Federal Register / Vol. 86, No. 167 / Wednesday, September 1, 2021 / Notices 49067 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release Nos. 33–10968, 34–92783; File No. 

265–28] 

Investor Advisory Committee Meeting 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Notice of meeting. 

SUMMARY: The Securities and Exchange 

Commission Investor Advisory 

Committee, established pursuant to 

Section 911 of the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act of 2010, is providing notice that it 

will hold a public meeting. The public 

is invited to submit written statements 

to the Committee. 

DATES: The meeting will be held on 

Thursday, September 9, 2021 from 10:00 

a.m. until 3:30 p.m. (ET). Written 

statements should be received on or 

before September 8, 2021. 

ADDRESSES: The meeting will be 

conducted by remote means and/or at 

the Commission’s headquarters, 100 F 

St. NE, Washington, DC 20549. The 

meeting will be webcast on the 

Commission’s website at www.sec.gov. 

Written statements may be submitted by 

any of the following methods: 

Electronic Statements 

D Use the Commission’s internet 

submission form (http://www.sec.gov/ 

rules/other.shtml); or 

D Send an email message to rulescomments@sec.gov. Please include File 

No. 265–28 on the subject line; or 

Paper Statements 

D Send paper statements to Vanessa 

A. Countryman, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE, Washington, DC 20549–1090. 

All submissions should refer to File No. 

265–28. This file number should be 

included on the subject line if email is 

used. To help us process and review 

your statement more efficiently, please 

use only one method. 

Statements also will be available for 

website viewing and printing in the 

Commission’s Public Reference Room, 

100 F Street NE, Room 1503, 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. All statements 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make available publicly. 

FOR FURTHER INFORMATION CONTACT: 

Marc Oorloff Sharma, Chief Counsel, 

Office of the Investor Advocate, at (202) 

551–3302, Securities and Exchange 

Commission, 100 F Street NE, 

Washington, DC 20549. 

SUPPLEMENTARY INFORMATION: The 

meeting will be open to the public, 

except during that portion of the 

meeting reserved for an administrative 

work session during lunch. Persons 

needing special accommodations to take 

part because of a disability should 

notify the contact person listed in the 

section above entitled FOR FURTHER

INFORMATION CONTACT. The agenda for 

the meeting includes: Welcome remarks; 

approval of previous meeting minutes; a 

panel discussion entitled ‘‘Reimagining 

Investor Protection in a Digital World: 

the Behavioral Design of Online Trading 

Platforms’’; a panel discussion regarding 

competition and regulatory reform at the 

PCAOB; a discussion of a 

recommendation regarding 10b5–1 

plans; a discussion of a 

recommendation regarding SPACs; 

subcommittee reports; and a non-public 

administrative session. 

Dated: August 27, 2021. 

Vanessa A. Countryman, 

Secretary. 

[FR Doc. 2021–18908 Filed 8–31–21; 8:45 am] 

BILLING CODE P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release Nos. 34–92766; IA–5833; File No. 

S7–10–21] 

RIN 3235–AN00 

Request for Information and 

Comments on Broker-Dealer and 

Investment Adviser Digital 

Engagement Practices, Related Tools 

and Methods, and Regulatory 

Considerations and Potential 

Approaches; Information and 

Comments on Investment Adviser Use 

of Technology To Develop and Provide 

Investment Advice 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Request for information and 

comment. 

SUMMARY: The Securities and Exchange 

Commission (the ‘‘Commission’’ or the 

‘‘SEC’’) is requesting information and 

public comment (‘‘Request’’) on matters 

related to: Broker-dealer and investment 

adviser use of ‘‘digital engagement 

practices’’ or ‘‘DEPs’’, including 

behavioral prompts, differential 

marketing, game-like features 

(commonly referred to as 

‘‘gamification’’), and other design 

elements or features designed to engage 

with retail investors on digital platforms 

(e.g., websites, portals and applications 

or ‘‘apps’’), as well as the analytical and 

technological tools and methods used in 

connection with these digital 

engagement practices; and, investment 

adviser use of technology to develop 

and provide investment advice. In 

addition to or in place of responses to 

questions in this release, retail investors 

seeking to comment on their 

experiences may want to submit a short 

Feedback Flyer. 

DATES: Comments should be received on 

or before October 1, 2021. 

ADDRESSES: Comments may be 

submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (https://www.sec.gov/ 

rules/submitcomments.htm); or 

• Send an email to rule-comments@

sec.gov. Please include File No. S7–10– 

21 on the subject line. 

Paper Comments 

• Send paper comments to Secretary, 

Securities and Exchange Commission, 

100 F Street NE, Washington, DC 

20549–1090. 

All submissions should refer to File 

Number S7–10–21. This file number 

should be included on the subject line 

if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method of submission. The 

Commission will post all comments on 

the Commission’s website (http://

www.sec.gov). Comments are also 

available for website viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE, 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Operating conditions 

may limit access to the Commission’s 

public reference room. All comments 

received will be posted without change. 

Persons submitting comments are 

cautioned that we do not redact or edit 

personal identifying information from 

comment submissions. You should 

submit only information that you wish 

to make publicly available. Retail 

investors seeking to comment on their 

experiences with online trading and 

investing platforms may want to submit 

a short Feedback Flyer, available at 

Appendix A. 

Studies, memoranda, or other 

substantive items may be added by the 

Commission or staff to the comment file 

during this Request. A notification of 

the inclusion in the comment file of any 

such materials will be made available 


khammond on DSKJM1Z7X2PROD with NOTICES
49068 Federal Register / Vol. 86, No. 167 / Wednesday, September 1, 2021 / Notices 

1To further enable retail investors to share their 

perspectives, the Commission is issuing a userfriendly ‘‘Feedback Flyer.’’ The Commission has 

determined that this usage is in the public interest 

and will protect investors, and therefore is not 

subject to the requirements of the Paperwork 

Reduction Act of 1995. See Sections 19(e) and (f) 

of the Securities Act of 1933 (‘‘Securities Act’’), 15 

U.S.C. 77s(e) and (f). Additionally, for the purpose 

of developing and considering any potential rules 

relating to this rulemaking, the agency may gather 

from and communicate with investors or other 

members from the public. See Securities Act section 

19(e)(1) and (f), 15 U.S.C. 77s(e)(1) and (f). 

2Broker-dealers’ and investment advisers’ use of 

DEPs and the related tools and methods must 

comply with existing rules and regulations. By 

identifying observed practices and soliciting 

comment on them, the Commission is not 

expressing a view as to the legality or conformity 

of such practices with the federal securities laws 

and the rules and regulations thereunder, nor with 

the rules of self-regulatory organizations (‘‘SROs’’). 

3 It is our understanding that copy trading is 

currently offered in certain investments, such as 

cryptocurrencies, in the U.S. and may be offered 

more broadly in other jurisdictions. Copy trading in 

securities may raise regulatory concerns under the 

U.S. federal securities laws, including potential 

broker-dealer and investment adviser status issues. 

on the Commission’s website. To ensure 

direct electronic receipt of such 

notifications, sign up through the ‘‘Stay 

Connected’’ option at www.sec.gov to 

receive notifications by email. 

FOR FURTHER INFORMATION CONTACT: 

Division of Trading and Markets, Office 

of Chief Counsel, at (202)-551–5550 or 

tradingandmarkets@sec.gov; Division of 

Investment Management, Investment 

Adviser Regulation Office at (202) 551– 

6787 or IArules@sec.gov. 

