Name
Global FinTech Guide
Country _ Name
United States
SectionTitle
Asset and portfolio management
Body
FinTechs belonging to this category offer asset and portfolio management services via an internet platform or software programs and usually manage and dispose of the assets of their customers long or short term according to their specifications without actually holding the property or the possession of those assets. FinTechs, which provide information about and access to overnight or time deposit accounts at national and foreign banks and which execute the transactions to these accounts, also belong to this category. Some FinTechs however only act on request of the customer.

Aside from that some FinTechs offer software or internet solutions enabling users to manage and plan their personal finances on their own by providing graphics, overviews and compilations of their financial data and sometimes indicating financial risks or opportunities, but without actually managing the assets.

Introduction

Attitude of the country towards modern asset and portfolio management services

The United States has a robust and active tech-driven investment and portfolio management environment. Many web-based and app-based investment managers only have an online presence and do not have a physical presence. There is broad adoption of the delivery of brokerage and asset management services through tech platforms, particularly among the younger generations, which have become increasingly creative and user-friendly. 

From a legal perspective, the US Securities and Exchange Commission (the SEC), the federal regulatory agency that is responsible for protecting securities investors, maintaining fair and orderly functioning of the securities markets, and facilitating capital formation, has expressed concerns about the “gamification” of FinTech platforms and has signalled that additional new regulations targeting these platforms will be proposed and that there will be increased enforcement. 


Legal affairs

Obligations and requirements to provide asset and portfolio management, or ancillary services described above

Asset and portfolio management typically are regulated activities, although the types of regulation that are applicable differ depending on the services provided. There are two primary federal regulatory regimes in respect of the asset management of securities. Persons who are engaged in the business of effecting transactions in securities for the account of others are brokers (or dealers if for their own account). Persons who, for compensation, engage in the business of advising others as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or who issue or promulgate analyses or reports concerning securities, are investment advisers. In addition, there are other regulatory regimes not described here that affect commodity trading advisors, commodity pool operators, commodity brokers, municipal advisors, municipal brokers etc.

Broker-Dealers: 
Broker-dealers are federally regulated under the Securities Exchange Act of 1934 (the Exchange Act), and each state has its own separate broker-dealer laws. Broker-dealers are regulated at both the state and federal level, although both the SEC and the states generally have delegated oversight authority to the Financial Industry Regulatory Authority (FINRA). Accordingly, broker-dealers also must follow FINRA rules. Associated persons of broker-dealers need to be registered with FINRA, which generally requires passing specified tests administered by FINRA, fingerprinting and general background applications, although these requirements may differ from state to state. 

Broker-dealers register by filing a Form BD as well as a FINRA membership application and must also become members of the Securities Investor Protection Corporation. The application proces
s must be completed within 180 days, and application fees range from $7,500 to $60,000. Generally, broker-dealers must maintain capital of at least $250,000, but that amount could be significantly higher depending on its activities and capitalisation. While broker-dealers do not have formal fiduciary duties under federal law, they have responsibilities to determine suitability and exercise care that mimic the fiduciary requirements of investment advisers, as well as an obligation of fair dealing. Broker-dealers are subject to extensive ongoing compliance requirements, including:  

  • Maintaining defined minimum amounts of liquid assets, or net capital – The required minimum net capital level is based on the type of securities activities conducted by the broker-dealer.
  • Complying with the “customer protection rule” – This rule is complex and requires a broker-dealer to have possession or control of all fully paid or excess margin securities held for the account of customers. 
  • Recordkeeping requirements - Broker-dealers must make and keep current books and records detailing items such as, securities transactions, money balances, and securities positions. They also must keep records for required periods and furnish copies of those records to the SEC on request. These records include e-mail.
  • Broker-dealers are subject to prescribed reporting obligations - Broker-dealers must file quarterly and annual financial statements with the SEC. Broker-dealers must also notify the SEC regarding net capital, recordkeeping, and other operational problems.
  • Privacy notices and matters - Broker-dealers are generally prohibited from providing personal information about a customer to a third party unless they provide the customer with an initial and annual “privacy notice” giving the client the opportunity to withhold consent to the sharing of the information.
  • Fair disclosure requirements – With respect to individual customers, broker-dealers must comply with Regulation F-D which imposes fiduciary-like obligations. 
     
