Robo-advice is undoubtedly the most advanced and expanded solution as financial technology to asset management and wealth management.

A part from its convenience and simplicity, one of the main benefits is to accelerate digital client onboarding.

Nevertheless, we note that some concerns have been raised by EU regulators on the importance to fit with the same regulatory requirements as traditional discretionary or advisory services to ultimately ensure the protection of investors.

We are seeking to review in this article to what extent robo-advice fits in the existing EU regulatory framework, particularly in respect of investor protection.

We propose to start with an overview of background information. Then, we will pursue with the  EU regulatory requirements and elaborate around the approach that the authorities have taken in this respect

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1. As a matter of background

  1. Robo-advisors are digital platforms that provide investors with financial advice or investment services based on computer-based technologies using artificial intelligence or algorithms.
  2. Concretely, robo-advice platforms are used for automated questionnaires to determine asset allocation and risk tolerance levels of the investors. This requires to collect investor preferences to determine the investor’s risk profile and suggest relevant investment strategies (1). Investment algorithms are also involved to automatically invest into mainly exchange traded funds (ETFs). This stage includes any rebalancing investments to stay in line with investor risk profiles as identified by the questionnaires. (1) Preferences gathered as investment horizons, risks, objectives and investment sectors.
  3. Generally speaking, the platforms we encounter operate in 3 main business models: D2C (Direct to Consumer), B2B (Business to Business) and Hybrid. In the D2C business model, financial advice is given directly to the end user, and a periodic fixed fee and performance commission are charged to the user as an income model.  In B2B, the technology companies that developed these solutions make them available to financial institutions as a white label (or private label). It charges a basic license fee or a user-based fee, depending on its location. Although there are hybrid models in which financial advisors are also active as real persons in some of the existing solutions applications, the ultimate long-term goal of robo-advising is to completely eliminate human intervention.
  4. We could reasonably expect that further developments in artificial intelligence and machine learning may improve the robo-advice solutions, in particular in respect of their main characteristic of profiling and automated decision making.
  5. Considering the development of robo-advice platforms, we are witnessing that the cost of advice is already lower contrary to traditional discretionary or advisory services which remain less affordable.

2. EU level – Regulatory framework for robo-advice

It is worth indicating that there is no specific regulation for robo-advice

The main EU legislation which governs this matter relates to financial intermediaries and investor protection (Markets in Financial Instruments Directive- MiFID2) (1). More precisely, the key requirements involve that the risks are to be appropriately mitigated and investors need to be sufficiently protected. In this basis, we note that several Member States have adopted domestic regulatory frameworks.

Among other guidelines published in this respect, the European Securities and Markets Authority (ESMA) has clarified how firms can assess suitability when providing robo-advice. Indeed, the ESMA Guidelines set out 12 general guidelines (2) regarding assessing suitability which require firms to:

  • Inform their clients clearly and simply about the suitability assessment and its purpose which is to enable the firm to act in the client’s best interest;
  • Establish, implement and maintain adequate policies and procedures (including appropriate tools) to enable them to understand the essential facts and characteristics about their clients; and
  • Collect all necessary information about the client’s knowledge and experience before providing investment advice or portfolio management services.

In addition, the European Banking Authority published a report on July 3rd 2018 on Prudential Risks and Opportunities Arising for Institutions from Fintech (EBA Report). The EBA Report stated that “robo-advice could possibly raise conduct-related risks, potentially leading to consequences such as regulator fines and customer redress and harming”.

Consequently, depending on the nature of services and induced business model, robo-advisors may fall within the above-mentioned EU and domestic legislations in respective Member States. 

Similarly to traditional financial advice services, digital financial advice services, are subject to the existing domestic regulatory requirements

(1) Referring to Art. 17 MiFID2, for those offering solutions founded on algorithmic trading,  they are called to measures to keep the system safe and operational.

(2) ESMA, final guidelines on certain aspects of the Mifid 2 appropriateness and execution-only requirements.

Luxembourg level – Authorisation and licenses for robo-advice 

As usually practised by the CSSF (1), the type of licensing required by a robo-advisor depends on the “operating model chosen including the services provided, the contractual arrangements and the structure of the platform” (2).

In practice, robo-advisors would need to register as investment advisers (3), in the same manner than non-automated financial advisors.

In presence of robo-advisors offering the technology to manage portfolios as per discretionary  mandates, they are called to register as private portfolio managers (4).

Additionally, robo-advisors are called to register as brokers in financial instruments (5) whenever their “servicing consists of the role of an intermediary by either encouraging parties to be brought together with a view to the conclusion of a transaction, or in passing on their clients’ purchase or sale orders without holding the investments of the clients”(6).

When it comes to robo-advisor executing orders on behalf of clients and in relation to one or more financial instruments, an authorisation as a commission agent is necessary (7).

The CSSF considers that in any of these cases, robo-advisors are required to comply with the MiFID/ MiFIR (8) frameworks. 

(1)La Commission de Surveillance du Secteur Financier.

(2) CSSF, position paper on robo-advice published on 27 March 2018.

(3) Article 24 of the Law of 5 April 1993 on the financial sector, as amended (“LFS”).

(4) Article 24-3 of the LFS

(5) Article 24-1 of the LFS

(6) CSSF, position paper on robo-advice published on 27 March 2018.

(7) Article 24-2 of the LFS

(8) Markets in Financial Instruments (MiFIR) – Regulation (EU) No 600/2014


In a nutshell, robo-advice has already deeply changed investor’s experiences by making financial advice and investment management more inclusive and accessible. Further developments are to come in artificial intelligence and machine learning; greater progress is imminently anticipated in particular on profiling and automated decision making.

Nevertheless, it is obvious from the EU regulatory and Member States frameworks that robo-advisors are required to comply with the requirements in the same manner than traditional firms. The substantial component of the rules refers to investor protection legislations and frameworks.