SUPPLEMENTARY INFORMATION: The 

Commission is requesting information 

and public comment on matters related 

to (1) broker-dealer and investment 

adviser use of digital engagement 

practices on digital platforms, as well as 

the analytical and technological tools 

and methods used in connection with 

such practices; and (2) investment 

adviser use of technology to develop 

and provide investment advice. 

I. Introduction 

A. Background 

With the advent and growth of digital 

platforms for investing, such as online 

brokerages and robo-advisers, and more 

recently, mobile investment apps and 

portals, broker-dealers and investment 

advisers (referred to collectively as 

‘‘firms’’) have multiplied the 

opportunities for retail investors to 

invest and trade in securities. This 

increased accessibility has been one of 

the many factors associated with the 

increase of retail investor participation 

in U.S. securities markets in recent 

years. 

As discussed in Section II of this 

Request, firms employ a variety of 

digital engagement practices when 

interacting with retail investors through 

digital platforms. Examples of digital 

engagement practices include: Social 

networking tools; games, streaks and 

other contests with prizes; points, 

badges, and leaderboards; notifications; 

celebrations for trading; visual cues; 

ideas presented at order placement and 

other curated lists or features; 

subscriptions and membership tiers; 

and chatbots. 

Various analytical and technological 

tools and methods can underpin the 

creation and use of these practices, such 

as predictive data analytics and artificial 

intelligence/machine learning (‘‘AI/ 

ML’’) models. Firms may use these tools 

to analyze the success of specific 

features and practices at influencing 

retail investor behavior (e.g., opening 

new accounts or obtaining additional 

services, making referrals, increasing 

engagement with the app, or increasing 

trading). Based on the results obtained 

from such AI/ML models and data 

analytics, firms may tailor the features 

with which different retail investor 

segments interact on the firms’ digital 

platforms, or target advertisements to 

specific investors based on their known 

behavioral profiles. 

As discussed in Section III of this 

Request, some investment advisers also 

use these tools to develop and provide 

investment advice, including through 

online platforms or as part of more 

traditional investment advisory services. 

Investment advisers can use analytical 

tools to learn more about their clients 

and develop and provide investment 

advice based on that information. These 

developments may provide potential 

benefits and risks for investment 

advisers and their clients. 

B. Purpose of Request 

The Commission is issuing this 

Request related to the use and 

development of digital engagement 

practices by firms on their digital 

platforms, in order to: 

1. Assist the Commission and its staff 

in better understanding and assessing 

the market practices associated with the 

use of DEPs by firms, including: (1) The 

extent to which firms use DEPs; (2) the 

types of DEPs most frequently used; (3) 

the tools and methods used to develop 

and implement DEPs; and (4) 

information pertaining to retail investor 

engagement with DEPs, including any 

data related to investor demographics, 

trading behaviors, and investment 

performance. 

2. Provide a forum for market 

participants (including investors), and 

other interested parties to share their 

perspectives on the use of DEPs and the 

related tools and methods, including 

potential benefits that DEPs provide to 

retail investors, as well as potential 

investor protection concerns.1

3. Facilitate an assessment by the 

Commission and its staff of existing 

regulations and consideration of 

whether regulatory action may be 

needed to further the Commission’s 

mission including protecting investors 

and maintaining fair, orderly, and 

efficient markets in connection with 

firms’ use of DEPs and related tools and 

methods. 

In addition to addressing the 

questions below, the Commission 

encourages commenters to provide or 

identify any data and other information 

in furtherance of the purposes 

articulated in this Request. 

II. Digital Engagement Practices, 

Related Tools and Methods, and 

Regulatory Considerations and 

Potential Approaches 

A. DEPS 

The Commission is issuing this 

Request, in part, to develop a better 

understanding of the market practices 

associated with firms’ use of DEPs, 

which broadly include behavioral 

prompts, differential marketing, gamelike features, and other design elements 

or features designed to engage retail 

investors. The Commission is aware of 

a variety of DEPs that may be used by 

firms, including the following: 2

• Social Networking Tools. Digital 

platforms may be linked to internet 

content, enabling users to access social 

sentiment on the platform. Some digital 

platforms may embed social networking 

tools into their platforms, or enhance 

existing tools to allow an investor to 

create an on-line persona or avatar. 

Certain digital platforms enable 

investors to copy the trades of other 

investors (known as ‘‘copy trading’’) in 

certain types of investments.3

• Games, Streaks and Other Contests 

with Prizes. Some digital platforms may 

employ games that use interactive 

graphics and offer prizes (e.g., slotmachine style interactive graphics, 

interactive wheels of fortune, or virtual 

‘‘scratch-off’’ lottery tickets), for 

example, in connection with account 

opening. Some digital platforms may 

offer prizes to investors for completing 

certain ‘‘to-do lists’’ or tasks frequently 

within a specified time period (known 

as ‘‘streaks’’) or for other types of 

contests (including performance-based 

contests). Prizes may include free stock, 

cash, gaining access to additional 

features on the platforms, or a free trial 

period for a subscription to certain 

market data or levels of service. Tasks 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 86, No. 167 / Wednesday, September 1, 2021 / Notices 49069 

4See, e.g., Evie Liu, The Stock Market is 

Attracting New Investors. Here Are 3 Trends to 

Know., Barron’s (Apr. 13, 2021), https://

www.barrons.com/articles/the-stock-market-isattracting-new-investors-here-are-3-trends-to-know51618273799; Broadridge, Insights on the U.S. 

Investor (2020) (‘‘Zero commission trades, mobile 

trading applications and the ability to acquire 

fractional shares are making it more attractive and 

easier for younger, lower asset investors to trade 

securities. This is bolstering Millennials’ ability to 

participate more actively in equity investing.’’); 

Maggie Fitzgerald, Now Teenagers Can Trade 

Stocks With Fidelity’s New Youth Investing 

Accounts, CNBC (May 18, 2021), https://

www.cnbc.com/2021/05/18/now-teenagers-cantrade-stocks-with-fidelitys-new-youth-investingaccounts.html?&qsearchterm=margin%20debits 

(‘‘Of the 4.1 million new accounts that Fidelity 

added in the first quarter of 2021, 1.6 million were 

opened by retail investors 35 and younger, an 

increase of more than 222% from a year prior.’’); 

Jennifer Sor, Young Investors Drive Increased Use 

of Investing Apps, Los Angeles Business Journal 

(Aug. 3, 2020), https://labusinessjournal.com/news/ 

2020/aug/03/young-investors-drive-increased-useinvesting-apps/. 

5See, e.g., Chris Carosa, Are You Ready to Play 

the 401(k) Game? Hint: You Already Are, Forbes 

(Apr. 14, 2021), https://www.forbes.com/sites/ 

chriscarosa/2021/04/14/are-you-ready-to-play-the401k-game-hint-you-already-are/ 

?sh=4d6e1b8674ab; Greg Iacurci, MassMutual 

Turns to Video Games to Boost Retirement Savings, 

Investment News (July 18, 2016), https://

www.investmentnews.com/massmutual-turns-tovideo-games-to-boost-retirement-savings-66476. 

