? Do these models allow for human interaction? To what extent do RAs disclose the use of algorithms to their customers? As reported in Section 3 of this article, the findings suggest that portfolio design and rebalancing functions have largely been automated. It was not clear, however, the extent to which the determination of the customer’s profile had been automated. All RAs offered human interaction in the form of customer services. In a few cases, human-made advice was also offered. Information on the algorithm’s type and governance was absent from the RA websites, although one third of these websites explicitly acknowledged the use of algorithms. From the vantage point of protecting customers, the criteria used by RAs to select investment products constitute a crucial factor to the extent that product selection can be driven by various motivations. RAs may look at the customer’s characteristics as a basis for selecting products. Yet the choice of a product may also be driven by the RA’s self-interest or opportunism, such as where an RA selects a product only because it pays the RA a commission or kickback.15 It is thus valuable that RAs openly explain to their actual and potential customers the bases or criteria for product selection. The presence of such descriptions in the RA websites was investigated and reported in Section 4 of this article. Most RA websites clearly identified the customer’s risk profile as the key driver for product selection. The stated goal was to match the product with the risk profile of the customer. The majority of RA websites also stressed that their product selection decisions were not motivated by fees, commissions or any kickbacks offered to them by product producers. Findings are discussed extensively in Section 5 of this article in light of the Swiss FinSA16 and the European Union’s MiFID II.17 FinSA—in force since 1 January 2020—has created new conduct obligations that investment advisers and asset managers must discharge including obligations on information disclosure, appropriateness, suitability and conflict of interest. It is argued that compliance with the FinSA’s new standards is expected to remedy, at least in part, some of the weaknesses in the RA websites identified in this article. Nevertheless, since FinSA’s conduct requirements are less stringent than MiFID II’s, it is difficult to see how Swiss-based RAs can achieve the higher MiFID II protection level without making their websites more informative by recourse to voluntary disclosures. Themes in the RA websites that may profit from voluntary disclosures were singled out. Section 6 summarizes the findings and identifies the research limitations as well as areas for future enquiry. 2. Robo advisers: providers, services and products Characteristics of providers A sample of 11 Swiss-based RAs (RAs incorporated in Switzerland) were analysed. Out of the initial 13 RAs identified by means of an internet search, one RA was excluded from the sample because it was incorporated in Germany, although it provided services to customers based in, among other countries, Switzerland. A second RA was also excluded because its website was difficult to operate. Table 1 lists the sample of RAs. Their actual names are shown in this section only. In the rest of the article, the actual names have been replaced by research codes (RA01, RA02, and so on). The codes numeration does not correlate with the order in which the RAs have been listed in Table 1. Table 1 Swiss-based RAs RA's Name . Canton . Swiss Region . Corporate Group / Independent Asset Manager . Supervision . Clevercircles Bale German Banque CIC (Suisse) SA FINMA Descartes Finance AG Zoug German Independent Asset Manager SRO: VQF Digifolio Basel German Basellandschaftliche Kantonalbank FINMA Elvia e-invest AG Zurich German Allianz Suisse Insurance Company Ltd; Allianz Group SRO: VQF Investomat.ch Glarus German Glarner Kantonalbank FINMA Irisos SA Vaud French Independent Asset Manager SRO: OAR-G Selma Finance AG Schwyz German Independent Asset Manager SRO: PolyReg Simplewealth AG Zurich German Independent Asset Manager SRO: VQF Swissquote Vaud French Swissquote Bank SA; Swissquote Group Holding Ltd FINMA TrueWealth AG Zurich German Independent Asset Manager SRO: SAAM VZ Portail Financier Zoug German VZ Banque de Dépôt SA; VZ Holding SA FINMA RA's Name . Canton . Swiss Region . Corporate Group / Independent Asset Manager . Supervision . Clevercircles Bale German Banque CIC (Suisse) SA FINMA Descartes Finance AG Zoug German Independent Asset Manager SRO: VQF Digifolio Basel German Basellandschaftliche Kantonalbank FINMA Elvia e-invest AG Zurich German Allianz Suisse Insurance Company Ltd; Allianz Group SRO: VQF Investomat.ch Glarus German Glarner Kantonalbank FINMA Irisos SA Vaud French Independent Asset Manager SRO: OAR-G Selma Finance AG Schwyz German Independent Asset Manager SRO: PolyReg Simplewealth AG Zurich German Independent Asset Manager SRO: VQF Swissquote Vaud French Swissquote Bank SA; Swissquote Group Holding Ltd FINMA TrueWealth AG Zurich German Independent Asset Manager SRO: SAAM VZ Portail Financier Zoug German VZ Banque de Dépôt SA; VZ Holding SA FINMA Open in new tab Table 1 Swiss-based RAs RA's Name . Canton . Swiss Region . Corporate Group / Independent Asset Manager . Supervision . Clevercircles Bale German Banque CIC (Suisse) SA FINMA Descartes Finance AG Zoug German Independent Asset Manager SRO: VQF Digifolio Basel German Basellandschaftliche Kantonalbank FINMA Elvia e-invest AG Zurich German Allianz Suisse Insurance Company Ltd; Allianz Group SRO: VQF Investomat.ch Glarus German Glarner Kantonalbank FINMA Irisos SA Vaud French Independent Asset Manager SRO: OAR-G Selma Finance AG Schwyz German Independent Asset Manager SRO: PolyReg Simplewealth AG Zurich German Independent Asset Manager SRO: VQF Swissquote Vaud French Swissquote Bank SA; Swissquote Group Holding Ltd FINMA TrueWealth AG Zurich German Independent Asset Manager SRO: SAAM VZ Portail Financier Zoug German VZ Banque de Dépôt SA; VZ Holding SA FINMA RA's Name . Canton . Swiss Region . Corporate Group / Independent Asset Manager . Supervision . Clevercircles Bale German Banque CIC (Suisse) SA FINMA Descartes Finance AG Zoug German Independent Asset Manager SRO: VQF Digifolio Basel German Basellandschaftliche Kantonalbank FINMA Elvia e-invest AG Zurich German Allianz Suisse Insurance Company Ltd; Allianz Group SRO: VQF Investomat.ch Glarus German Glarner Kantonalbank FINMA Irisos SA Vaud French Independent Asset Manager SRO: OAR-G Selma Finance AG Schwyz German Independent Asset Manager SRO: PolyReg Simplewealth AG Zurich German Independent Asset Manager SRO: VQF Swissquote Vaud French Swissquote Bank SA; Swissquote Group Holding Ltd FINMA TrueWealth AG Zurich German Independent Asset Manager SRO: SAAM VZ Portail Financier Zoug German VZ Banque de Dépôt SA; VZ Holding SA FINMA Open in new tab All the RA websites were found to have provided sufficient information about the service provider, including particulars, contacts and business affiliations. Nine RAs were incorporated in German-speaking Switzerland and two RAs in French-speaking Switzerland. Six RAs are part of a larger company or corporate group (eg Swissquote pertains to the Swissquote Bank SA), whereas five RAs operated as independent asset management companies. In the period this research was conducted, RAs that belong to a banking institution (eg Investomat.ch [Glarner Kantonalbank] or Digifolio [Basel Cantonal Bank]) were approved to function as RAs by the Swiss Financial Markets Supervisory Authority (FINMA).18 RAs that did not pertain to a banking institution but operated as independent asset managers had to either be approved by