"Robo-adviser" is a popular name for a service that uses software to build and manage an investment portfolio. The Securities Commission Malaysia (SC) calls this digital investment management, or DIM.
What digital investment management is
The SC introduced its framework for DIM services on 9 May 2017. It describes DIM as a fund management business that brings innovative technologies into discretionary portfolio management services.
According to the SC's FAQ on DIM, the service is automated discretionary portfolio management. Steps such as risk profiling, suitability checks, asset allocation and rebalancing are handled by automated systems.
In practice, you answer an online questionnaire about your goals and risk appetite. The company then proposes a portfolio based on your answers, and you decide whether to go ahead.
What licence a robo-adviser needs
The SC's FAQ says DIM is a regulated activity under the Capital Markets and Services Act 2007 (CMSA). A firm offering it needs a Capital Markets Services Licence for fund management in relation to portfolio management, as a digital investment manager.
A firm already licensed as a portfolio manager cannot simply add a robo service. Under the FAQ, it must first get the SC's approval to vary its licence and show it has suitable technology, expertise and resources.
The SC also expects the board of a digital investment manager to make sure there is a competent person who understands the algorithm, a risk management framework that covers cyber security, and written policies to monitor and test the algorithm regularly.
What protections apply
The FAQ says DIM companies must contribute to the Capital Market Compensation Fund, which is aimed at investor protection. An independent readiness audit is required before a DIM service launches.
DIM companies must also have complaint and dispute handling processes that investors can access. Investors can also contact the SC's Consumer & Investor Office.
The SC does not set regulatory limits on how much you can invest through a DIM service, though each company may set its own.
How to check a robo-adviser is licensed
Before signing up, search the company's exact name at sc.com.my/investment-checker or on the SC's Public Register of licensed persons. Make sure the licence covers fund management.
Check the SC Investor Alert List at sc.com.my/investor-empowerment/investor-alert-list. It names unauthorised entities and individuals the SC knows about.
Compare the app's operator name with the name on the register. An app that does not clearly name the licensed company behind it is a warning sign.
SmartChecker shows register records and reviews for the companies it lists, but the SC's register is the official source.
Common questions
Can a licensed portfolio manager run a robo-adviser? Only with SC approval. The SC's FAQ says it must first vary its licence to become a DIM company.
Who can I contact if I have a complaint? Start with the company's own complaint process. You can also contact the SC's Consumer & Investor Office.
Is there a minimum or maximum investment? The SC does not set regulatory investment limits for DIM, but each company may set its own.