6Some have argued that certain compensation 

practices (such as payment for order flow or 

‘‘PFOF,’’ in combination with zero commissions) 

create incentives for firms to use DEPs to encourage 

frequent trading, and that these incentives may not 

be transparent to retail investors. See, e.g., Game 

Stopped? Who Wins and Loses When Short Sellers, 

Social Media, and Retail Investors Collide, Part II: 

Hearing Before the H. Comm. on Fin. Servs., 113th 

Cong. (2021) (statement of Vicki L. Bogan, Associate 

Professor, Cornell University), https://

docs.house.gov/meetings/BA/BA00/20210317/ 

111355/HHRG-117-BA00-Wstate-BoganV20210317.pdf. One form of PFOF is a practice 

wherein wholesale broker-dealers (often referred to 

as ‘‘principal trading firms’’ or ‘‘electronic market 

makers’’) offer payment to retail broker-dealers in 

exchange for the right to trade principally with (or 

‘‘internalize’’) their customer order flow. See 17 

CFR 10b–10(d)(8). Although PFOF is not 

prohibited, a broker-dealer must not allow PFOF to 

interfere with its efforts to obtain best execution for 

its customers’ transactions. See Payment for Order 

Flow, Securities Exchange Act of 1934 (‘‘Exchange 

Act’’) Release No. 34902 (Oct. 27, 1994) [59 FR 

55006, at 55009 & n.28 (Nov. 2, 1994)]; see also 

Robinhood Financial, LLC, Exchange Act Release 

No. 90694 (Dec. 17, 2020) (settled order) (the 

Commission brought an enforcement action against 

a broker-dealer for willfully violating Sections 

17(a)(2) and 17(a)(3) of the Securities Act and 

Section 17(a) of the Exchange Act and Rule 17a–4 

thereunder, for, among other things, failing to take 

appropriate steps to assess whether its higher PFOF 

rates were adversely affecting customer execution 

prices). 

7 In congressional hearings related to market 

events in January 2021, investor protection 

concerns were identified relating to the use of 

certain types of DEPs, including advertisements 

targeted towards specific groups of investors on 

digital platforms and game-like features on mobile 

apps. See Game Stopped? Who Wins and Loses 

When Short Sellers, Social Media, and Retail 

Investors Collide: Hearing Before the H. Comm. on 

Fin. Servs., 113th Cong. (2021), https://

financialservices.house.gov/calendar/ 

eventsingle.aspx?EventID=407107; Game Stopped? 

Who Wins and Loses When Short Sellers, Social 

Media, and Retail Investors Collide, Part II: Hearing 

Before the H. Comm. on Fin. Servs., 113th Cong. 

(2021), https://financialservices.house.gov/ 

calendar/eventsingle.aspx?EventID=406268; Game 

Stopped? Who Wins and Loses When Short Sellers, 

Social Media, and Retail Investors Collide, Part III: 

Hearing Before the H. Comm. on Fin. Servs., 113th 

Cong. (2021), https://financialservices.house.gov/ 

calendar/eventsingle.aspx?EventID=407748; Who 

Wins on Wall Street? GameStop, Robinhood, and 

the State of Retail Investing: Hearing Before the S. 

Comm. On Banking, Hous., & Urban Affairs, 113th 

Cong. (2021), https://www.banking.senate.gov/ 

hearings/who-wins-on-wall-street-gamestoprobinhood-and-the-state-of-retail-investing. 

that may generate awards include 

referring others to the platform, 

engaging in community forums, linking 

a bank account, funding an account, 

trading, or promoting the app on social 

media. 

• Points, Badges, and Leaderboards. 

Some digital platforms may use points 

or similar ‘‘scorekeeping’’ related to a 

specific area of activity. For example, 

some platforms offer ‘‘paper trading’’ 

(i.e., simulated trading) competitions 

that enable investors to practice trading 

without real money. Certain platforms 

also offer badges as visual markers of 

achievement as well as leaderboards to 

rank individuals based on performancebased criteria developed by the firm. 

• Notifications. Some digital 

platforms may use notifications via 

email, text, or other means (e.g., push 

notifications on mobile devices). In 

some cases, investors can opt-in or optout of notifications; in others, 

notifications may be set by default with 

no ability to opt-out. Investors may 

receive notifications indicating a certain 

stock is up or down, noting a list of 

stocks qualifying as top ‘‘movers’’ (i.e., 

largest percentage change in price), or 

reminding them that it has been a 

certain number of days since they last 

engaged in a trade. Notifications may 

also be used to attempt to reassure 

investors during periods of market 

volatility. 

• Celebrations for Trading. Some 

digital platforms may have embedded 

animations and graphics, such as digital 

confetti or crowds applauding, that 

‘‘celebrate’’ when investors enter orders 

to purchase stock or options. 

• Visual Cues. Interface design 

elements may provide visual cues, 

including by displaying certain 

information more prominently than 

other information. In some cases, visual 

cues are targeted specifically to the 

investor. For example, some digital 

platforms’ user interfaces shift the 

coloration of the entire screen between 

green and red based on an investor’s 

portfolio performance. Some digital 

platforms present relevant news or other 

pieces of information to the user 

immediately once the portfolio turns 

negative. 

• Ideas Presented at Order Placement 

and Other Curated Lists or Features. 

Some digital platforms may present 

‘‘ideas’’ prior to allowing the investor to 

place an order. These ideas may involve 

curated lists or features, news headlines, 

etc. 

• Subscriptions and Membership 

Tiers. Some firms may offer 

subscriptions or tiered memberships. 

Examples of additional features that 

may be provided include access to 

research reports, briefs, webcasts, and 

newspaper subscriptions; invitations to 

sports and industry events; credit line 

access; and an exemption or reduction 

of fees. In some cases, investors may be 

upgraded automatically based on 

balances and holdings reaching certain 

thresholds. Some firms may offer free 

subscription trials. 

• Chatbots. Some digital platforms 

may offer chatbots, or computer 

programs that simulate live, human 

conversation. Chatbots may be offered to 

respond to investor inquiries relating to 

stock prices, account information, or 

customer service matters. 

DEPs may be designed to encourage 

account opening, account funding, and 

trading, or may be designed solely to 

increase investor engagement with 

investing apps, as there may be value in 

the number of investors interacting with 

the platform, how often they visit, and 

how long they stay. 

The use of DEPs carries both potential 

benefits and risks for retail investors. 

Simplified user interfaces and game-like 

features have been credited with making 

investment platforms more accessible to 

retail investors (in particular, younger 

retail investors),4 and assisting in the 

development and implementation of 

investor education tools. Others have 

noted that DEPs can encourage retail 

investors to increase their contributions 

to retirement accounts and to engage in 

other activities that are traditionally 

viewed as wealth-building exercises.5

On the other hand, DEPs can 

potentially harm retail investors if they 

prompt them to engage in trading 

activities that may not be consistent 

with their investment goals or risk 

tolerance. Some have expressed 

concerns that DEPs encourage: (1) 

Frequent trading; 6 (2) using trading 

strategies that carry additional risk (e.g., 

options trading and trading on margin); 

and (3) trading in complex securities 

products.7 DEPs also may employ what 

some researchers have called ‘‘dark 

patterns,’’ described as user interface 

design choices that are knowingly 

designed to ‘‘confuse users, make it 


khammond on DSKJM1Z7X2PROD with NOTICES
49070 Federal Register / Vol. 86, No. 167 / Wednesday, September 1, 2021 / Notices 

8See Jamie Luguri and Lior Jacob Strahilevitz, 

Shining a Light on Dark Patterns, 13 Journal of 

Legal Analysis 43 (2021), https://

academic.oup.com/jla/article/13/1/43/6180579. 