FINMA or join a self-regulatory body (SRO) recognized by FINMA. SROs set standards of conduct for asset managers and monitor compliance with such standards. RAs in our sample had joined different SROs, including the Swiss Association of Asset Managers (SAAM) [1 RA],19 VQF Financial Services Standards Association [3 RAs],20 PolyReg General Self-Regulatory Organization (recognized by the Swiss Federal Money Laundering Control Authority) [1 RA],21 and the Organisme D’Autoregulation des Gerants de Patrimoine (OAR-G) [1 RA].22 Nature of the service provided A literal interpretation of the labels ‘robo advisor’, ‘automated advice’ or ‘digital advice’, under which the business has been publicly known, suggests that RAs offer advisory services to their customers. This reality, however, has proved less apparent upon observation of the RA websites. Only a minority of RA websites (4/11) made explicit reference to advice-giving as a service offered to customers. Adhering to its conventional meaning, investment advice consists of offering customers a recommendation or proposal on a particular investment strategy—or course of action—based on the expert judgement of the service provider. Relying on this definition, it was found that only four websites made explicit that the RA will advance a recommendation or proposal to the customer with the purpose of assisting the customer in investing his/her assets. One RA website said that ‘[y]our information allows us to generate a personal investor profile and provide you with an investment proposal matching your needs’ (RA04). Another RA stated that ‘[w]e recommend the investment strategy that is most suitable for you personally and for your situation in life. You receive a detailed description of the asset classes and investment instruments used’ (RA02). The making of a recommendation was acknowledged by another RA that wrote on its website: ‘[i]n the following pages, we ask you eleven simple questions enquiring about your risk tolerance. On the basis of your responses, we recommend you a tailored investment strategy’ (RA09). However, the majority of RAs described their services solely in terms of asset or wealth management. In those websites, no indication was found that RAs engaged in advice-giving services. Nor was the term ‘advice’ or related terminology, such as ‘recommendation’ or ‘proposal’, found in the content of those websites. An additional search was conducted to find out whether the service of asset management, as referred to in the RA websites, included ‘discretionary’ powers of decision-making. The term ‘discretion’ signifies ‘the freedom or power to decide what should be done in a particular situation’.23 In practice, discretional asset management has entailed that, within set boundaries delineated in the client agreement or mandate, the asset manager is allowed to operate in the role of agent of the client with powers to decide, on its own volition, how the client’s assets will be invested. In our research, it was found that only one RA communicated in plain language that its offering included discretionary asset management services: ‘[RA’s name] will manage your [RA’s name] account pursuant to the investment authority provided in the Asset Management Agreement. Your investment authority grants [RA’s name] the discretion to invest the cash and assets of your [RA’s name] account within the agreed limits of your Investment Strategy. [RA’s name] may also agree other limits with you.’ (RA05) In most RA websites, however, the discretionary nature of mandates was not made explicit. Such discretion could only be implied, if at all, from the text. For example, in one RA website potential customers were invited to ‘[s]imply specify your risk appetite, select your favourite securities or sectors (optional) and let your robo-advisor do the rest’ (RA03). Therefore, by looking at RA websites it has proven difficult to understand the content of asset management services and, more specifically, whether advice and/or discretionary powers were part of the service package.24 RAs also offered custodian services to ensure the safety of customers assets. Those RAs that belong to a banking group relied on in-house assets custody, whereas independent advisors outsourced the service from third-party custodians. For instance, one RA clearly listed on its website the partner institutions that will, at the option of the customer, provide custodian services including Credit Suisse, Julius Bär, UBS, Vontobel and Zürcher Kantonalbank (RA04). Types of investment products and the risk of capital loss The investment product offered the most in the RA websites was Exchange-Traded Funds (ETFs). ETFs are investment funds that track a particular index, such as the Dow Jones Industrial Average or the Swiss Market Index (SMI), as close as possible in order to mimic the index’s performance. ETFs can hold various asset types, including equity, debt, derivatives and commodities, from a particular country, region or sector. Five RAs offered solely ETFs, and promoted those ETFs on the grounds of low cost (affordable: they carry low fees), risk diversification (risk managed by holding a diversity of securities), flexibility (they are listed instruments, and hence traded, in stock exchanges) and transparency (the composition and performance of the tracked indexes can be easily observed). Two RAs offered ETFs and also Index Funds. Index Funds function similarly to ETFs, but Index Funds are not listed funds. Four RAs offered a product menu that stretched beyond ETFs and Index Funds to additionally include, among others, equity, debt and structured investment products. The risk of ‘capital loss’ derived from investing in such products was flagged up by all the RA websites in general terms. A few RA websites elaborated further by describing diverse types of risks and by providing a website link corresponding to a report entitled ‘Special Risks in Securities Trading’ published by the Swiss Banker Association. These risk warnings, however, were hardly presented, in terms of the website layout and content, in a way that conveyed a sound and clear message to the customers. These statements were almost always placed in marginal sections of the website and edited without any special features or highlights capable of drawing the attention of and alerting customers. Only one RA displayed its ‘terms of use’ in the website’s core content (RA11). In contrast, all the RA websites clearly stated the benefits of robo-advisory services. Cost-effectiveness, transparency and uncomplicated investing were among the most cited benefits. These ‘benefits’ statements constituted central content in the RA websites, and they were presented in clear, plain and enticing language. Product’s benefits were easily identifiable on the websites as well (eg the benefits of investing in ETFs). 