Artificial Intelligence Resources for Investment Advisers
Published On:04 February 2026
Share:
Artificial Intelligence Resources for Investment Advisers
Like other business organizations around the globe, registered investment advisers (“RIAs”) are rapidly integrating artificial intelligence (“AI”) into investment related, accounting, marketing and other processes to enhance investor returns and RIA efficiency. The regulatory climate is favorable as the current administration is encouraging the adoption of artificial intelligence in the federal government, the American economy in general and the regulated money management industry in particular.
With that in mind, AI integration must be accomplished mindful of several existing RIA obligations:
Fiduciary Duty: RIAs have a fiduciary duty to their clients comprised of a duty of care and a duty of loyalty. See SEC Interpretation Regarding Standard of Conduct for Investment Advisers (Release No. IA-5248) (July 12, 2019).
Data Privacy: Regulation S-P (particularly Rule 30(a) and (b)) requires RIAs to safeguard and properly dispose of investor information whether it is in their possession or that of a third party vendor such as a fund administrator.
MNPI Management: Advisers Act Section 204A requires RIAs to monitor and manage material nonpublic information. An SEC Risk Alert is available here. Are model inputs really aggregated and anonymized? See the App Annie case.
Private Placement Regime: Rule 506(b) of Regulation D requires that issuers avoid general advertising and have a substantive preexisting relationship prior to offering securities. Rule 506(c) does permit general advertising but requires verification of accredited investor status. See the Latham & Watkins No Action Letter (March 12, 2025).
Investment Company Act Exemption: Sections 3(c)(1) and 3(c)(7) both require that issuers avoid a public offering of securities. The text of Section 3 of the Investment Company Act is available here.
Marketing Rule 206(4)-1: The RIA must be able to substantiate all statements of fact; hypothetical performance information may only be distributed to specified categories of sophisticated investors (not the public such as on a web page or social media).
Books and Records Rule 204-2: Business communications must be achieved. AI transcripts of meetings and calls arguably are business communications.
Further, the SEC’s new Director of the Division of Examinations, Keith Cassidy, has a background in technology and cybersecurity. We anticipate that AI implementation, governance and related disclosures will be of interest to him. Please see the SEC’s press release here.
Ultimately, RIAs should have an understanding of how AI resources are obtained, developed or deployed within their organization and develop policies and procedures with respect to permissible AI use. Permitted use should be part of firm wide training. The chief compliance officer (either alone or as part of a governance committee) should generally be involved in establishing and monitoring AI use guidelines. Great care should be taken to ensure that client and investor data are not inadvertently made publicly available; any disclosures about the use of AI (particularly as part of the investment process) should be accurate and substantiated, including in the firm’s Form ADV Part 2A, and other investor communications.AI use by vendors should similarly be vetted and monitored including contractual rights of the RIA to ensure that the vendor will keep confidential any firm or investor information. AI models need to be vetted and monitored for accuracy, bias, conflicts, and consistency with stated investment objectives and portfolio constraints. Change management policies should discuss procedures for how models are updated or modified. The firm’s cybersecurity posture should also cover AI resources and endeavor to detect tampering with data sets used by AI models. Expenses with respect to AI resources should be allocated in accordance fund document expense language. Management companies should absorb AI expenses not allocable to clients.
We have compiled several resources that may be of assistance to investment advisers in understanding artificial intelligence implementation and the consequent regulatory obligations and pitfalls associated with this implementation:
Executive Orders
Removing Barriers To American Leadership In Artificial Intelligence (Executive Order 14179) (January 23, 2025)
Winning the Race America’s AI Action Plan (July 2025)
Ensuring A National Policy Framework For Artificial Intelligence (December 11, 2025)
Remarks to the ABA’s Federal Regulation of Securities Committee’s Private Funds Subcommittee and Investment Advisers and Investment Companies Subcommittee by Brian Daly, Director of Investment Management (December 2, 2025)
SEC Enforcement Actions
AI Washing
SEC Charges New Jersey Resident in Alleged Investment Advisor Fraud (Press Release) (January 23, 2026); the SEC alleged that Joel Sofia, an unregistered investment adviser falsely claimed he used a fully automated AI trading process in violation of his fiduciary duty to his clients.
SEC Charges Two Investment Advisers with Making False and Misleading Statements About Their Use of Artificial Intelligence (Press Release) (March 18, 2024); Delphia and Global Predictions were marketing their funds as using AI in ways that they were not. Form ADV Part 2A brochures, websites and press releases were false and misleading.
SEC Charges Two Sigma for Failing to Address Known Vulnerabilities in its Investment Models (Press Release January 16, 2025) (SEC Order); Two Sigma settled charges that it (i) failed to exercise reasonable care in addressing known material vulnerabilities to a subset of their computer-based algorithmic investment models in breach of its fiduciary duty of care, (ii) had deficiencies in written compliance policies and procedures, and (iii) failed to supervise one of its employees.
Quant At Investment Management Firm Charged With Securities And Wire Fraud (US Attorney’s Office) (September 11, 2025)
In the Matter of Aegon USA Investment Management, LLC, et al. (Press Release) (August 14, 2024); an analyst with no experience in portfolio management or any formal training in financial modeling and without guidance or oversight was charged with developing quantitative trading models. Internal audit identified a lack of formal controls, policies and procedures to validate models and ensure they functioned as expected; the analyst was not initially identified to fund investors as the portfolio manager; rather, a Senior Manager that had nothing to do with the models or portfolios was identified as the portfolio manager; funds were launched a year or two before the models were validated. Some models contained errors and were not fit for purpose.
In the Matter of Aegon USA Investment Management, LLC (August 27, 2018)
Regulatory Notice 24-09 FINRA Reminds Members of Regulatory Obligations When Using Generative Artificial Intelligence and Large Language Model (June 27, 2024)
CFTC
Use of Artificial Intelligence in CFTC Regulated Markets CFTC Advisory Letter 24-17 (December 5, 2024)
Ropes & Gray Meeting the AI Moment in Asset Management: An Agenda for Industry Lawyers (September 24, 2025)
CFA Institute AI in Investment Management: 5 Lessons From the Front Lines (June 10, 2025)
Cullen Dykman The Artificial Fiduciary: How Black Box AI Models Are Compromising Fiduciary Duties Within Private Equity (July 18, 2025)
Harvard Law School Investment Advisers’ Fiduciary Duties: The Use of Artificial Intelligence (June 11, 2020)
Morrison Foerster AI Compliance Tips for Investment Advisers (October 15, 2025)
Sidley Artificial Intelligence: U.S. Securities and Commodities Guidelines for Responsible Use (February 10, 2025)
AIMA A practical guide for adviser considering the use of AI (March 24, 2025)
We use cookies and similar technologies to enhance your browsing experience, analyze site traffic, personalize content, and serve targeted advertisements. By clicking "Accept All Cookies," you consent to our use of cookies.
