Investor Advocacy Clinic, Secretary of State Office Develop Valuable Resources About Robo-Advisers

Through its partnership with the Securities Division of the Office of the Secretary of State, Georgia State Law’s Investor Advocacy Clinic (IAC) enhanced investor education with students tackling a cutting-edge technology issue that impacts the security industry – robo-advisers – and creating a resource library.

The securities division partnered with the North American Securities Administrators Association (NASAA) to learn more about these tools, and the clinic played a critical role in evaluating the pros and cons of robo-advising. Under the direction of Nicole G. Iannarone, assistant clinical professor and clinic director, students compiled and analyzed information relating to robo-advisers, which are investment management programs that select and manage individual portfolios.

Robo-advisers, previously called “internet advisers,” have changed significantly since they were introduced approximately 15 years ago. The products have gained in popularity in recent years, but there is relatively little educational and impartial information available. The algorithm-driven digital tools provide investment advisory services to consumers, often without any human interaction.

“Several legal questions arise as potential investors, financial advisers and regulators learn how to navigate this shift in financial investing through robo-advisers. Since the human interaction is diminished, the duties held by the investor and adviser are not as clear,” said Noula Zaharis, director of the Securities & Charities Division. “Legal questions, specifically about fiduciary duty, will continue to arise as robo-advisers become more prevalent.”

Qudsia Shafiq (J.D. ’18) and Majda Muhic (J.D. ’17) worked with the securities division and handled investigatory matters.

“Through general research, Majda and I determined the different business models under which robo-advisers operate and how they function within the financial industry,” Shafiq said. “We also identified key players and looked for potentially problematic regulatory issues and any arguments proposing robo-advisers as fulfilling – or failing to fulfill – their fiduciary duty to their clients.”

Based on their research findings, Shafiq and Muhic co-wrote a series of 11 articles for the IAC blog to help consumers understand what robo-advisers are, explain the fiduciary duty robo-advisers owe their clients and highlight the benefits, downfalls and key considerations for using this type of financial product.

“The available educational information comes in two forms: regulatory guidance, which is helpful but not published regularly, or white papers, which may be challenging for most investors to access or understand due to the complexity of the material and use of industry jargon,” Shafiq said. “The IAC approached these problems with one goal in mind: to educate investors so they can decide for themselves whether this product might be right for them. We don’t promote or endorse any products, and our main objective is to ensure investors are protected, educated and aware of the fiduciary duty robo-advisers owe them.”

“We are so thankful to the IAC and Georgia State Law students for developing such valuable resources. We know that our constituents will greatly benefit from these materials, and we have already received tremendous feedback from our partners at NASAA and state counterparts,” said Candice Broce (J.D. ’14), press secretary for the Office of Georgia Secretary of State. “We anticipate other regulators will use what the students put together and continue this important conversation on the growing practice of robo-advising in the United States.”

Muhic, who joined the clinic to further develop her lawyering skills and directly impact the lives of clients, found her experience working on the project rewarding.

“I gained valuable practical experience, developed relationships with clients and colleagues, and became more comfortable in my own role as an advocate and lawyer,” she said. “It felt satisfying to develop materials that will educate investors on this complex issue and hopefully inform their decisions to protect their investments. Overall, it was great to be a part of the IAC, which provides a platform for investors who may otherwise remain without recourse to recoup their losses and gives them a voice in the legal system.”

Shafiq agrees, “Nothing mimics the real world like seeing a case through to the end, and through the IAC, I was able to do that.”

“Investor education is a critical part of how we serve Georgians, and we are constantly searching for ways to guide members of the public in this complex legal landscape,” Zaharis said. “With this partnership, we are able to better accomplish our goals for investor education and assist our constituents in our day-to-day operations.”

Iannarone said the partnership has exceeded expectations.

“So far, the partnership has allowed each of our students to investigate an allegation of securities misconduct through the regulators’ eyes,” Iannarone said. “On top of that, they develop cutting-edge educational materials with a broader reach than the clinic can attain on its own. As we move forward, we anticipate expanding the partnership’s portfolio of innovative and engaging investor education pieces.”