3. Use and disclosure of automation Robo adviser’s automated functions The investigation of the RA websites sought to identify the RA’s automated functions. Most RAs automated the process of designing the customer’s portfolio or investment mix, including the rebalancing of the portfolio over time in order to preserve optimality. At least five RAs allowed customers to opt-out of the automated mode in order to make changes to the investment portfolio manually. In all the RA websites, it was unclear the extent to which the operations of buying and selling assets (the brokerage function) and the determination of the customer’s risk profile had been automated. Interaction of the robo adviser with customers RAs may operate fully automated (the customer interacts only with the website/platform) or allow for some degree of personnel or staff interaction with the customer. It was found that nearly all the RAs (10/11) in our sample clearly offered some form of human interaction. The main channel for such interaction was customer care services (7/10). Email, phone number and often live chat boxes were offered to those customers who would like to pose questions (most likely questions of a technical nature). A few RAs (3/10) allowed their customers to contact staff to obtain investment advice (in addition to customer care). As stated by one RA, ‘when you contact us by phone or electronically, we will give you expert advice’ (RA01). At least two RAs allowed customers to book a personal interview. Another RA website indicated that human experts assisted by technology are directly involved in the asset management process: ‘We deliver high performance via a conservative asset management approach that takes advantage of technology’s speed and precision, while still keeping the human touch’ (RA08); and ‘[w]hatever orientation you choose, we will assist you in the day-to-day handling of your selected combination, giving you the best prospect of achieving your goals’ (RA08). An interpretation of these quotes may well suggest that this type of human interaction is consistent with technology-assisted advice and portfolio management. Although this service contains a degree of automation, it is not apparent that technology fully replaces the human decision-maker. Disclosure of algorithm-related information Beyond the questions of whether and how much automation is observed, a deeper question is how automation is done. The extent to which RA websites presented basic information in relation to the type and governance of the algorithms utilized by the RAs was investigated. Only a few RA websites (4/11) explicitly mentioned the term ‘algorithm’, and two of those websites (2/4) provided an explanation of how the algorithm drove the automated functions. After acknowledging the use of algorithms, a RA website posed the question ‘[h]ow does the algorithm work?’ (RA03). Subsequently, the algorithm was explained by enumerating the key functions of it: ‘It analyses thousands of securities; It concentrates on the interactions between assets; It selects and combines securities to reduce the portfolio’s overall risk; It regularly readjusts the portfolio; Strict compliance with the risk profile’ (RA03; bold letters removed). The same RA also explained, in general terms, the analytical frame built in the algorithm and the ability of customers to opt-out of the automated mechanism: Using the powers of modern technology our Robo-Advisor analyses thousands of securities (Equities and ETFs) to construct the optimal portfolio based on the principles of quantitative management. While a traditional management approach considers assets in isolation, the Robo-Advisory algorithm focuses on the relationships between assets and selects a combination of securities to lower the overall risk of the portfolio. Based on historical data, market cycles and your investment preferences, the electronic asset manager offers you the portfolio that will provide you with the best returns relative to the maximum level of risk you defined in your profile. Since the risk/reward profile of a portfolio changes in line with the markets, the Robo-Advisors adapts your portfolio on a regular basis to ensure an optimal balance at all times. The Robo-Advisory quantitative management algorithm ensures strict compliance with your risk profile and investment preferences and removes emotions from the investment process. Nevertheless, you can of course change strategy and manually initiate a reallocation at any time. The reallocation is implemented immediately to create a new optimal portfolio based on the changes to your parameters. Another RA website also informed its customers about the workings of its algorithm in the Q&A section (RA07). A third RA mentioned in its website that it uses an algorithm together with a web application in order to ‘provide users with a series of financial studies and analyses (in graphical and table format) of your pre-selected shares and portfolios, in accordance with your subscription’ (RA08). Finally, an RA website stated that it will use reasonable care in, among other things, ‘testing the algorithms’ (RA11). Aside from the above descriptions, no other references to algorithms were found in the data. Due to the scarce reference to algorithms in the RA websites, a further search was conducted in order to identify other terms typically associated with robo advice and systems of artificial intelligence, namely the terms ‘automated’ or ‘digital’. The purpose was to find out the meaning allocated to those terms. The term ‘digital’ was found in the majority of RA websites (6/11) and the term ‘automated’ was also found, albeit less frequently (4/11). Although no definition of these terms was provided in the websites, meaning was still drawn by reference to the sentence and context in which the terms were utilized. The term ‘digital’ was used to characterize the technology underlying the online investment platforms. A RA website stated that ‘[r]egardless of your existing banking relationships, we use state-of-the-art digital technologies to map all asset classes and financial services providers to our investment platform’ (RA04). Another RA associated the term ‘digital’ with service advantages: ‘[t]otally digital – convenient, easy and practical’ (RA11). The term ‘digital’ was also utilized to denote a service that can be accessed and operated online through the RA website: ‘[t]hat is why we make our own decades of investment experience easily and digitally available’ (RA02). The term ‘automated’ was defined by reference to the benefits that this feature (automation) delivers for clients. One RA website labelled the term ‘automated’ to mean a more ‘efficient’ wealth management: ‘[y]ou set the direction and keep full control over your investment strategy. Let us do the work: Always diversified, highly automated and thus much more efficient than investing has ever been’ (RA01). This includes cost efficiencies: ‘[w]e believe that costs must not stand in the way of decent returns. This is why we only select investment instruments with the lowest costs and strive to have our processes fully automated’ (RA01). Another RA website associated the term ‘automated’ with straightforward investment processes: ‘[RA’s name] makes investment easy, with our professional automated investment service’ (RA05). To conclude, the use of algorithms was barely disclosed in the RA websites. Only a few RAs openly explained to customers their reliance on algorithms for decision-making. None of the RA websites identified technically the type of algorithm they use, nor provided information as to how the algorithm was designed or governed (whether and how it was tested, supervised, updated and so on). The extent to which the RA’s staff may assist, or even voluntarily adjust or replace functionally, the algorithm was also unclear. Drawing from these RA websites, the question as to who ultimately elaborates or produces the advice finds no evident answer. The terms ‘digital’ or ‘automated’ were used adjectivally. The meaning given to those terms was not strictly associated with the algorithms, but instead, associated with online access or with service advantages such as the RA’s easier and more efficient operation. 