Customer engagement is a critical revenue driver which companies constantly seek to optimize.
Traditional engagement practices
Auto insurance companies for instance, which are governed by state regulators, not a federal agency, have been in a war for customer engagement for years. Each major provider offers and heavily promotes its own app where users can see policy information, receive important updates, download insurance cards, request roadside assistance, and more. As the theory goes, the more engaged the customer is with the company, the more inclined the customer is to stay with the provider and even purchase other insurance products. The same theory applies to countless other companies in other industries.
Considerations for financial services firms
Not so with financial advisors and brokers. At least that appears to be the thinking of SEC Chairman Gary Gensler. The agency recently issued a request for information and public comment on so-called “digital engagement practices” (DEP) used by the financial services industry. These tools include behavioral prompts, differential marketing, gamification, and other design elements or features used to engage with retail investors on digital platforms, as well as the analytical and technological tools and methods. According to the SEC announcement, the Commission is “hoping to learn what conflicts of interest may arise from optimization practices and whether those optimization practices affect the determination of whether DEPs are making a recommendation or providing investment advice.”
The SEC request may give pause to a host of wealthtech providers who are constantly looking for ways to help financial advisors drive deeper engagement with their clients through robo offerings, digital onboarding, and other interactive applications. It appears there may be limits to how far these tools can go before advisors run afoul of regulations designed to avoid conflicts of interest and protect the end investor. While we don’t expect digital engagement practices to disappear from financial advisors’ toolkits anytime soon, the increased SEC scrutiny may make advisors more discerning in their choice of tools and how they are deployed.