SEC Requests Public Comments On Use Of Digital Engagement Practices By Broker-Dealers And Investment Advisers

Table of Contents

• Questions About Investor Protection 
• Understanding Market Practices Better 
• A Forum To Share Different Perspectives 

The SEC has announced that it is requesting information and inviting public comments on the use of digital engagement practices by investment advisors and broker-dealers.

The practices include differential marketing, behavioral prompts, gamification, other elements and features designed to engage with investors on digital platforms, and analytical and technological tools and methods, also known as digital engagement practices (DEP).

Questions About Investor Protection 

SEC Chair Gary Gensler raised a few questions regarding the adequate protection of investors when they are trading and getting financial advice. He commented on the matter, stating, 

“While 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. In many cases, these features may encourage investors to trade more often, invest in different products, or change their investment strategy. Predictive analytics and other DEPs often are designed with an optimization function to increase revenues, data collection, or customer time spent on the platform. This may lead to conflicts between the platform and investors. I’m interested in the varied questions included in the Request for Comment, and I’m particularly focused on how we protect investors engaging with technologies that use DEPs.”

Understanding Market Practices Better 

The SEC has issued the request to get a better understanding of market practices that are associated with the use of DEPs, and with other related analytical and technological tools and methods. The SEC also hopes to learn more about any conflict of interest that may arise from the use of optimization practices and whether the use of such practices may affect the determination of whether the DEPs provide investment advice or are making only a recommendation. 

A Forum To Share Different Perspectives 

The SEC request also aims to provide a forum for investors and other parties that are involved in the market to share their views and thoughts on the use of DEPs and the related tools. The SEC will also look at the benefits of using DEPs and the benefits it offers investors, along with discussing investor protection concerns. 

The request will help the SEC assess existing regulations and help it determine if regulatory action may be needed to further the Commission’s goals. The public can send their comments during the 30-day comment period. Retail investors can comment on their experiences by going on the SEC website and fill out the feedback flyer. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.