4. Selection of investment products The investigation revealed that RAs select products with the stated goal of adequately matching the product with the customer’s risk profile. To cite a few statements in this direction from the RA websites: Once we have determined your risk profile on the basis of our online questionnaire, we recommend a globally diversified portfolio tailored to your situation … we optimize your portfolio exactly towards your personal risk profile, it has to be a perfect match. (RA01) Based on the questions we ask about your financial situation, your experience, your investment strategy and your reactions to stock market scenarios, we can schematically create a risk profile for you and see your risk tolerance and risk appetite … The questions are about your previous investment experience, your behaviour as an investor and your financial situation … [w]e measure your risk profile so the optimal portfolio can be selected for you’ (RA02) The purpose of the questionnaire is to determine your individual risk profile. Understanding your willingness and capacity to take risk is important for us to act as your investment advisor. We want to provide you with the most appropriate investment strategy, and so we designed the questionnaire in line with regulatory requirements and industry best practice. (RA05) On two RA websites, statements indicating that the RA gathers data to build the customer’s risk profile were not found (which does not necessarily lead one to infer that the client’s risk profiling is not conducted). In order to understand the risk profile of the customer, RAs collect data by asking customers to fill out an e-questionnaire. Once the customer’s profile has been determined, the RA is expected to select products that match the customer’s identified risk characteristics. This process was described this way in the majority of RA websites (8/11). It is worth noting at this stage that the process of gathering data about customers and of tailoring products to suit the customer’s risk profile has evolved over time and acquired a formal, legal status under the label of ‘suitability requirements’. In the MiFID II regime, such requirements demand that advisers and portfolio managers conduct an assessment of suitability.25 This assessment constitutes ‘the whole process of collecting information about a client and the subsequent assessment by the firm that a given investment product is suitable for him, based also on the firm’s solid understanding of the products that it can recommend or invest into on behalf of the client’.26 In a similar fashion, FinSA has created a new suitability obligation in Switzerland that binds investment advisers (portfolio-related advice) and portfolio managers.27 In light of these developments, it was investigated whether RA websites made any reference to the suitability requirements (in the sense that the RA recommends ‘suitable’ products to their customers).28 Separate searches were made for the terms ‘suitable’ and ‘suitability’ in such websites. The search outcome showed that not a single RA had yet deployed such terms. When investigating the extent to which RAs showed awareness of potential problems of conflict of interest in the process of product selection, it was found that the majority of RA websites (7/11) contained a reference indicating that the RA’s choice of investment products was not motivated by inducements such as commissions or retrocession fees: [RA’s name] operates completely independently within the [corporate] Group. We make our investment decisions in the sole interest of our customers. [RA’s name] does not receive any commissions or retrocessions from third parties, but generates its income exclusively from the asset management fee charged to its clients. Should we receive commissions in the future, we will pass them on to our clients. (RA02) [RA’s name] receives no third party benefits (such as retrocessions, kick-backs, finders fees, commissions or comparable third party benefit) from managing a client’s account, or when it buys and sells assets on behalf of a client. Nevertheless, if [RA’s name] does enter into a transaction on behalf of a client that results in a third party benefit to [RA’s name], [RA’s name] will transfer that benefit to that client. (RA05) At [RA’s name] we have an unconditional no kickback policy. This means that [RA’s name] does not get any money for distributing or selling investment products for their providers. [RA’s name] is fully unbiased and independent in its product choice and always has your interests in mind. (RA06) A minority of RA websites (4/11) did not display statements of the type cited above. Among all RA websites, only one website (RA05) made an open disclosure of the RA’s conflict of interest policy. 5. Discussion Customers’ informed choice Information disclosures are important because they assist retail investors in making informed choices when engaging a RA, which is an objective recognized by major jurisdictions.29 In Switzerland, FinSA prescribes that financial service providers—including asset managers and investment advisers—must inform their customers about, among other items, the provider and the products offered including the associated risks and costs.30 Such information can help investors—a recent survey among Swiss investors showed a poor comprehension of the term ‘robo-advisor’—to better understand robo-advisory services and make informed decisions.31 Findings from this research have shown that RA websites displayed relevant information about the service provider, including particulars, contacts and business affiliations, among other company data. In contrast, the nature of the service provided was defined less clearly. Only a few RA websites described the service in terms of delivering ‘investment advice’. Although most RAs defined themselves as providers of asset management services, the scope of such services was insufficiently conceptualized. It was unclear whether asset management services also comprised a component of advice. The ‘discretionary’ element in portfolio management was not stated. From a regulatory perspective, understanding the nature of the service provision is important as different services (eg discretionary asset management services versus execution-only services) have been subject to different rules. Unlike execution-only services (eg a broker taking and executing orders from clients), advice-giving and portfolio management are subject to tighter duties towards customers insofar as they involve the exercise of expert judgement and discretion on the part of the service provider. FinSA has clearly recognized such a distinction. It has imposed suitability obligations on portfolio (discretional) managers and on portfolio-related investment advisers.32 The more lenient duty of appropriateness has been imposed on advice aimed at individual transactions as opposed to portfolio-related advice.33Execution-only services are free from such duties. Such services must comply with neither suitability nor appropriateness obligations.34 Ambiguous information as to the nature of the service provided may confuse customers who may ultimately create the wrong expectations about their actual or eventual relationship with the service provider. This may also provoke undesirable conflict between the client and the provider due to an unclear allocation of responsibility.35 In relation to products, the findings from this investigation showed that clients may be exposed to aggressive risk/return strategies in almost one third of the RAs (4/11) to the extent that these RAs offered not only ETFs but also other, riskier financial instruments including structured investment products. Even in the case of RAs that only offered ETFs (5/11), the investment strategy may still contain substantial risk depending on the underlying assets held by, and the complexity of, the ETFs.36 With investors being clearly exposed to the risk of capital loss, it was expected that RAs, in their websites, would adequately communicate such risk to actual