9Richard Thaler and Cass Sunstein define 

‘‘nudge’’ as ‘‘any aspect of the choice architecture 

that alters people’s behavior in a predictable way 

without forbidding any options or significantly 

changing their economic incentives.’’ See Richard 

H. Thaler and Cass R. Sunstein, Nudge: Improving 

Decisions About Health, Wealth, and Happiness 6 

(Penguin Books 2009). 

difficult for users to express their actual 

preferences, or manipulate users into 

taking certain actions.’’ 8

In the questions below, the 

Commission’s request for comment 

pertains to all DEPs on brokerage and 

advisory digital platforms, including, 

but not limited to, those identified 

above. 

Industry Practices 

1.1 What types of DEPs do firms use 

(or in the future expect to use) on digital 

platforms and what are the intended 

purposes of each type of DEP used? For 

example, are particular DEPs designed 

to encourage or discourage particular 

investor actions or behaviors, such as 

opening of accounts, funding of 

accounts, trading, or increasing 

engagement with the app or platform? 

To what extent and how are firms using 

DEPs such as notifications (e.g., push 

notifications or text messages) or other 

design elements and features (e.g., 

design aesthetics in the user interface) 

as a means to alter (or nudge 9) retail 

investor behavior or otherwise to 

encourage or discourage certain 

behaviors or activities? If so, what types 

of design elements are used and how are 

they used? Please explain any such 

specific design elements, how they 

intend to encourage specific retail 

investor behaviors, and whether and to 

what extent they are achieving their 

intended purposes. 

1.2 To what extent do firms that 

utilize DEPs provide retail investors the 

ability to opt in or out of interacting 

with those DEPs when using the firm’s 

digital platform? To what extent, and 

how, are firms tailoring or personalizing 

DEPs to a particular retail investor? 

1.3 What types of firms use DEPs on 

their digital platforms, and on what 

types of platforms? Are these practices 

more prevalent among certain types of 

firms, or on certain types of platforms? 

How prevalent is the use of DEPs by 

broker-dealers? How prevalent is the use 

of DEPs by investment advisers? Which 

types of DEPs are most prevalent? For 

firms that have chosen not to use DEPs 

or certain DEPs, what are their reasons? 

Are firms that are not currently using 

DEPs considering adopting such 

features in the future? 

1.4 What market forces are driving 

the adoption of DEPs on digital 

platforms and how? For example, to 

what extent and how is the use of DEPs 

influenced or driven by market practices 

related to compensation and revenue 

(e.g., ‘‘zero commission’’ and PFOF)? 

What types of compensation and 

revenue arrangements influence or drive 

market practices related to the use of 

DEPs? Do such arrangements vary across 

product types and asset classes (e.g., 

options, other complex products)? How 

does the competition for new customers 

or clients or the retention of existing 

customers or clients drive firm adoption 

or use of DEPs? 

1.5 Are DEPs used to promote or 

otherwise direct retail investors to 

specific securities or certain types of 

securities, investment strategies, or 

services? If so, what types of securities, 

investment strategies, and services, 

what types of DEPs are used, and how 

are the DEPs used for these purposes? 

Do firms use DEPs to promote or 

otherwise direct retail investors to 

securities, investment strategies, or 

services that are more lucrative for the 

firm or that may be riskier to the retail 

investor than others—such as: margin 

services, options trading, proprietary 

products, products for which the firm 

receives revenue sharing or other thirdparty payments, or other higher fee 

products? Do firms use DEPs that are or 

can be tailored to the retail investor’s 

investment profile and risk tolerance? If 

so, how? If not, why not? 

1.6 To what extent and how do firms 

monitor the use and proper functioning 

of DEPs? For example, to what extent 

and how do firms monitor notifications 

that retail investors receive or see from 

or on the firm’s digital platforms? 

1.7 To what extent and how do firms 

use DEPs or alter their use of DEPs in 

response to changes in the market price 

volatility and trading volumes in 

securities, both for specific assets and 

the market as a whole? For example, to 

what extent and how do firms use DEPs 

to notify retail investors of market 

events? To what extent and how do 

firms use DEPs to notify retail investors 

of firm policies and procedures or other 

actions that may be taken by the firm, 

such as in response to market events 

(e.g., imposition of trading restrictions)? 

What type of DEPs are used, what 

information is communicated through 

DEPs in such circumstances, and what 

is the timing of such communications? 

1.8 Are firms seeking to use DEPs 

specifically to increase investor 

education? If so, how? What type of 

investor educational content is 

provided, how is that content chosen, 

and what types of DEPs are used? For 

example, are firms using DEPs to 

educate investors about the risks of 

certain activities, such as trading on 

margin or options trading? Are firms 

using DEPs to help investors understand 

how to make investment choices that 

are consistent with their investment 

objectives? If so, what types of DEPs are 

they using for these purposes, and how 

are they used? Have firms tested or 

otherwise observed the effectiveness of 

any such educational efforts at 

increasing retail investor knowledge and 

understanding of investing concepts 

including risks? Please explain and 

include any relevant data or 

information. 

1.9 Do firms use DEPs to encourage 

longer-term investment activities, 

including, but not limited to, increased 

contributions to or establishment of 

retirement accounts? If so, how? 

1.10 Do firms that utilize DEPs offer 

live, phone-based customer support or 

customer support through live, humandirected online support (i.e., online 

conversations that are not through an 

automated chatbot)? Does the 

availability of this type of support 

depend on the type of account or 

investments held (e.g., investors holding 

riskier products) or on account balances 

or asset thresholds? If firms offer live, 

phone-based customer support or 

human-directed online support, what 

training do firms offer their customer 

support personnel, and what monitoring 

and quality assurance programs are 

used? How do firms interact with 

investors when the platform is 

unavailable—for example, when the 

firm has lost internet service or when 

the platform is undergoing 

maintenance? What alternative means of 

communication are available to 

investors during those times? 

1.11 To what extent and how do 

firms target certain specific groups of 

retail investors (including prospective 

customers or clients) through DEPs? 

What types of DEPs are used, and how 

are they targeted to specific retail 

investors or groups of retail investors? 

What factors do firms look to when 

deciding which groups of retail 

investors to target for each type of DEP? 

1.12 What feedback, positive or 

negative, or complaints do firms receive 

from retail investors relating to the use 

of DEPs? 

Investor Characteristics and Practices 

1.13 What types of retail investors 

are customers or clients of firms that 

utilize DEPs? How does this customer or 

client base differ, if at all, from those 

firms that do not use such features— 

including as to age, prior investment 

experience, education, net worth, risk 


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tolerance, liquidity needs, investment 

time horizon, and investment 

objectives? What types of retail 

investors engage most frequently with 

DEPs on platforms that use them? Do 

firms utilize DEPs for only certain types 

of customers or clients? If so, which 

ones and why? To what extent and how 

have DEPs enabled firms to reach, 

educate, and provide experience to firsttime retail investors? To what extent 

and how have DEPs enabled retail 

investors to access specific investments 

or investment strategies more quickly 

and/or with less investing experience 

than under traditional methods? Please 

provide or identify any relevant data 

and other information. 

1.14 What trading or investment 

activities are retail investors engaging in 

through digital platforms that use DEPs? 

For retail investors who were investing 

prior to using digital platforms that use 

DEPs, how have their activities with 

respect to trading and investing changed 

since they started using such platforms 

and/or were first exposed to DEPs? For 

example, how often do retail investors 

engage in trading or investing through 

such platforms, how often did they 

engage in trading or investing prior to 

using such platforms, and how has such 

frequency changed as a result of using 

such platforms and/or being exposed to 

DEPs? How often do retail investors 

engage in other ways with such 

platforms (e.g., education, social 

features, and games)? How do retail 

investors learn of these platforms (e.g., 

news coverage, social media, internet 

search, paid advertisements)? Do firms 

collect data on how retail investors 

learn about or use the platforms, such as 

by asking as part of account opening? 

