---
description: The SEC's robo-adviser framework assumes a registered human-controlled entity deploys AI as a tool with fiduciary oversight — the scenario where an AI agent IS the adviser autonomously allocating capital through futarchy has no regulatory precedent or guidance
type: analysis
domain: living-capital
created: 2026-03-05
confidence: experimental
source: "SEC Robo-Adviser Guidance (2017), SEC 2026 Examination Priorities, Columbia Law Review Vol. 117 No. 6 (Ji 2017), Living Capital thesis development March 2026"
---

# AI autonomously managing investment capital is regulatory terra incognita because the SEC framework assumes human-controlled registered entities deploy AI as tools

The SEC's regulation of AI in investment management makes a critical distinction that Living Capital's agent architecture doesn't fit:

**AI as a tool** (current framework): A registered investment adviser (human-controlled entity) deploys AI tools to assist with portfolio management, risk assessment, or client interaction. The entity retains fiduciary responsibility. The SEC's 2017 robo-adviser guidance and 2026 examination priorities both assume this model — firms must have "written policies for acceptable AI uses" with "appropriate human oversight."

**AI as the adviser itself** (no framework exists): An AI agent that autonomously sources, evaluates, and proposes capital allocation — with futarchy as the decision mechanism — has no regulatory home.

## The fiduciary obligation problem

Under the Investment Advisers Act of 1940, an adviser has dual fiduciary duties: (a) duty of care (advice in client's best interest) and (b) duty of loyalty (client interests first). The SEC has stated that "an adviser cannot defer its fiduciary responsibility to an algorithm."

Since [[Living Agents are domain-expert investment entities where collective intelligence provides the analysis futarchy provides the governance and tokens provide permissionless access to private deal flow]], the Living Agent IS the analytical entity. It doesn't "deploy AI tools" — it IS the AI that performs analysis. The question: who is the fiduciary?

Potential answers:
1. **The agent's collective intelligence contributors** — but they don't make investment decisions
2. **The futarchy mechanism** — but a market mechanism can't hold fiduciary duty
3. **LivingIP as the platform operator** — most likely SEC interpretation, but LivingIP doesn't make investment decisions either
4. **Nobody** — the structure genuinely lacks a fiduciary in the traditional sense

The Columbia Law Review analysis ("Are Robots Good Fiduciaries?", Ji 2017) argued against the narrative that robo-advisors are "inherently structurally incapable" of meeting Advisers Act standards, but still assumed a human firm operates the algorithm.

## Two paths forward

**Path 1: Register a human-controlled entity as the adviser** that uses the AI agent as its primary analytical tool and futarchy as its decision mechanism. This fits the current framework but misrepresents the actual governance structure. The registered entity would have fiduciary duty over decisions it doesn't actually make.

**Path 2: Argue that no investment adviser exists** because the market mechanism (futarchy) makes allocation decisions, not any identifiable adviser. Since [[futarchy-based fundraising creates regulatory separation because there are no beneficial owners and investment decisions emerge from market forces not centralized control]], this is the honest position. But it requires the SEC to accept a genuinely novel concept: investment allocation without an investment adviser.

## Why this matters for Living Capital

Since [[agents that raise capital via futarchy accelerate their own development because real investment outcomes create feedback loops that information-only agents lack]], the Living Capital model requires agents that genuinely manage capital, not agents that merely advise human managers. The full value depends on the agent being the decision-making entity (through futarchy), not a tool used by a human fund manager.

Since [[companies receiving Living Capital investment get one investor on their cap table because the AI agent is the entity not the token holders behind it]], the downstream reality — one entity on the cap table, one point of contact — only works if the agent has genuine authority. If a registered human adviser sits between the agent and the investment, the "one investor" simplicity breaks.

## The 2026 regulatory window

The SEC's 2026 examination priorities flag that firms claiming to use AI must demonstrate AI tools "genuinely influence investment decisions." Under Atkins, the SEC Crypto Task Force held roundtables on DeFi (June 2025) and tokenization (May 2025), signaling openness to new frameworks. The Gensler-era PDA rule (which would have required eliminating AI conflicts of interest) was withdrawn in June 2025.

This is a more favorable political environment than existed two years ago. But the fundamental legal framework — the Investment Advisers Act of 1940 — hasn't changed. The honest framing: the window is open for advocacy, not for assumption that the rules don't apply.

---

Relevant Notes:
- [[Living Agents are domain-expert investment entities where collective intelligence provides the analysis futarchy provides the governance and tokens provide permissionless access to private deal flow]] — what Living Agents actually are
- [[agents that raise capital via futarchy accelerate their own development because real investment outcomes create feedback loops that information-only agents lack]] — why the agent must genuinely manage capital
- [[futarchy-based fundraising creates regulatory separation because there are no beneficial owners and investment decisions emerge from market forces not centralized control]] — the regulatory separation argument
- [[companies receiving Living Capital investment get one investor on their cap table because the AI agent is the entity not the token holders behind it]] — the downstream consequence
- [[Living Capital vehicles likely fail the Howey test for securities classification because the structural separation of capital raise from investment decision eliminates the efforts of others prong]] — the securities analysis (separate from the adviser question)

Topics:
- [[maps/living capital]]
- [[maps/internet finance and decision markets]]
- [[maps/LivingIP architecture]]
