U.S. markets regulator wants public feedback on firms' digital-engagement practices

The seal of the U.S. Securities and Exchange Commission (SEC) at their headquarters in Washington, D.C., U.S. REUTERS/Andrew Kelly

WASHINGTON, Aug 27 (Reuters) - The U.S. Securities and Exchange Commission (SEC) on Friday asked for public input on so-called digital customer-engagement practices (DEPs) by brokers and advisers amid growing investor concern over practices using predictive analytics, differential marketing and behavioral prompts designed to optimize customer engagement used by financial firms.

It also seeks information on how the use of technology to develop and give investment advice.

The SEC consultation, which Reuters first reported on Tuesday, will help the agency consider whether these practices should be governed by existing rules or may need new ones, agency chair Gary Gensler said. read more

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"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," Gensler added on Friday.

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

The agency is seeking details on the use of a sweeping list of such DEPs, including social networking tools; games, streaks and other contests with prizes; points, badges, leaderboards as well as celebrations for trading, visual cues; ideas presented at order placement and other curated lists or features.

The SEC's consultation, expected to be open for 30 days following its publication in the federal register, could have major ramifications for retail brokers, wealth managers and robo-advisers, which increasingly use such tools to drive customers to higher-revenue products.

The agency said in its release that it aims to develop a better understanding of the market practices associated with firms' use of DEPs and the related analytical and technological tools and methods.

It also hopes to learn what conflicts of interest may arise from certain "optimization practices" and whether DEPs are making a recommendation or providing investment advice to U.S. investors. Even more, the SEC's consultation intends to provide a forum for industry and investors to share their perspectives on the use of DEPs and the related tools and methods.

Edwin Hu, a research fellow at New York University and former SEC official, said that he is eager to see what information the SEC yields from this request.

"The way that financial firms engage with investors has huge implications for how the public thinks about markets. I'm hopeful that the Commission will take a data-driven approach as it determines whether these nudges are really in the best interest of investors."

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Reporting by Katanga Johnson and Chris Prentice in Washington, D.C.

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Thomson Reuters

Washington-based reporter covering U.S. regulation at the Securities and Exchange Commission and the Consumer Financial Protection Bureau, previously in Ecuador, alumnus of Morehouse College and Northwestern University’s Medill School of Journalism.