Artificial intelligence is transforming how financial advisors operate. And while more advisors are turning to AI (one recent survey found that 74% of firms are using AI, including 95% of RIAs), the need to stay compliant remains crucial. As firms adopt more AI-powered tools, maintaining compliance becomes more complex. Advisors must understand how existing regulations apply to new technology while keeping client data secure and accurate.
Below are three ways advisory firms can stay compliant with AI regulations while still embracing innovation.
Strengthen Your Compliance Foundation
FINRA and the SEC have taken a measured approach to AI regulation. They are observing how firms adopt the technology before creating prescriptive rules, a strategy similar to how they approached social media a decade ago. The absence of AI-specific rules does not mean firms can move fast and break things. Regulators will evaluate AI use through the lens of existing rules, giving them wide latitude. A communication rule violation does not become acceptable just because AI generated the content.Consider this scenario. An advisor uses an AI tool to draft a quarterly market commentary for clients. The AI generates compelling content but includes a statement like “stocks have never declined over any 20-year period,” almost true but technically inaccurate. Under FINRA Rule 2210, that communication must be “fair and balanced.” The advisor is responsible for the content, whether written by them or AI.This is where human oversight is critical. Someone with market knowledge must review, fact-check and approve AI-generated content before it reaches clients. The same principle applies to AI-assisted portfolio recommendations, client onboarding documents or automated responses to client inquiries. The technology can draft, but humans must verify.Understanding these existing rules is the foundation. Firms should run any AI-related activities through the same compliance framework used for non-AI content. Key rules include:
- FINRA Rule 2210 All communications must be fair and balanced with regulations for approving, reviewing and maintaining records.
- SEC Rule 17a-3 (Books and Records) Establishes record-keeping requirements for client information, communications and related records.
Following these rules ensures that AI-generated content meets the same compliance standards as traditional content.
Create Internal AI Guidelines
Without detailed direction from regulators, firms need to take the lead in setting internal standards for AI use. Developing an internal governance framework helps ensure consistency and accountability across teams.That means that, as tempting as it may be to turn to AI for everything, it still needs guidelines and human oversight. Before rushing to use AI, firms and advisors need to conduct thorough due diligence on AI tools and establish effective governance frameworks.
To stay compliant, firms should consider internal guidelines and frameworks for the following:
- Audit trail capabilities: Can the tool document who prompted it, what output it generated, and who reviewed/edited that output?
- Explainability: If the AI recommends a portfolio adjustment, can you explain the reasoning to a client or regulator?
- Data handling: Where does client data go? Is it used to train the model? Does it meet your BAA requirements?
- Vendor due diligence: Has the vendor undergone SOC 2 audits? What’s their incident response plan?
Internal frameworks tell you what to do. But compliance ultimately depends on people following those frameworks. That’s where culture becomes the final piece.
Foster a Culture of Compliance
Compliance should be part of every firm’s DNA. Regular training and clear communication around AI use can help advisors recognize red flags early and protect both the firm and its clients.
Encourage a proactive culture where employees understand how to handle data, identify potential issues, and adapt as AI capabilities evolve. To create effective compliance efforts, advisors must foster a culture of compliance. A team that values compliance is better equipped to innovate safely.
Bringing It All Together
While FINRA and the SEC haven’t issued AI-specific rules yet, signs point to increased scrutiny. The SEC’s recent exam priorities mention “emerging technologies,” and FINRA has issued guidance on algorithmic trading and digital communications. Forward-looking firms should expect:
- Disclosure requirements: You may need to tell clients when AI assists with advice or communication
- Model governance standards: Similar to how quantitative models require documented methodologies
- Heightened supervision: Proving that humans meaningfully reviewed AI output, not just rubber-stamped it. Firms building strong internal frameworks now will adapt more easily when — not If — specific rules arrive.
AI compliance ultimately comes down to documentation and audit trails. When an AI tool generates client communication or assists with account management, can you show regulators the full chain of custody — who created it, who reviewed it, who approved it, and where it’s stored?
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