400 Questions the SEC Wants Brokers and Wealth Managers to Answer

The regulator is looking into behavioral manipulation and gamification, and asking commenters to help it “develop a better understanding of the market practices.”

Gary Gensler, chairman of the U.S. Securities and Exchange Commission. (Melissa Lyttle/Bloomberg)

Gary Gensler, chairman of the U.S. Securities and Exchange Commission.

(Melissa Lyttle/Bloomberg)

The Securities and Exchange Commission wants to know a lot more about how brokerages and wealth managers design their digital tools and services to — perhaps self-servingly — influence investors and financial advisors. It has nearly 400 questions for them.

In an Aug. 27 statement, the SEC said it was requesting information and public comment on the design and strategies behind digital interactions with investors, including “behavioral prompts, differential marketing, game-like features” and other means of influencing behavior. The regulator also wants to learn more about digital engagement practices (DEPs — or predictive analytics and artificial intelligence tools and methods) that companies are using to design and inform their platforms, including those for trading and investment.

Wealth management executives think artificial intelligence is overhyped but will ultimately change their industry. Research suggests they are already better at implementing it than other industries.

“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,” SEC chairman Gary Gensler said.

“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.”

Steered by DEPs, some optimized platforms could be making what qualifies as a recommendation or providing investment advice to investors, the SEC said.

Robinhood, a popular trading app, has faced scrutiny over its gamification of buying and selling stocks and more. Traders using it have described a powerful draw to the app. At least one Robinhood user has said “trading options was addictive, like cocaine.”

But self-directed investors aren’t the only ones potentially negatively impacted by DEPs. The SEC also wants to understand the tools and technology investment advisers use to develop and provide investment advice to their clients. Among the almost 400 questions in its request for comments, the SEC wants to know: who oversees those platforms, how advisors and clients might be affected by them, and the potential risks to advisers, clients, and markets.

What the SEC learns will help it determine if regulatory actions or enhanced investor protections are needed “while preserving the ability of investors to benefit from investment advisers’ use of technology.”

The 30-day comment period ends Oct. 1. Individual investors can fill out an online questionnaire about their experience with online trading and investment platforms, in addition to submitting written ones.

All comments will be posted on the SEC’s website.

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