SEC Advisory Board Focuses On Digital Engagement Practices – Wealth Management


United States: SEC Advisory Board Focuses On Digital Engagement Practices

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At a meeting of the SEC’s Asset Management Advisory Board, SEC officials challenged members to consider the impact of advances in fintech on investors and the advice they receive.

SEC Chairman Gary Gensler Highlights Potential of Predictive Data Analytics and Other Digital Engagement Practices (“DEP”) to Change an Investor’s Trading Patterns or Investment Strategy . He questioned whether DEP maximizes investor returns or platform revenues. Mr Gensler reiterated his concerns about (i) conflicts of interest when DEPs optimize platform revenue, (ii) whether DEPs constitute investment recommendations or advice and (iii) historical biases in DEP algorithms (see related coverage here and here).

Acting Director of the Investment Management Division Sarah ten Siethoff raised the SEC’s request for comment on DEPs (see previous coverage here), saying the SEC is seeking to better understand (i) the use of analytical tools and other technologies by investment advisers to provide investment advice and (ii) the impact of DEPs on advisers’ interactions with their clients.

SEC Commissioner Hester M. Peirce called for changing the definition of ‘little adviser’ (that is to say, a company managing less than $ 25 million) under IAA Rule 0-7 (“Small Entities under the Investment Advisers Act for the Purposes of the Regulatory Flexibility Act”). She noted that nearly 60 percent of advisors manage between $ 100 million and $ 1 billion, with companies as a whole having a median number of eight employees. She argued that these advisers are small businesses that are significantly impacted by the costs of additional regulatory requirements.

Primary sources

  1. SEC Event: Sunshine Act Opinion at Asset Management Advisory Committee (“AMAC”) Meeting
  2. SEC Statement, Gary Gensler: Remarks Prepared To The Asset Management Advisory Board
  3. SEC Statement, Sarah ten Siethoff: Remarks at the Asset Management Advisory Board Meeting
  4. SEC Statement, Hester M. Peirce: Asset Management Advisory Committee

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