and potential customers. However, such expectation was not confirmed. RA websites communicated warnings in relation to the risk of investing, more generally, and the risk of investing in specific products, more particularly, with far less priority than they communicated the benefits arising from these activities. From the vantage point of investor protection, this outcome is worrisome. It may lead customers to misperceive the trade-off between risks and benefits and, thereby, make erratic decisions. This danger has been well understood by the MiFID II regime, which has explicitly required service providers to ensure the equivalent treatment of benefits and risks.37 According to Article 24(3) of MiFID II, the information that the providers present to actual or potential clients shall be ‘fair, clear and not misleading’. This requirement entails that the information must be accurate and always give ‘a fair and prominent indication of any relevant risks when referencing any potential benefits of an investment service or financial instrument’.38 Moreover, the firm must use ‘a font size in the indication of relevant risks that is at least equal to the predominant font size used throughout the information provided, as well as a layout ensuring such indication is prominent’.39 The firm shall also make sure that the information ‘does not disguise, diminish or obscure important items, statements or warnings’.40 These MiFID II requirements restrict the conduct of advisers and portfolio managers not only towards actual customers but also towards potential customers who are reached in the course of marketing or advertising activities.41 Unlike MiFID II, FinSA has prescribed extensive risk disclosures yet largely in the narrower setting of communications taking place between the provider and its private customer. Among other duties, FinSA has required that advisers, when making personal recommendations to their customers, first prepare a Key Information Document (KID).42 The KID shall contain ‘the information essential for investors to make a well-founded investment decision and a comparison of different financial instruments’.43 This information includes, among several items, the ‘risk/return profile of the financial instrument, specifying the maximum loss the investor could incur on the invested capital’.44 The KID is to be given to customers before the signing of the contract or the provision of the service.45 Although FinSA has not extensively regulated on how the service providers ought to market or advertise financial services or products,46 it has nevertheless required that these providers inform their customers on the ‘general risks associated with financial instruments’.47 It would be highly desirable that, in meeting this obligation, RAs strengthened the design and content of risk warnings and explanations in their websites. It is argued that customers would be better off where RAs adhered, one way or another, to the practice of equivalence between risks and benefits as promoted in the MiFID II regime. Information on the use and governance of algorithms Text from the RA websites suggested that automation concentrated largely on the services of portfolio design and rebalancing. RAs also offered human interaction in the form of customer services or advice. This availability of human interaction is consistent with the predominant business model for RAs in the European Union, namely a ‘hybrid’ model combining artificial intelligence and ‘human touch’.48 It is also consistent with the preferences of Swiss investors who value human interaction in the customer–adviser relationship.49 The findings from this investigation also revealed a poor performance of Swiss-based RAs in explaining the algorithms underlying automation and the policies put in place to govern algorithm use. From the vantage point of protecting investors, there are at least two good reasons for these RAs to adopt a policy of enhanced information disclosure in relation to algorithms. The first reason is that customers may need, and certainly deserve, reassurance about how the RA’s services (eg recommendation) have been produced. Customers’ doubts are not baseless. Flaws in the automated financial advice algorithm—that may potentially and adversely affect a large number or all of the RA’s clients—has been perceived by industry players to be the greatest risk in robo-advisory services.50 It has also been pointed out that algorithm-made decisions are not neutral but, instead, they bring about ethical and/or legal consequences.51 Such decisions may trigger concerns of reliability, accuracy or transparency. Other risks may also emerge including bias, unfairness, the lack of human attributes and societal values as well as data privacy problems.52 In order to ensure accountable decision-making, the need for governance tools that mitigate these risks and problems has become apparent.53 Transparency and information disclosure are key tools that foster good governance, tools that may assist RAs well in reassuring their customers. The second reason supporting disclosure relies on global trends in the regulation of algorithms and of RAs. In the European Union, the EU General Data Protection Regulation has given data subjects (natural persons), among other protections, the right to be informed about the existence of automated decision-making.54 Moreover, persons are entitled to refuse being the subject of decisions made solely on the basis of automated processing, unless the person has so consented.55 In the USA, the guidelines on RAs produced by the US Securities and Exchange Commission have recommended that RAs make extensive disclosures on algorithm use to their clients in order to ‘address potential gaps in client’s understanding of how a robo-adviser provides its investment advice’.56 Here, RAs are expected to describe the functions, assumptions, limitations and risks of the algorithm. RAs are also expected to identify any circumstances that may cause the RA to override the algorithm and indicate whether a third party has been involved in the development, management or ownership of the algorithm. RAs shall also describe the data sources relied upon and the mechanisms used by the algorithm to generate a recommended portfolio.57Pro-disclosure guidelines have been issued in Asian financial centres, such as in Hong Kong58 and Singapore.59 Protecting the customer’s best interest RAs do not offer their clients an endless variety of investment products. The range of products made available—the so-called ‘investment universe’—is limited and determined by the RA’s selection strategy. Once the investment universe has been fixed, the RA picks up products from such a universe and allocates them to the individual client’s portfolio. Against this backdrop, this article found that RAs selected products primarily guided by the goal of matching the product with the client’s risk profile. However, FinSA’s newly created suitability obligations require that RAs make a step further insofar as RAs must recommend or select ‘suitable’ products for their customers. The scope of the FinSA’s suitability obligation is broader than the mere action of determining and matching the risk profile of the client. Similar to MiFID II, FinSA has set out suitability criteria that advisers and portfolio managers shall satisfy. These criteria include—for the case of retail customers—gathering information in relation to the customer’s (1) financial knowledge and experience, (2) investment objectives and (3) financial position.60 RAs shall collect data about the customer at least in relation to these three items and make sure that the selected product satisfies these criteria entirely. An adequate policy