Please provide or identify any relevant 

data and other information. 

1.15 What customer and client 

trends have been observed in 

connection with or as a result of the 

adoption and implementation of DEPs? 

Specifically, is data available regarding 

changes in customer or client behavior, 

including in accounts opened, amount 

invested, frequency of deposits, order 

frequency, order size (including 

fractional shares), types of securities 

traded, the risk profiles of securities that 

are traded, use of margin, volume of 

customer complaints, and the adoption 

and use of new features on the firms’ 

digital platforms? Is there data showing 

how, for customers with a similar 

investment profile, these changes 

compare with any changes in the 

behavior of customers or clients of firms 

that do not utilize DEPs? Is there data 

regarding numbers or percentages of 

new accounts opened by retail investors 

that received targeted communications 

from the firm as compared to new 

accounts opened by retail investors that 

had received no prior communications 

from the firm? Please provide or identify 

any relevant data and other information. 

What experience did retail investors 

have in the market prior to interacting 

with DEPs? What percentage of retail 

investors invested for the first time after 

interacting with a DEP? What role did 

DEPs play in their decision to begin 

investing? 

Public Perspectives and Data 

1.16 What are the benefits associated 

with the use of DEPs from the 

perspective of firms, retail investors, 

and other interested parties? How do 

these benefits differ depending upon the 

type of feature used? Are there specific 

types of DEPs or specific uses of DEPs 

that have the potential to be particularly 

beneficial to retail investors? Are there 

significant investor protection benefits 

that arise from the use of DEPs generally 

or particular DEPs? Which particular 

DEPs and why? Are there ways in which 

DEPs are particularly successful at 

conveying information to retail 

investors in a way that they can process 

and implement effectively? Please 

provide or identify any relevant data 

and other information. 

1.17 What are the risks and costs 

associated with the use of DEPs from the 

perspective of firms, retail investors, 

and other interested parties? How do 

these risks or costs differ depending 

upon the type of feature used? Are there 

significant investor protection concerns 

that arise from the use of DEPs generally 

or particular DEPs? Are there particular 

DEPs that may pose unique risks or 

elevated investor protection concerns? 

Are there characteristics of particular 

DEPs that may encourage retail 

investors to engage in more frequent 

trading or invest in higher risk products 

or strategies? Please provide or identify 

any relevant data and other information. 

1.18 What experience do retail 

investors have with DEPs? Do retail 

investors believe that DEPs have caused 

a change in their investing behavior or 

type of investments? If so, how? Do 

retail investors feel like DEPs help or 

hurt their overall investment 

performance? Do retail investors believe 

DEPs have helped increase their 

understanding of securities markets and 

investing? If so, how? Do retail investors 

believe DEPs have made trading, 

investing, and monitoring their 

investments more or less accessible to 

them? Do retail investors believe DEPs 

have increased or decreased the benefits 

or risks of trading or investing in 

securities products? Do retail investors 

believe that they would have invested in 

the markets if only more traditional 

methods were available? Do retail 

investors believe that they would trade 

less frequently, invest in different 

products, or use different investment 

strategies if only more traditional 

methods were available? 

1.19 Do retail investors believe they 

are receiving investment advice or 

recommendations from DEPs or certain 

types of DEPs? If so, please explain. 

What types of DEPs do retail investors 

believe are most beneficial, and what 

types of features are most harmful, in 

meeting their own trading or investment 

objectives? 

1.20 For retail investors who have 

previously invested with the assistance 

of a financial professional, how do they 

believe their investing experience has 

changed as a result of interacting with 

a digital platform as opposed to a 

financial professional? 

1.21 How do commenters view the 

educational services currently provided 

by digital platforms? How could firms 

adopt or modify DEPs to facilitate and 

increase opportunities for investor 

education and encourage longer-term 

investment activities, including, but not 

limited to, through increased 

contributions to or establishment of 

retirement accounts? 

1.22 What similarities and 

differences exist between the 

functionality, and overall user 

experience, including with respect to 

DEPs, on a digital trading or investment 

platform versus similar practices on 

digital platforms in other contexts (e.g., 

shopping, fitness, entertainment)? Does 

a retail investor’s experience with these 

types of features in other contexts affect 

the retail investor’s trading or 

investment activity, and their 

engagement with the broker-dealer or 

investment adviser’s digital platform 

where DEPs are employed? Do 

commenters believe that certain types of 

DEPs are more, less, or as appropriate in 

the investing context than in other 

contexts? What types of features and 

why? 

1.23 Have researchers (including in 

the fields of behavioral finance, 

economics, psychology, marketing, and 

other related fields) studied the use of 

DEPs by broker-dealers and investment 

advisers? In particular, how have these 

practices been studied or observed to 

influence or reinforce the behavior of 

retail investors? To the extent retail 

investors have shifted from investing 

through human interaction (with a 

financial professional) to digital 

interaction (on a digital platform), how 

has that shift affected the behavior of 

retail investors? Please identify any 

relevant literature or data, including 


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10 In some cases, firms may rely on in-house and 

proprietary tools and methods to develop, test and 

implement DEPs, and in others, firms may use 

third-party service providers to assist in the DEP 

development process. 

11See, e.g., Department of the Treasury et al., 

Request for Information and Comment on Financial 

Institutions’ Use of Artificial Intelligence, Including 

Machine Learning (Feb. 2021) [86 FR 16837, 16839– 

40 (Mar. 31, 2021)] (‘‘Treasury RFI’’); FINRA, 

Artificial Intelligence (AI) in the Securities Industry 

5 (June 2020) (‘‘FINRA AI Report’’), https://

www.finra.org/sites/default/files/2020-06/ai-report061020.pdf; Financial Stability Board, Artificial 

Intelligence and Machine Learning in Financial 

Services: Market Developments and Financial 

Stability Implications (Nov. 1, 2017) (‘‘FSB AI 

Report’’), https://www.fsb.org/wp-content/uploads/ 

P011117.pdf. 

12See, e.g., FSB AI Report, supra note 11, at 14– 

15 (finding that chatbots are being introduced by a 

range of financial services firms, often in mobile 

apps or social media, and that chatbots are 

‘‘increasingly moving toward giving advice and 

prompting customers to act’’). 

13See supra note 8. 

research related to the use of similar 

practices in other fields that could assist 

the Commission in its consideration of 

these issues. 

1.24 Is there research in the fields of 

experimental psychology and marketing 

that contains evidence regarding the 

ability of DEPs to influence retail 

investors? Are there findings in those 

fields that suggest retail investors may 

not be fully aware that they have been 

influenced by a particular DEP? 

1.25 Do studies of gambling or 

addiction offer evidence regarding 

whether and to what extent the 

immediate positive feedback provided 

by certain DEPs may influence retail 

investor decision-making? 

1.26 How do commenters view the 

disclosures that firms are providing in 

connection with or specifically 

addressing the use of DEPs and the 

timing of such disclosures? In 

particular, how effective are disclosures 

at informing retail investors of any 

associated conflicts of interest presented 

by the use of DEPs and how DEPs could 

influence them and their trading and 

investing behavior? How accessible are 

these disclosures to retail investors 

engaging with DEPs? Please identify any 

relevant data or other information. 