Investment Advisers: 
Investment advisers are federally regulated under the Investment Advisers Act of 1940 (the Advisers Act), and each state has its own separate investment adviser laws. For the most part, investment advisers are regulated at the state level if they have $100 million or less of assets under management, while they are regulated at the federal level if they have greater than $100 million of assets under management. Investment adviser personnel of federally registered investment advisers may still need to be individually licensed at the state level, which generally requires passing specified tests administered by FINRA, fingerprinting and general background applications. Firms required to register at the state level would be regulated by that state’s securities law regulator, while firms required to register at the federal level would be regulated by the SEC. 

Investment advisers register by filing a Form ADV, including a narrative Part 2 Brochure that must be provided to all retail clients. License costs depend on the states in which the adviser is located and the amount of assets under management, but these costs generally are insignificant. Typically, it takes about 45 days after filing Form ADV to be licensed. Investment advisers are not required to maintain a minimum amount of assets. Investment advisers have fiduciary duties towards their clients, including a duty of loyalty and a duty of care. Registered investment advisers are subject to extensive ongoing compliance requirements, including those relating to recordkeeping, custody, voting and compliance maintenance. Registered investment advisers are also subject to several prohibitions, including restrictions relatin
g to marketing materials, use of material non-public information, principal trading, cross-trading, political contributions and charging performance fees.  

Finally, there is a limited subset of asset portfolio managers, such as managers of direct interest in real properties or real assets, that may be unregulated. 

Additional comments regarding the legal situation for asset and portfolio management services or what FinTech’s must be aware of in this business area

Depending on the types of regulated activity and the amount of assets managed, among other factors, asset managers and their personnel may be required to register or obtain licenses in states in which they operate or have clients. 

Managers of investment vehicles and certain other structured products must also ensure that they are not issuing “investment company” securities. Issuances of investment company securities are subject to registration under the Investment Company Act of 1940, although exclusions may be available.

FinTech platforms offering trading services also need to be careful to ensure that they are not required to be registered as a securities exchange under the Securities Exchange Act of 1934. The SEC has proposed several new rules that have the potential to significantly expand the definition of “securities exchange” and “dealer” and that may cause some FinTechs to be required to register as securities exchanges or become alternative trading systems or be required to register as a broker-dealer. The SEC has also proposed rules that would create a new registration regime for securities-based swap execution facilities, and that would impose significant additional obligations on private fund managers.

While broker-dealers and investment advisers are subject to different regulatory regimes, the SEC has been attempting to “converge” these regimes in recent years so that the customer experience is the same whether they are dealing with a broker-dealer or an investment adviser.  That said, compliance requirements typically are higher for broker-dealers, while investment advisers are subject to fiduciary duties to which broker-dealers may not be subject.

Economic conditions

Market size for asset and portfolio management services and biggest companies in this business area

Nearly half of global assets under management are managed out of the United States, with the top 10 asset managers by size alone managing over $40 trillion of assets under management. The largest asset managers by reported regulatory assets under management are BlackRock, Vanguard, Fidelity, State Street and JPMorgan, although it is unknown what percentage of these assets are managed via tech platforms. Major online trading platforms include TDAmeritrade, E*Trade, Fidelity, and Interactive Brokers, although relative newcomers aimed at a younger generation of investors, such as Robinhood, eToro and SoFi, have been gaining market share. 
 

Additional comments regarding the economic situation for asset and portfolio management services or what FinTech’s must be aware of in this business area

As a general matter, the more retail-focused the business is, the greater regulatory scrutiny it is likely to face. Broker-dealers and investment advisers with activities in the crypto blockchain space often find themselves subject to an even higher level of regulatory scrutiny. 

 

Authors

Close

Choose country