on suitability also has a component aimed at information disclosure. To the extent that the suitability assessment safeguards the interest of customers, it makes sense that customers be informed, at a sufficiently early stage, that they are entitled to such protection should they decide to engage an RA. The MiFID II regime has understood the importance of such a disclosure. According to Article 54(1) of MiFID II Delegated Regulation, the adviser or portfolio manager: shall not create any ambiguity or confusion about their responsibilities in the process when assessing the suitability of investment services or financial instruments in accordance with Article 25(2) of Directive 2014/65/EU. When undertaking the suitability assessment, the firm shall inform clients or potential clients, clearly and simply, that the reason for assessing suitability is to enable the firm to act in the client's best interest. Where investment advice or portfolio management services are provided in whole or in part through an automated or semi-automated system, the responsibility to undertake the suitability assessment shall lie with the investment firm providing the service and shall not be reduced by the use of an electronic system in making the personal recommendation or decision to trade.61 The Guidelines on Suitability produced by the European Securities and Markets Authority (ESMA) has elaborated further on this subject by stating that advisers and portfolio managers shall avoid ‘stating, or giving the impression, that it is the client who decides on the suitability of the investment … ’.62 Moreover, the required disclosures will ensure that the clients understand ‘the reason why they are asked to provide certain information and the importance that such information is up-to-date, accurate and complete’.63 And these rules apply regardless of whether the service is provided in the traditional way or by the use of robo advice.64 Moreover, the customer must know, upon receiving a recommendation, the bases that justify the suitability of such recommendation. This is precisely the purpose of Article 26(6) of MiFID II that requires the investment firm, before delivering the recommendation or service, to provide the customer with a suitability report.65 This report is a written statement on suitability. It is directed personally to the client, and contains highly relevant information. More specifically, the report indicates ‘the advice given and how that advice meets the preferences, objectives and other characteristics of the retail client’.66 It must provide an outline of the advice given and, more particularly, explain how the recommendation provided is suitable for the retail client. This includes how the recommendation ‘meets the client's objectives and personal circumstances with reference to the investment term required, client's knowledge and experience and client's attitude to risk and capacity for loss’.67 The report must be recorded in a durable medium, which includes electronic format,68 and has to be provided to the client irrespective of whether or not the advice is followed by a transaction.69 Compared with the considerations mentioned above, the findings from this investigation on Swiss-based RAs have shown a different reality. In relation to potential customers, the findings suggest that RAs were not yet prepared to bring up the suitability issue when advertising and marketing their services to the extent that none of the RA websites used the term ‘suitable’ or ‘suitability’. Nor has FinSA, more recently, required RAs to make such disclosures in future. Nevertheless, in the more specific setting of client–provider communications, FinSA has contemplated a scenario in which the provider shall notify the customer to the effect that it will ‘not’ conduct the suitability assessment. This decision can find justification on the grounds that the assessment is not required for certain services (eg execution-only services)70 or the assessment cannot be performed due to insufficient data provided by the client.71 Although FinSA has granted customers the right to request access to the provider’s records containing the results of the suitability assessment,72 such a ‘right to access’ differs from the stance adopted by the MiFID II suitability report. This latter must be issued by the adviser or portfolio manager upfront and without the need for any formal request from the client. In future, it would be highly desirable that Swiss-based RAs made general information available on their websites to the effect that the RA will conduct a suitability assessment on the client with descriptions of how and why this assessment will be done. More specific information explaining the reasons why a recommendation is suitable for the customer could be communicated in ways that mimic the MiFID II suitability report. The fact that FinSA has also duly accounted for conflict of interest issues will require further changes to the RAs’ internal policies.73 It is noted that suitable advice need not warrant disinterested advice insofar as suitable advice may still be vitiated by conflict of interest. Disinterested advice requires that RAs place the client’s interest first and above the RA’s own interest. Under FinSA, financial service providers that gain compensation from third parties in relation to the provision of the service (eg a commission) are required to either inform their clients in advance about the compensation or pass the compensation to the clients in full.74 Our investigation found that the majority of RA websites (7/11) contained a reference indicating that the RA, in selecting investment products for their clients, received no commissions or other compensation from third parties. Moreover, a few RA websites stated that if the RA received inducements from third parties in the course of selecting investment products such inducements would be passed on in full to the clients. These findings show a reasonable awareness on the part of RAs that, when selecting products for their customers, the customer’s interest and transparency are to prevail. Unfortunately, in only one RA website was a full disclosure of the RA’s conflict of interest policy found. It would be desirable that RAs design, implement and disclose to customers on the RA website their conflicts of interest policy. Under the MiFID II regime, investment firms are required to establish, implement and maintain an effective conflict of interest policy.75 Such a policy shall be ‘set out in writing and appropriate to the size and organisation of the firm and the nature, scale and complexity of its business’,76 and shall be disclosed to actual and potential clients.77 The policy description may be provided in summary form,78 and the customers may access further details upon request.79 Like MiFID II, FinSA has also required providers to design and implement a conflict of interest policy. Nevertheless, that FinSA has created an obligation on service providers to disclose such policy to actual and potential clients has not been apparent.80 6. Conclusion This article aimed to shed light on the information properties of RA websites in Switzerland from the perspective of retail investor protection. Analysing text data collected from RA websites for this investigation was justified because RAs are largely internet-based companies and, to this extent, the website has constituted the core channel for RAs to promote their services to and inform customers. Looking at the content of RA websites allows one to identify weak areas that can be improved for the benefit of customers. There is room for RAs to conceptualize the services offered more clearly. Improvements can also be done in the ways that RAs