B. DEP-Related Tools and Methods 

In order to develop, test, and 

implement these practices, and 

thereafter to assess their effectiveness, 

firms may use numerous analytical and 

technological tools and methods.10

From a technological perspective, these 

tools and methods can employ 

predictive data analytics and AI/ML 

models—including deep learning, 

supervised learning, unsupervised 

learning, and reinforcement learning 

processes.11 These tools and methods 

can be designed to build and adapt 

DEPs based on observable investor 

activities. Such adaptations may be 

based on the AI/ML models’ 

understanding of the neurological 

rewards systems of retail investors 

(obtained in the interactions between 

each retail investor and the firm’s 

investment platform), and may be 

utilized to develop investor-specific 

changes to each retail investor’s user 

experience. 

Relatedly, firms that utilize AI/ML 

models may utilize model risk 

management to provide a governance 

framework for these models throughout 

their life cycle in order to account for 

AI/ML-specific risks. Technological 

tools and methods also include the use 

of natural language processing (‘‘NLP’’) 

and natural language generation 

(‘‘NLG’’). These specific uses of AI/ML 

may be employed to transform user 

interfaces and the interactions that retail 

investors have on digital platforms by 

developing an understanding of the 

investor’s preferences and adapting the 

interface and related prompts to appeal 

to those preferences.12

Beyond technological tools, firms may 

engage in various forms of research in 

order to help shape the DEPs developed 

and implemented on their platforms. 

This may include consultations with 

behavioral science professionals, and 

cross-industry research intended to 

identify those customer engagement 

practices used in other industries that 

have proven most effective. 

Industry Practices 

2.1 To what extent, and how, do 

firms use (or in the future expect to use) 

tools based on AI/ML (including deep 

learning, supervised learning, 

unsupervised learning, and 

reinforcement learning) and NLP and 

NLG, to develop and evolve DEPs? What 

are the objective functions of AI/ML 

models (e.g. revenue generation)? What 

are the inputs relied on by those AI/ML 

models (e.g., visual cues or feedback)? 

Does the ability to collect individualspecific data impact the effectiveness of 

the ML model in maximizing its 

objective functions? 

2.2 To what extent, and how, do 

firms use (or in the future expect to use) 

behavioral psychology to develop and 

evolve platforms or DEPs? To what 

extent, and how, do firms use (or in the 

future expect to use) predictive data 

analytics to develop and evolve DEPs? 

To what extent, and how, do firms use 

‘‘dark patterns’’ 13 in connection with 

DEPs? To what extent do firms utilize 

these types of tools, analytics, and 

methods to modify DEPs over time, 

tailored to a specific retail investor’s 

history on the platform? Which types of 

tools and methods are used for these 

and other purposes? 

2.3 What types of research, 

information, data, and metrics are firms 

collecting, acquiring, and using in 

connection with the tools and methods 

identified above, or otherwise to design, 

implement, and modify DEPs and to 

assess their effectiveness? What are the 

sources for such information and data 

(e.g., proprietary research, user data, 

third-party behavioral research, 

consultants, other service providers)? 

Does this research, information, data, 

and metrics, indicate whether DEPs 

affect trading frequency, volume, and 

results? If so, how? 

2.4 How are firms using crossindustry research and sources to design, 

implement, and modify DEPs? 

Specifically, how are firms using 

techniques employed, and lessons 

learned, within industries like retail 

shopping, video gaming, and video or 

music streaming services? What features 

originally adopted in other industries 

have been utilized and implemented by 

firms to increase user engagement? How 

has the use of such features impacted 

investor activity on digital platforms? 

2.5 To what extent, and how, do 

firms test or otherwise assess how their 

DEPs affect investor behavior and 

investing outcomes? What metrics are 

used for these assessments? What data 

and other results have such tests and 

assessments yielded? Have firms found 

that DEPs can be developed, evolved 

and implemented in order to affect retail 

investors’ trading or investment 

behavior, either individually or as a 

group? Have firms found that those 

behaviors can be affected in a 

statistically significant way? If so, how? 

What controls do firms have in place to 

monitor the impact of DEPs on investor 

outcomes? How do firms incorporate 

any testing and monitoring into their 

policies and procedures? 

2.6 How do firms develop, test, 

deploy, monitor, and oversee the tools 

and methods they use, including any 

AI/ML models (including deep learning, 

supervised learning, unsupervised 

learning, and reinforcement learning), 

NLP, NLG, or other types of artificial 

intelligence? To what extent are these 

tools and methods proprietary to firms 

or offered by third parties? Do 

relationships with vendors result in 

conflicts of interest, and if so, what 

types of conflicts of interest? For 

example, are broker-dealers or 

investment advisers affiliated with these 

providers, or does compensation of the 

provider vary based upon investor 

activity? What formal governance 


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14See, e.g., Treasury RFI, at 16839–40 (describing 

explainability as ‘‘how an AI approach uses inputs 

to produce outputs’’ and describing challenges 

associated with lack of explainability); see also FSB 

AI Report, at 2 (stating that the ‘‘lack of 

interpretability or ‘auditability’ of AI and machine 

learning models could become a macro-level risk’’); 

Gregory Barber, Artificial Intelligence Confronts a 

‘Reproducibility’ Crisis, Wired (Sept. 16, 2019), 

https://www.wired.com/story/artificial-intelligenceconfronts-reproducibility-crisis/. 

15See e.g., Joy Buolamwini and Timnit Gebru, 

Gender Shades: Intersectional Accuracy Disparities 

in Commercial Gender Classification, 81 

Proceedings of Machine Learning Research 77 

(2018), https://dam-prod.media.mit.edu/x/2018/02/ 

06/Gender%20Shades%20Intersectional%20

Accuracy%20Disparities.pdf; Ziad Obermeyer et al., 

Dissecting Racial Bias in an Algorithm Used to 

Manage the Health of Populations, 366 Science 

6464, 447–453 (Oct. 25, 2019), https://science.

sciencemag.org/content/366/6464/447; Executive 

Office of the President of the United States, Big 

Data: A Report on Algorithmic Systems, 

Opportunity, and Civil Rights pp. 6–10 (May 2016), 

https://obamawhitehouse.archives.gov/sites/ 

default/files/microsites/ostp/2016_0504_data_

discrimination.pdf. 

mechanisms do firms have in place for 

oversight of the vendors they use for 

these purposes? What model risk 

management steps do firms undertake? 

How do firms incorporate these 

practices and mechanisms into their 

policies and procedures? 

2.7 What type of data concerning 

retail investors is used to develop, 

evolve, implement, test and run DEPs? 

How is this data used? For example, are 

firms using data on how retail 

investors—individually and/or when 

grouped together—have engaged with 

their digital platform (including trading 

or investment activity) following 

exposure to DEPs? If so, how? Are firms 

tailoring or personalizing DEPs to 

individual retail investors or groups (or 

sub-groups) of retail investors? If so, 

how? Are firms collecting information 

about specific identifiers attributable to 

particular retail investors or groups (or 

sub-groups) of retail investors? If so, 

what types of specific identifiers are 

collected? Do firms use such identifiers 

(or others) in connection with 

determining the location of retail 

investors? If so, how do firms use 

location information? Do firms seek to 

cause any particular types of 

engagement with DEPs? If so, how? Are 

there other ways firms are using data 

concerning retail investors to develop, 

evolve, implement, test, and run DEPs? 

