As investment firms increasingly seek to connect with clients online through mobile trading apps, robo-advisors and other tools, the U.S. Securities and Exchange Commission (SEC) is seeking feedback on the tips and tricks firms use to drive investor engagement and trading activity.
The SEC issued a call for public comment on the methods that broker-dealers and investment advisers are using to promote digital engagement, including “gamification,” behavioural prompts and other features designed to connect with retail investors on digital platforms.
In March, online trading app Robinhood eliminated its controversial “confetti drop” animation that appeared after trades. The animation was criticized in a Feb. 18 congressional hearing for gamifying investing.
The SEC is also seeking feedback on the analytical and technological tools and methods underlying digital engagement efforts, and whether rule changes may be needed to address the ensuing investor protection concerns.
“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,” said SEC chairman Gary Gensler in a release.
“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 [digital engagement practices] 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,” he noted.
The SEC said it’s hoping to uncover the conflicts that arise from firms’ optimization efforts and whether digital engagement could stray into making a recommendation or providing advice. The notice indicated the SEC is also interested in the potential benefits to investors of the industry’s increased use of digital tools.
The SEC said that its information-gathering exercise will inform its “assessment of existing regulations and consideration of whether regulatory action may be needed to further the commission’s mission.”
The public comment period will remain open for 30 days.