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Regulation and Compliance > Federal Regulation > SEC

SEC Wants Info on Advisor, BD Use of Tech That Hooks Investors

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What You Need to Know

  • The agency wants feedback on advisors and BDs’ use of new and emerging technologies.
  • Gensler said he’s focused on policy questions about protecting investors engaging with technologies that can manipulate their behavior.
  • SEC wants to know how investment advisors use technology to develop and provide investment advice.

The Securities and Exchange Commission said Friday that it’s seeking information from broker-dealers and advisors about their digital engagement practices, including their use of apps with gaming features.

The SEC, according to Gensler, wants feedback on advisors and BDs’ use of new and emerging technologies and how the agency could better protect investors.

The agency wants information on broker-dealer and investment advisor use of digital engagement practices on digital platforms, as well as the analytical and technological tools and methods used in connection with such practices; and investment advisor use of technology to develop and provide investment advice.

“While these new technologies can bring us greater access and product choice, they also raise questions as to whether we as investors are appropriately protected when we trade and get financial advice,” Gensler said in a statement.

“These apps use a host of features that have come to be familiar in our increasingly online world. Digital engagement practices (DEPs), including predictive data analytics, differential marketing, and behavioral prompts (such as gamification), are integrated not only into streaming platforms and fitness apps, but also in robo-advising, wealth management platforms, brokerage platforms, and other financial technologies,” Gensler said.

Gensler noted the proliferation in the last few years of trading apps, wealth management apps and robo-advisors that use these practices to develop and provide investment advice to retail investors.

“In many cases, these features may encourage investors to trade more often, invest in different products, or change their investment strategy,” he said.

“Predictive analytics and other DEPs often are designed, in part, with optimization functions to increase platform revenues, data collection, and customer engagement, leading to potential conflicts between the platform and investors.”

Gensler said he’s “particularly focused on policy questions about how we protect investors engaging with technologies” that use DEPs.

For instance, Gensler asked how the agency might “protect investors in light of the potential conflicts of interest that may exist when DEPs’ optimization practices have a statistically significant impact on platform revenues, data collection, or investor behavior?”


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