2.8 To what extent do firms 

purchase data from third-party vendors, 

including data concerning retail 

investors, to develop, evolve, 

implement, test, and run DEPs? How are 

firms utilizing data acquired from thirdparty vendors to develop, evolve, 

implement, test, and run DEPs? Are 

firms using data obtained from thirdparty vendors to tailor or personalize 

DEPs to individual retail investors? If 

so, how? To what extent do firms sell or 

otherwise share data about their own 

customers’ or clients’ behavior on their 

digital platforms, and who are the 

primary purchasers or recipients of that 

data? 

2.9 To the extent that firms use AI/ 

ML to develop, evolve, implement, test, 

and run DEPs, are they ensuring that the 

AI/ML is explainable and 

reproducible? 14 If so, how? 

2.10 Are there any particular 

challenges or risks that firms face in 

using AI/ML (including deep learning, 

supervised learning, unsupervised 

learning, and reinforcement learning), 

including AI developed or provided by 

third parties? If so, what are they and 

how do firms address such challenges or 

impediments and any risks associated 

with them? Have firms found that using 

AI/ML or retail investor data gathered in 

connection with DEPs raises unique 

issues related to financial privacy, 

information security, or identity theft 

prevention? 

2.11 To what extent and how do 

firms employ controls to identify and 

mitigate any biases or disparities that 

may be perpetuated by the use of AI/ML 

models 15 in connection with the use of 

DEPs? For example, do firms evaluate 

the outputs of their AI/ML models to 

identify and mitigate biases that would 

raise investor protection concerns? Do 

firms utilize human oversight to identify 

biases that would raise investor 

protection concerns, in both the initial 

coding of AI/ML models and the 

resulting outputs of those models? 

Public Perspectives and Data 

2.12 What are the benefits associated 

with the use of the tools and methods 

identified above (e.g., AI/ML, predictive 

data analytics, cross-industry research, 

behavioral science) in connection with 

the design, implementation, and 

modification of DEPs from the 

perspective of firms, retail investors, 

and other interested parties? How do 

these benefits differ depending upon the 

type of tools or methods? Do the tools 

and methods mitigate, or have the 

potential to mitigate, biases in the 

market that may have prevented 

participation by some retail investors 

(e.g., by lowering barriers to entry)? 

Please provide or identify any relevant 

data and other information. 

2.13 What are the risks and costs 

associated with the use of the tools and 

methods identified above (e.g., AI/ML, 

predictive data analytics, cross-industry 

research, behavioral science) in 

connection with the design, 

implementation, and modification of 

DEPs from the perspective of firms, 

retail investors, and other interested 

parties? How do these risks differ 

depending upon the type of tools or 

methods used? What are the most 

significant investor protection concerns 

arising from or associated with the use 

of such tools and methods by brokerdealers and investment advisers in the 

context of DEPs? Please provide or 

identify any relevant data and other 

information. 

2.14 What are the similarities and 

differences between the use of the types 

of tools and methods identified above in 

the context of DEPs versus other 

contexts? Do commenters believe that 

certain types of tools or methods are 

more, less, or as appropriate in the 

investing context than in other contexts? 

Please provide or identify any relevant 

data and other information. 

2.15 Are there any particular 

challenges or risks associated with the 

use of AI/ML (including deep learning, 

supervised learning, unsupervised 

learning, and reinforcement learning), 

including AI developed or provided by 

third parties? If so, what are they and 

how should firms address such 

challenges or impediments and any 

risks associated with them? What model 

risk management steps should firms 

undertake? Does the use of AI/ML or 

retail investor data gathered in 

connection with DEPs raise unique 

issues related to financial privacy, 

information security, or identity theft 

prevention? 

2.16 Have researchers (including in 

the fields of behavioral finance, 

economics, psychology, marketing, and 

other related fields) studied the use of 

such tools and methods in the context 

of the use of DEPs by firms, or in related 

contexts of individual decision-making? 

Please identify any relevant literature or 

data, including research related to the 

use of similar practices in other fields, 

that could assist the Commission in its 

consideration of these issues. 

2.17 To what extent can the use of 

the tools and methods identified above 

(e.g., AI/ML models) in connection with 

the use of DEPs perpetuate social biases 

and disparities? How, if at all, have 

commenters seen this in practice with 

regard to the development and use of 

DEPs on digital platforms (e.g., through 

marketing, asset allocation, fees)? Are 

there AI/ML models that are more or 

less likely to perpetuate such biases and 

disparities? 

C. Regulatory Issues Associated With 

DEPS and the Related Tools and 

Methods and Potential Approaches 

Broker-dealers and investment 

advisers are currently subject to 


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16Any person operating as a ‘‘broker’’ or ‘‘dealer’’ 

in the U.S. securities markets must register with the 

Commission, absent an exception or exemption. See 

Exchange Act section 15(a), 15 U.S.C. 78o(a); see 

also Exchange Act sections 3(a)(4) and 3(a)(5), 15 

U.S.C. 78c(a)(4) and 78c(a)(5) (providing the 

definitions of ‘‘broker’’ and ‘‘dealer,’’ respectively). 

Generally, all registered broker-dealers that deal 

with the public must become members of FINRA, 

a registered national securities association, and may 

choose to become exchange members. See Exchange 

Act section 15(b)(8), 15 U.S.C. 78o(b)(8); 17 CFR 

240.15b9–1. FINRA is the sole national securities 

association registered with the SEC under Section 

15A of the Exchange Act. Because this Request is 

focused on broker-dealers that deal with the public 

and are FINRA member firms, we refer to FINRA 

rules as broadly applying to ‘‘broker-dealers,’’ rather 

than to ‘‘FINRA member firms.’’ 

17Broker-dealers and investment advisers are 

subject to a host of other obligations that are not 

summarized in this overview, and that may also be 

relevant to the use of DEPs and related tools and 

methods. For example, additional regulatory 

obligations on broker-dealers include those relating 

to: Registration; certain prohibited or restricted 

conflicts of interest; fair prices, commissions and 

charges; and best execution. As another example, 

additional regulatory obligations on investment 

advisers include those relating to registration; 

certain prohibited transactions; and written codes 

of ethics. 

18See Securities Act section 17(a), 15 U.S.C. 

77q(a); Exchange Act section 10(b), 15 U.S.C. 78j(b); 

Exchange Act section 15(c), 15 U.S.C. 78o(c); 

Investment Advisers Act of 1940 (‘‘Advisers Act’’) 

section 206, 15 U.S.C. 80b–6; see also Exchange Act 

section 9(a), 15 U.S.C. 78i(a); see also Basic v. 

Levinson, 485 U.S. 224, 239 n.17 (1988). 

19These obligations cannot be waived or 

contracted away by customers. See Exchange Act 

section 29(a), 15 U.S.C. 78cc(a) (‘‘Any condition, 

stipulation, or provision binding any person to 

waive compliance with any provision of [the 

Exchange Act] or any rule or regulation thereunder, 

or any rule of a [SRO], shall be void.’’). 

20See, e.g., Duker & Duker, Exchange Act Release 

No. 2350, 6 SEC. 386, 388 (Dec. 19, 1939) 

(Commission opinion) (‘‘Inherent in the 

relationship between a dealer and his customer is 

the vital representation that the customer be dealt 

with fairly, and in accordance with the standards 

of the profession.’’); see also U.S. Securities and 

Exchange Commission, Report of the Special Study 

of Securities Markets of the Securities and 

Exchange Commission, H.R. Doc. No. 95, at 238 (1st 

Sess. 1963) (‘‘An obligation of fair dealing, based 

upon the general antifraud provisions of the Federal 

securities laws, rests upon the theory that even a 

dealer at arm’s length impliedly represents when he 

hangs out his shingle that he will deal fairly with 

the public.’’); FINRA Rule 2010 (Standards of 

Commercial Honor and Principles of Trade); NASD 

Interpretive Material 2310–2 (Fair Dealing with 

Customers) (‘‘Implicit in all member and registered 

representative relationships with customers and 

others is the fundamental responsibility for fair 

dealing. Sales efforts must therefore be undertaken 

only on a basis that can be judged as being within 

the ethical standards of [FINRA’s] Rules, with 

particular emphasis on the requirement to deal 

fairly with the public.’’). 

