An article published by Fintech for Advisors reports SEC’s (The U.S. Securities and Exchange Commission) stand on the current practices of digital nudging by financial platforms.
By nudges, the SEC means digital content that recommends people to invest in a basket of mutual funds to achieve particular financial goals, offers asset allocation solutions and suggests investors to invest in a particular strategy like thematic products.
SEC believes that such nudges on digital platforms can influence investor behaviour and could direct them to more expensive & complex products, which may not ideally be relevant for them. This raises concerns on the genuineness of nudging i.e. does it prioritise revenues for robo-advisors or investors’ interest?
Further, SEC has also raised concerns over the functionality of such platforms that contributes to bias and systematic risk.
Keeping in mind investors’ interests, SEC will evaluate the need of treating digital nudging that influences investor behaviour as investment recommendations.
Fintech for Advisors quoted Gary Gensler, SEC Chairman, who said that digital engagement practices used by financial platforms go beyond “gamification” and incorporate predictive analytics that raise questions about potential conflicts of interest, such as whether the sites are trying to optimize investors’ returns or their own revenue. “We must evaluate the opacity of large and important segments of the economy and what that means to investors and our public markets,” he said.
While SEC’s move has nothing to do with Indian financial distribution landscape, it may set a precedence for emerging markets where large number of people consume digital platforms to get knowledge and make investing decisions.
