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Robo-Advisory and Automated Investment Management Audit Checklist

A comprehensive checklist for auditing robo-advisory and automated investment management practices, focusing on algorithm integrity, regulatory compliance, and investor protection in automated wealth management services.

Robo-Advisory and Automated Investment Management Audit Checklist

by: audit-now
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About This Checklist

In the evolving landscape of wealth management, robo-advisory and automated investment platforms are revolutionizing how individuals access financial advice and portfolio management services. This Robo-Advisory and Automated Investment Management Audit Checklist is designed to help financial institutions evaluate and enhance their automated investment solutions, ensuring they meet regulatory requirements, deliver consistent performance, and protect investor interests. By systematically assessing key areas of robo-advisory operations, organizations can identify potential vulnerabilities, ensure adherence to fiduciary standards, and implement best practices in algorithmic investing. This comprehensive checklist serves as a vital tool for improving the reliability, transparency, and compliance of automated investment platforms in the rapidly growing robo-advisory sector.

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Industry

Financial Services

Standard

Investment Advisory Regulations

Workspaces

Trading floors

Occupations

Quantitative Analyst
Compliance Officer
Risk Manager
IT Security Specialist
Legal Counsel
1
Is the algorithm used for investment management compliant with SEC Investment Advisers Act of 1940?

Select the compliance status of the algorithm.

To ensure that the algorithm adheres to regulatory standards for fiduciary duty.
2
What percentage of clients have accurate risk profiles according to the automated system?

Enter the percentage of clients with accurate risk profiles.

To assess the effectiveness of the risk profiling mechanism.
Min: 0
Target: 80
Max: 100
3
Is the performance reporting process fully transparent to clients?

Indicate whether the performance reporting is transparent.

To ensure that clients are adequately informed about their investment performance.
4
Detail the investor protection measures implemented in the robo-advisory platform.

Provide a detailed description of the investor protection measures.

To evaluate the measures taken to protect investors in automated investment processes.
5
How often is the asset allocation strategy reviewed?

Select the frequency of asset allocation strategy reviews.

To understand the frequency of strategy evaluations for compliance and performance.
6
Is the client data handling process compliant with GDPR and other data protection regulations?

Select the compliance status regarding client data privacy.

To ensure that client data privacy is maintained in accordance with legal requirements.
7
What is the performance score of the algorithm on a scale of 1 to 10?

Enter the performance score of the algorithm.

To evaluate the effectiveness of the investment algorithm in achieving desired outcomes.
Min: 1
Target: 8
Max: 10
8
What was the date of the last compliance review for the automated investment system?

Select the date of the last compliance review.

To keep track of compliance review timelines and ensure regular evaluations.
9
Have all employees completed training on regulatory compliance relevant to robo-advisory services?

Indicate whether all employees have completed the required training.

To confirm that employees are informed and trained on current regulations.
10
Describe the audit trail documentation process for client transactions.

Provide a detailed description of the audit trail documentation process.

To ensure that there is proper documentation for all transactions for accountability and compliance.
11
Is the portfolio diversification compliant with regulatory standards for risk management?

Select the compliance status of the portfolio diversification.

To ensure that portfolios are adequately diversified to minimize risk.
12
What percentage of clients have their risk tolerance accurately assessed?

Enter the percentage of clients with accurate risk tolerance assessments.

To evaluate the accuracy of risk assessments and align with client expectations.
Min: 0
Target: 85
Max: 100
13
When was the last risk assessment conducted for the automated investment platform?

Select the date and time of the last risk assessment.

To ensure that risk assessments are periodically updated and relevant.
14
Is there a contingency plan in place for system failures or data breaches?

Indicate whether a contingency plan is available.

To confirm that there are measures to mitigate risks associated with failures or breaches.
15
Detail the risk mitigation strategies implemented in the robo-advisory platform.

Provide a detailed description of the risk mitigation strategies.

To assess the effectiveness of risk management strategies in place.
16
Is the investment policy adhered to by the robo-advisory platform?

Select the compliance status of the investment policy.

To ensure that all investment activities align with the established investment policy.
17
Describe the governance structure overseeing the automated investment process.

Provide a brief description of the governance structure.

To evaluate the effectiveness of governance in managing the robo-advisory platform.
18
How often is compliance training conducted for employees involved in the robo-advisory services?

Enter the number of compliance training sessions held per year.

To ensure that staff is regularly updated on compliance requirements and best practices.
Min: 0
Target: 6
Max: 12
19
Is there an internal audit function in place for the robo-advisory platform?

Indicate whether an internal audit function exists.

To confirm the presence of independent oversight of the platform's operations.
20
What was the date of the last governance review for the automated investment system?

Select the date of the last governance review.

To keep track of governance review timelines and ensure regular evaluations.
21
How frequently does the robo-advisory platform communicate with clients regarding their investments?

Select the frequency of client communications.

To assess the level of engagement and transparency with clients.
22
Is there a feedback mechanism in place for clients to express their concerns or suggestions?

Indicate whether a feedback mechanism exists.

To ensure that client feedback is encouraged and incorporated.
23
What metrics are used to measure client satisfaction with the robo-advisory services?

Describe the metrics used for measuring client satisfaction.

To evaluate how client satisfaction is assessed and monitored.
24
What is the current client retention rate of the robo-advisory platform?

Enter the client retention rate as a percentage.

To assess the effectiveness of client engagement strategies.
Min: 0
Target: 90
Max: 100
25
Detail the strategies implemented to enhance client engagement in the robo-advisory platform.

Provide a detailed description of client engagement strategies.

To understand the approaches taken to maintain strong client relationships.

FAQs

Robo-advisory and automated investment management audits should be conducted at least semi-annually. However, more frequent reviews may be necessary when implementing significant algorithm changes, launching new investment products, or in response to major market events.

Key areas typically include algorithm design and testing, risk profiling methodologies, asset allocation models, rebalancing processes, fee structures, performance reporting, cybersecurity measures, client suitability assessments, regulatory disclosures, and compliance with relevant securities laws.

The audit should involve quantitative analysts, compliance officers, risk managers, IT security specialists, legal counsel, and potentially external auditors or consultants with expertise in automated investment technologies and regulations.

Institutions should develop a detailed remediation plan for each identified issue, assigning responsibilities and deadlines for resolution. This may include refining investment algorithms, enhancing risk management controls, improving client communication processes, or updating regulatory disclosures. Regular progress reviews should be conducted to ensure timely implementation of improvements.

Emerging technologies play a crucial role in modern robo-advisory audits, including AI and machine learning for algorithm optimization, advanced analytics for performance attribution, natural language processing for improving client communications, and blockchain for enhancing transparency and auditability of automated investment decisions.

Benefits

Ensures compliance with robo-advisory regulations and fiduciary standards

Identifies potential weaknesses in automated investment algorithms and processes

Enhances transparency and explainability of automated investment decisions

Improves overall performance and reliability of robo-advisory platforms

Provides a structured approach to continuous improvement of automated wealth management services