present risk information on their websites. A better balance of the risks and the benefits of investing will assist customers, as will more extensive disclosures on the use and governance of the algorithms relied upon by RAs. Best practices that Swiss-based RAs ought to embrace by recourse to voluntary information disclosures include making their policy on conflict of interest available online. It is also suggested that RAs communicate on their websites that they are obliged to conduct the suitability assessment, as set forth in FinSA, and that such assessment is meant to protect the customer’s best interest. Importantly, RAs should ensure that in all cases they explain to their customers how the recommendations made to them are suitable. Overall, the findings from our investigation were roughly the same regardless of whether the RA acted as an independent adviser or pertained to a bank or a corporate group, and regardless of the region of Switzerland where the RA had been incorporated. The method used to conduct this investigation has limitations. Looking only at the content of RA websites enables one to learn more about the RAs’ basic characteristics and make a critical evaluation of the type and scope of the information offered on these websites. Other, crucial issues cannot be investigated using this procedure, however. For instance, this research has not looked at the actual ability of RAs to mitigate and manage the multiple risks arising from algorithm-based decisions. Nor has this investigation enquired into the capacity of RAs to comply with key legal and regulatory requirements, such as the newly created suitability requirements under FinSA. Addressing such issues would require the use of different research methods. As a result, important questions remain to be investigated: to what extent are RAs able to produce suitable recommendations in the real world? What systems are currently in place to actually detect and prevent conflict of interest? Does the use of algorithms by RAs warrant accountable decision-making? Are algorithms being tested, maintained or updated? How? Not even a critical analysis of web-disclosed information would be complete without concomitantly tackling issues of investor’s literacy and bounded rationality. These are pending themes and questions that may guide a valuable agenda for future legal and empirical research in the area of robo-advisory services. The assistance provided by the Institute for International Business Law at the University of Fribourg, Switzerland (data collection from the websites of Swiss-based robo advisers) is gratefully acknowledged. Claims and errors are the sole responsibility of the author. The findings and opinions in this article are independent and unbiased. The author has no financial interests or connections, direct or indirect, with the research subjects, industry or any other entities or sources that may raise questions of bias. Footnotes 1 IOSCO, ‘Research Report On Financial Technologies (FINTECH)’ (2017) accessed 18 June 2019; US Securities and Exchange Commission, ‘Guidance Update: Robo-advisers’ Division of Investment Management, No 2017-02. 2 ESAs, ‘Joint Committee Discussion Paper on Automation in Financial Advice’ JC 2015 080, 4 December 2015, paras 53–59 accessed 18 June 2019. 3 In a global survey conducted by the CFA Institute in 2016 among CFA charter holders (3,803 members were invited to participate in the survey and 775 valid responses were received; the response rate amounted to 20% and the margin of error was ±3.2), robo-advisory services were identified as having the greatest impact in the financial services industry (for both one- and five-year horizons) performing better than other innovations including Blockchain, crowdfunding and P2P lending. The majority of respondents (54%) indicated that asset management will be the most affected sector by tool for automated financial advice, CFA Institute, ‘Fintech Survey Report’ April 2016. 4 Statista (2020 projections) accessed 14 May 2020. Also, O Kaya, ‘Robo-advice—a True Innovation in Asset Management’ 10 August 2017, Deutsche Bank Research, EU Monitor, Global financial markets. 5 Ibid Statista (ranking Switzerland in fifth place worldwide in 2020—after the USA, China, Australia and Japan—and estimating the Swiss robo-advisory business to reach up to US$51 billion in 2024. 6 T Ankenbrand, A Dietrich and D Bieri (eds), IFZ Fintech Study 2018: An Overview of Swiss Fintech (Institute of Financial Services Zug IFZ, 2018); T Ankenbrand, A Dietrich and D Bieri (eds), IFZ Fintech Study 2019: An Overview of Swiss Fintech (Institute of Financial Services Zug IFZ, 2019). 7 Moneyland.ch accessed 18 June 2019. 8 In the rest of this article, the terms (retail) investor, client and customer are used interchangeably. 9 Oxford Advanced Learner’s Dictionary of Current English (6th edn, OUP 2000). 10 RK Hill, ‘What an Algorithm is’ (2015) 29(1) Philosophy & Technology 35–59, 47. 11 BD Mittelstadt and others, ‘The Ethics of Algorithms: Mapping the Debate’ (2016) 3(2) Big Data & Society 2. 12 (n 9). 13 M Ziewitz, ‘Governing Algorithms: Myth, Mess, and Methods’ (2016) 41(1) Science, Technology, & Human Values 3–16, 5. 14 Mittelstadt (n 11); K Martin, ‘Ethical Implications and Accountability of Algorithms’ (2018) Journal of Business Ethics 1–16. 15 To the extent that RAs are designed by humans, the argument has gone, RAs’ conduct may exhibit human flaws including problems of conflict of interest and self-dealing. See BP Edwards, ‘The Rise of Automated Investment Advice: Can Robo-Advisers Rescue the Retail Market’ (2018) Chicago-Kent Law Review 93, 97; NG Iannarone, ‘Computer as Confidant: Digital Investment Advice and the Fiduciary Standard’ (2018) Chicago-Kent Law Review 93, 141; T Baker and B Dellaert, ‘Regulating Robo Advisors: Old Policy Goals, New Challenges’ (2017) Penn Wharton Public Policy Initiative 47 accessed 14 May 2020; M Ji, ‘Are Robots Good Fiduciaries? Regulating Robo-Advisors under the Investment Advisers Act of 1940’ (2017) Columbia Law Review 1543–83. 16 Financial Services Act (FinSA) (adopted by the Swiss Parliament on 15 June 2018; entered into force on 1 January 2020 with a transitional period of two years); Financial Services Ordinance (FinSO) (rules on FinSA’s implementation; approved by the Swiss Federal Council on 6 November 2019; entry into force 1 January 2020). FinSA sets out rules on the provision of financial services and the offer of financial instruments. It applies to financial service providers that are domiciled in Switzerland or that approach Swiss-based customers. The activities of Swiss-based RAs (as providers of investment advice and asset management services) fall within FinSA’s scope of application. Information on law reform in the Swiss financial sector can be found in accessed 14 May 2020 and accessed 14 May 2020. 17 Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU [2014] OJ L173/349 (hereinafter MiFID II). 18 accessed 18 June 2019. 19 accessed 18 June 2019. 20 accessed 18 June 2019. 21 accessed 18 June 2019. 22 accessed 18 June 2019. 23 (n 9). 24 This deficit has important implications that will be examined in Section 5 of this article. 25 MiFID II (n 17) art. 25(2). 26 ESMA, ‘Guidelines on certain aspect of the MiFID II sustainability requirements’ 6 November 2018, ESMA35-43-1163, para. 6 (hereinafter Guidelines on Suitability). 27 FinSA (n 16) art. 12. 28 At the time when this investigation was conducted, FinSA had already been enacted. However, this legislation entered into force on 1 January 2020, FinSA (n 16). 