Sept 1 -- The Securities and Exchange Commission (the “Commission” or the “SEC”) is requesting information and public comment (“Request”) by October 1, 2021 on matters related to: Broker-dealer and investment adviser use of “digital engagement practices” or “DEPs”, including behavioral prompts, differential marketing, game-like features (commonly referred to as “gamification”), and other design elements or features designed to engage with retail investors on digital platforms (e.g., websites, portals and applications or “apps”), as well as the analytical and technological tools and methods used in connection with these digital engagement practices; and, investment adviser use of technology to develop and provide investment advice.
Request for information and comments:
https://www.federalregister.gov/documents/2021/09/01/2021-18901/request-for-information-and-comments-on-broker-dealer-and-investment-adviser-digital-engagement
With the advent and growth of digital platforms for investing, such as online brokerages and robo-advisers, and more recently, mobile investment apps and portals, broker-dealers and investment advisers (referred to collectively as “firms”) have multiplied the opportunities for retail investors to invest and trade in securities. This increased accessibility has been one of the many factors associated with the increase of retail investor participation in U.S. securities markets in recent years.
As discussed in Section II of this Request, firms employ a variety of digital engagement practices when interacting with retail investors through digital platforms. Examples of digital engagement practices include: Social networking tools; games, streaks and other contests with prizes; points, badges, and leaderboards; notifications; celebrations for trading; visual cues; ideas presented at order placement and other curated lists or features; subscriptions and membership tiers; and chatbots.
Various analytical and technological tools and methods can underpin the creation and use of these practices, such as predictive data analytics and artificial intelligence/machine learning (“AI/ML”) models. Firms may use these tools to analyze the success of specific features and practices at influencing retail investor behavior (e.g., opening new accounts or obtaining additional services, making referrals, increasing engagement with the app, or increasing trading). Based on the results obtained from such AI/ML models and data analytics, firms may tailor the features with which different retail investor segments interact on the firms' digital platforms, or target advertisements to specific investors based on their known behavioral profiles.
As discussed in Section III of this Request, some investment advisers also use these tools to develop and provide investment advice, including through online platforms or as part of more traditional investment advisory services. Investment advisers can use analytical tools to learn more about their clients and develop and provide investment advice based on that information. These developments may provide potential benefits and risks for investment advisers and their clients.
The Commission is issuing this Request related to the use and development of digital engagement practices by firms on their digital platforms, in order to:
1. Assist the Commission and its staff in better understanding and assessing the market practices associated with the use of DEPs by firms, including: (1) The extent to which firms use DEPs; (2) the types of DEPs most frequently used; (3) the tools and methods used to develop and implement DEPs; and (4) information pertaining to retail investor engagement with DEPs, including any data related to investor demographics, trading behaviors, and investment performance.
2. Provide a forum for market participants (including investors), and other interested parties to share their perspectives on the use of DEPs and the related tools and methods, including potential benefits that DEPs provide to retail investors, as well as potential investor protection concerns.
3. Facilitate an assessment by the Commission and its staff of existing regulations and consideration of whether regulatory action may be needed to further the Commission's mission including protecting investors and maintaining fair, orderly, and efficient markets in connection with firms' use of DEPs and related tools and methods.
In addition to addressing the [91] questions below, the Commission encourages commenters to provide or identify any data and other information in furtherance of the purposes articulated in this Request.
