Robo-Advisor Licence is the regulatory authorisation a digital platform needs to give automated investment advice or manage client portfolios by algorithm. No regulator issues a licence by that name: the platform obtains the same permission a human adviser or portfolio manager would need, and the algorithm is supervised as part of the service. In the US it registers as an investment adviser under the Investment Advisers Act of 1940; in the EU, advice and portfolio management are MiFID II services requiring investment firm authorisation, with €75,000 or €150,000 of initial capital depending on whether it holds client assets. ESMA's suitability guidelines apply fully to its questionnaire. A buyer acquires the whole firm, subject to regulator approval.
Robo-advisor regulation in the US
In the US, a robo-advisor is an investment adviser under the Investment Advisers Act of 1940. An adviser may register with the SEC once regulatory assets under management reach $100 million and must do so from $110 million; smaller advisers generally register with state regulators. A start-up below that level can still register with the SEC under the internet adviser exemption. Amendments adopted in March 2024 require such an adviser to run an operational interactive website at all times while relying on the exemption, and removed the old allowance for up to 14 non-internet clients in a 12-month period; advisers had until 31 March 2025 to comply.
SEC-registered advisers owe clients a fiduciary duty, file Form ADV, deliver a client brochure and maintain a written compliance programme with a chief compliance officer. Brokerage and custody are usually handled by a separate broker-dealer.
Robo-advisor licence in the EU
In the EU, a platform that recommends specific investments provides investment advice, and one that trades client accounts within a mandate provides portfolio management. Both are MiFID II services requiring authorisation as an investment firm. Under the Investment Firms Directive, a firm offering advice or portfolio management that may not hold client money or securities needs €75,000 of initial capital; one permitted to hold client assets needs €150,000. Once authorised, it can passport its services across the EEA.
ESMA's suitability guidelines apply in full to automated advice: the online questionnaire must collect enough information to assess knowledge, experience, financial situation and objectives, and the firm must explain to clients how far the process is automated.
Robo-advisor economics: a worked example
Illustrative: a platform charging 0.5% a year on €200 million of client assets earns €1 million in fees. If it holds no client assets, its initial capital floor is €75,000, but the ongoing own-funds requirement under the Investment Firms Regulation includes a fixed-overheads test of one quarter of the previous year's fixed costs. With €1.2 million of annual fixed costs, that test alone requires €300,000.
Portfolio managers must also notify clients by the end of the business day when a portfolio's value falls 10% from the start of the reporting period, under Article 62 of Delegated Regulation (EU) 2017/565. Robo platforms automate these alerts along with rebalancing.
Buying a robo-advisor licence
An investment firm authorisation cannot be sold separately from the firm: a buyer acquires the licensed company, and any acquisition of a qualifying holding needs prior approval from the home regulator. Diligence covers the suitability algorithm's documentation and change log, rebalancing and trade-error records, the share of retail clients, and whether the permissions cover advice, portfolio management and holding client assets.