29 In the European Union, MiFID II (n 17) art.24(5). In the USA, Securities and Exchange Commission (n 1) 3. In the UK, Financial Conduct Authority, ‘Automated investment services—our expectations’ 21 May 2018, section: service disclosure. In Hong Kong, Securities and Futures Commission, ‘Guidelines on Online Distribution and Advisory Platforms’ April 2019, paras 4.2–4.3. In Singapore, Monetary Authority of Singapore, ‘Guidelines on the Provision of Digital Advisory Services’ Guidelines No CMG-G02, 8 October 2018 (Securities and Futures Act (CAP 289) Financial Advisers Act (CAP 110)) para. 38. 30 FinSA (n 16) arts 8–9. 31 Investor Insights: Legg Mason Global Investment Survey 2018 (only 46% of Swiss investors understood the meaning of the term ‘robo-advisor’; in relation to the same question, US investors scored 75% and the global average score amounted to 66%). 32 FinSA (n 16) arts 10–14. 33 Ibid arts 10–12. 34 Ibid art. 13(1). The obligation of suitability was explained in Section 4 of this article. Unlike the suitability assessment, the assessment of appropriateness requires that the provider recommend products that match only with the client’s investment knowledge and experience. Consideration of the client’s financial situation and investment objectives is not required, FinSA (n 16) art. 11. 35 This point was raised by consumer associations when evaluating this very issue in the context of RAs operating in the European Union, European Commission, ‘Distribution Systems of retail investment products across the European Union’, final report 2018, 148–9. 36 R Aggarwal and L Schofield, ‘The Growth of Global ETFs and Regulatory Challenges’ in J Kose, AK Makhija and SP Ferris (eds), Advances in Financial Economics (1st edn, Emerald 2013); JM Hill, D Nadig and M Hougan, ‘A Comprehensive Guide to Exchange Traded Funds (ETFs)’ (2015) CFA Institute Research Foundation 7–8 and 54–9. 37 See, eg M Brenncke, ‘The Legal Framework for Financial Advertising: Curbing Behavioural Exploitation’ (2018) 19 European Business Organization Law Review 853–2, 873–4 accessed 14 May 2020. 38 Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organizational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive [2017] OJ L87/1, art. 44(2)(b) (hereinafter MiFID II Delegated Regulation). 39 Ibid art. 44(2)(c). 40 Ibid art. 44(2)(e). 41 (n 37). 42 FinSA (n 16) arts 8(3) and 58–63. Also, FinSA (n 16) art. 8(2)(a) (‘They [financial service providers] shall also provide information on: a. the financial service personally recommended and the associated risks and costs;’ (straight brackets added)); FinSA (n 16) art. 16 (on information available to clients upon request). 43 Ibid art. 60(1). 44 Ibid art. 60(2)(c). 45 Ibid art. 9(2). Also, ‘[w]here consultation takes place without the client being physically present, the key information document may be made available after conclusion of the transaction if the client so consents. Financial service providers shall document the said consent’, ibid). 46 FinSA (n 16) art. 68 and FinSO (n 16) art. 95 (containing brief rules on advertising). 47 Ibid, FinSA art. 8(1)(d) and FinSO art. 7(3)(b). 48 ESAs, ‘Report on Automation in Financial Services’ of 16 December 2016, paras 53–59 (noting that human interaction in the provision of robo-advisory services mitigates some of the risks associated with the ‘fully automated’ RAs). 49 (n 31) (nearly 70% of respondents (Swiss investors) agreed that customer service with a ‘human touch’ can never be replaced with technology; only 38% of respondents thought that online tools and apps will replace the role of human financial advisers, whereas 51% of respondents said that they would feel nervous without a human available to talk to about managing their investments). 50 CFA Institute (n 3) 14 (46% of respondents identified flaws in the automated financial advice algorithm to be the biggest risk, followed by mis-selling of financial advice (30% of respondents), and privacy and data protection concerns (12% of respondents)). 51 Mittelstadt (n 11); Martin (n 14). 52 EPFL, ‘The Governance of Decision-Making Algorithms’ (2018) EPFL International Risk Governance Centre accessed 19 May 2020; E Bozdag, ‘Bias in Algorithmic Filtering and Personalization’ (2013) 15(3) Ethics and Information Technology 209–27; N Diakopoulos, ‘Algorithmic Accountability’ (2015) 3(3) Digital Journalism 398–415; F Kraemer, K Van Overveld and M Peterson, ‘Is There an Ethics of Algorithms?’ (2011) 13(3) Ethics and Information Technology 251–60. 53 EPFL, ibid. Also, F Saurwein, N Just and M Latzer, ‘Governance of Algorithms: Options and Limitations’ (2015) 17(6) 35–49, ttps://doi.org/10.1108/info-05-2015-0025; C Coglianese and D Lehr, ‘Transparency and Algorithmic Governance’ (2018) 71 Administrative Law Review 1; B Lepri and others, ‘Fair, Transparent, and Accountable Algorithmic Decision-making Processes’ (2018) 31(4) Philosophy & Technology 611–27; M Ziewitz, ‘Governing Algorithms: Myth, Mess, and Methods’ (2016) 41(1) Science, Technology, & Human Values 3–16. 54 Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation) [2016] OJ L119/1, arts 13–15 and 22 (regulation in force since 25 May 2018). 55 Ibid. 56 Securities and Exchange Commission (n 1) 3–4, section: Explanation of Business Model. 57 Ibid. 58 Securities and Futures Commission, ‘Guidelines on …’ (n 29) paras 4.8–4.15 (The Hong Kong Securities and Futures Commission has issued guidelines that contain extensive rules related to disclosure, supervision and testing of the algorithms used by RAs). 59 Monetary Authority of Singapore, ‘Guidelines on…’ (n 29) paras 28–32 and 38–39. 60 FinSA (n 16) art. 12. 61 MiFID II Delegated Regulation (n 38) art. 54(1). 62 Guidelines on Suitability (n 26) para. 18. 63 Ibid para. 15. 64 MiFID II Delegated Regulation (n 38) art. 54(1) second paragraph. Guidelines on Suitability (n 26) para. 7 (ESMA has stressed that the suitability requirements are particularly relevant when firms provide robo-advisory services ‘due to the limited interaction (or none at all) between clients and firms’ personnel.’). 65 MiFID II (n 17) art. 26(6). Given a number of conditions, the suitability report can be delivered to the client immediately after the transaction has been made (MiFID II (n 17) art. 26(6) third paragraph). Also, MiFID II Delegated Regulation (n 38) para. 54(11); Guidelines on Suitability (n 26) para. 91. 66 MiFID II (n 17) art. 25(6). Also, ESMA, ‘Questions and Answers on MiFID II and MiFIR Investor Protection and Intermediaries Topics’ 28 March 2019, ESMA35-43-349, 32 (Q1) (hereinafter ESMA Q&As). 67 MiFID II Delegated Regulation (n 38) art. 54(12). 68 MiFID II (n 17) art. 25(6) and recital 82. Also, MiFID II Delegated Regulation (n 38) art. 54(12); ESMA Q&As (n 66) 32 (Q1). 69 Ibid, ESMA Q&As 34 (Q5). 70 FinSA (n 16) art. 13(2). 71 Ibid art. 14(1). 72 Ibid art. 15(1); FinSO (n 16) art. 18. 73 FinSA (n 16) arts 25–27. 74 Ibid art. 26. 75 MiFID II (n 17) arts 16(3) and 23; MiFID II Delegated Regulation (n 38) art. 34. 76 Ibid, MiFID II Delegated Regulation art. 34(1). 77 Ibid art. 46(1)(h) (complementing art. 24(4) of MiFID II). 78 Ibid. 79 Ibid art. 46(1)(i), provided that art. 3(2) of the same regulation is satisfied (complementing art. 24(4) of MiFID II). 80 Eg see FinSO (n 16) arts 25–26. © The Author(s) (2020). Published by Oxford University Press. All rights reserved. For permissions, please email: journals.permissions@oup.com This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model) TI - An examination into the investor protection properties of robo-advisory services in Switzerland JF - Capital Markets Law Journal DO - 10.1093/cmlj/kmaa024 DA - 2020-12-03 UR - https://www.deepdyve.com/lp/oxford-university-press/an-examination-into-the-investor-protection-properties-of-robo-l3BNHzkv0t SP - 489 EP - 508 VL - 15 IS - 4 DP - DeepDyve ER -