when the securities and exchange commission announced its inquiry into how firms are using digital tools to engage with investors much of the immediate attention focused on apps and popular digital platforms like robinhood but the types of digital tools that the sec is interested in are now in broad use across the industry and the commission also wants to hear how traditional advisors and brokers are connecting with clients through their websites and apps as well as how they’re using backoffice technology to generate investment advice the sec is casting a wide net with its call for public comments seeking information on how firms are using behavioral analytics and prompts gaming features and artificial intelligence and machine learning in their interactions with investors and the extent to which those technologies inform the advice provided to retail clients in a statement announcing the inquiry sec chairman gary gensler acknowledged that while novel digital tools can offer broader access to a wider array of investments “they also raise questions as to whether we as investors are appropriately protected when we trade and get financial advice” “in many cases these features may encourage investors to trade more often invest in different products or change their investment strategy” gensler said “this may lead to conflicts between the platform and investors” the sec identifies a number of features associated with distinctly digital platforms such as tieins with social media “copy trading”—where investors can simply copy the moves of other investors—and gamelike features such as lottery tickets and contests with prizes like free stock robinhood has come under fire from critics who claim that its online platform encourages investors to take actions that aren’t in their best interest last year regulators in massachusetts filed a lawsuit accusing the company of using digital prompts to encourage aggressive trading robinhood countersued challenging massachusetts’ authority in the matter and last week told barron’s that it “looks forward to engaging with the sec as it reviews brokerdealers’ digital engagement practices” but the commission also wants to hear about how rias and brokers are using technologies like behavioral analytics and machine learning to adjust the ways that advisors interact with their clients and potentially what recommendations they make the use of sophisticated artificial intelligence and machine learning has pervaded the wealth management space from the digitalonly robo platform wealthfront to a wall street stalwart like morgan stanley which has made substantial investments in its next best action program which suggests recommendations and communications advisors can make to investors and generally aims to drive client engagement wealthfront did not immediately respond to a request for comment and a morgan stanley spokeswoman declined to comment on the sec’s initiative but both platforms feature the kinds of digital tools that the sec is looking into the sec will be collecting comments from the industry and investors on a range of questions for 30 days among them the commission is asking firms whether they give investors the ability to opt out of deps and the extent to which those tools are used for investor education regulators also want to hear how the use of deps is related to firms’ compensation models and how firms manage the risk associated with digital applications that generate investment recommendations significantly the commission says that it is exploring “whether regulatory action may be needed to enhance investor protection while preserving the ability of investors to benefit from investment advisors’ use of technology” that has some investor advocates hopeful that the inquiry and any potential rulemaking that follows could reinforce the bright line between the fiduciary advice that advisors owe their clients and other more salesdriven models “first thought is this could be a useful exercise to help investors understand the differences between gambling trading and investing” says knut rostad president of the institute for the fiduciary standard in an email “more broadly the differences between brokerage sales and trading versus fiduciary advice could also be highlighted” rostad adds “if so this could also be useful”