21Financial institutions, including brokerdealers, are required to establish written customer 

identification programs (CIP), which must include, 

at a minimum, procedures for: Obtaining customer 

identifying information from each customer prior to 

account opening; verifying the identity of each 

customer, to the extent reasonable and practicable, 

within a reasonable time before or after account 

opening; making and maintaining a record of 

information obtained relating to identity 

verification; determining within a reasonable time 

after account opening or earlier whether a customer 

appears on any list of known or suspected terrorist 

organizations designated by Treasury; and 

providing each customer with adequate notice, 

prior to opening an account, that information is 

being requested to verify the customer’s identity. 

See 31 CFR 1023.220 (Customer Identification 

Program for Broker-Dealers). As part of brokerdealers’ AML compliance programs, they must 

include risk-based procedures for conducting 

ongoing customer due diligence, to comply with the 

Customer Due Diligence Requirements for Financial 

Institutions (‘‘CDD Rule’’) of the Financial Crimes 

Enforcement Network (FinCEN). See FINRA Rule 

3310 (Anti-Money Laundering Compliance 

Program); 81 FR 29398 (May 11, 2016) (CDD Rule 

Release); 82 FR 45182 (Sept. 28, 2017) (correction 

to CDD Rule amendments). Additionally, pursuant 

to FINRA Rule 2090 (Know Your Customer), all 

member broker-dealers must use reasonable 

diligence, at both the opening of a customer 

account, and for the duration of the customer 

relationship to know and retain the ‘‘essential facts’’ 

concerning each customer. Such ‘‘essential facts’’ 

include those that are necessary ‘‘to (a) effectively 

service the customer’s account, (b) act in 

accordance with any special handling instructions 

for the account, (c) understand the authority of each 

person acting on behalf of the customer, and (d) 

comply with applicable laws, regulations, and 

rules.’’ See FINRA Regulatory Notice 11–02 (SEC 

Approves Consolidated FINRA Rules Governing 

Know-Your-Customer and Suitability Obligations); 

see also 17 CFR 240.17a–3(a)(17). 

22See FINRA Rule 4512 (Customer Account 

Information). As a general matter, whether any 

particular individual is able to enter into a contract 

(such as that associated with opening a brokerage 

account) is a matter of state law, and not explicitly 

governed by the federal securities laws. See also 17 

CFR 240.17a–3(a)(17). 

23Approval obligations also apply for investors to 

engage in day-trading. See FINRA Rule 2130 

(Approval Procedures for Day-Trading Accounts). 

24See FINRA Rule 2360(b)(16) (Options). FINRA 

has also extended the options account approval 

requirements of Rule 2360(b)(16), by reference, to 

customers seeking to place orders to buy or sell 

warrants. See FINRA Rule 2352 (Account 

Approval). Numerous exchanges that facilitate 

options trading apply similar standards for 

customer pre-approval before accepting orders for 

options contracts on the exchange. 

25See FINRA Rule 2360(b)(16)(B). 

26See FINRA Rule 2360(b)(16)(C) and (D). FINRA 

has also indicated that in the case of options, 

broker-dealers should consider whether they should 

provide limited account approval to a customer, 

based on this information. For example, customers 

may be approved to make purchases of puts and 

calls only, be restricted to covered call writing, or 

be approved to engage in uncovered put and call 

writing. See FINRA Regulatory Notice 21–15 

(FINRA Reminds Members About Options Account 

Approval, Supervision and Margin Requirements). 

27See 17 CFR 240.17a–3(a)(9). 

28The written consent is a condition necessary 

for the broker-dealer to be able to hypothecate (i.e., 

pledge) securities under circumstances that would 

permit the commingling of customers’ securities. 

Broker-dealers are also required to give written 

notice to a pledgee that, among other things, a 

security pledged is carried for the account of a 

customer. See 17 CFR 240.8c–1 and 240.15c2–1. 

extensive obligations under federal 

securities laws and regulations, and in 

the case of broker-dealers, rules of SROs 

(in particular, the Financial Industry 

Regulatory Authority, Inc. (‘‘FINRA’’) 16) 

that are designed to promote conduct 

that, among other things, protects 

investors from abusive practices. 

Following is an overview of some of the 

existing statutory provisions, 

regulations, and rules that are 

particularly relevant to the use of DEPs 

and related tools and methods by 

broker-dealers and investment 

advisers.17

In addition to these specific 

obligations, federal securities laws and 

regulations broadly prohibit fraud by 

broker-dealers and investment advisers 

as well as fraud by any person in the 

offer, purchase, or sale of securities, or 

in connection with the purchase or sale 

of securities. Generally, these anti-fraud 

provisions cover manipulative or 

deceptive conduct, including an 

affirmative misstatement or the 

omission of a material fact that a 

reasonable investor would view as 

significantly altering the total mix of 

information made available.18

1. Existing Broker-Dealer Obligations 19

Under the anti-fraud provisions of the 

federal securities laws and SRO rules, 

broker-dealers are required to deal fairly 

with their customers and observe high 

standards of commercial honor and just 

and equitable principles of trade.20 A 

number of more specific obligations are 

summarized below: 

• Account Opening and Other 

Approval Obligations. Broker-dealers 

must obtain certain information about 

their customers at account opening, 

under anti-money laundering (‘‘AML’’) 

and know your customer 

requirements,21 and are required to 

maintain customer account information, 

including whether a customer is of legal 

age.22

Additional obligations apply for 

investors to transact in certain types of 

securities (e.g., options) or obtain 

certain services (e.g., margin).23 For 

example, broker-dealers must preapprove a customer’s account to trade 

options on securities.24 Prior to 

approving a customer’s account for 

options trading, the broker-dealer must 

seek to obtain ‘‘essential facts relative to 

the customer, [their] financial situation 

and investment objectives.’’ 25 Brokerdealers must then verify the background 

and financial information they obtain 

regarding each customer, and obtain an 

executed written agreement from the 

customer agreeing, among other things, 

to be bound by all applicable FINRA 

rules applicable to the trading of option 

contracts.26

With respect to margin, broker-dealers 

are required to obtain the signature of 

the account owner with respect to a 

margin account 27 and to obtain a 

customer’s written consent.28 These 

written consents and signatures are 


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29See 17 CFR 240.8c–1, 240.15c2–1, and 

240.17a–3(a)(9). Margin agreements also typically 

state that a customer must abide by the margin 

requirements established by the Federal Reserve 

Board, SROs such as FINRA, any applicable 

securities exchange, and the firm where the margin 

account is established. See also FINRA Rule 

4210(f)(8)(B) (Margin Requirements) regarding 

special margin requirements for day trading, 

including special requirements for ‘‘pattern day 

traders’’ (any customer who executes four or more 

day trades within five business days, provided that 

the number of day trades represents more than six 

percent of the customer’s total trades in the margin 

account for that same five business day period). 

30 17 CFR 240.15l–1; Regulation Best Interest: The 

Broker-Dealer Standard of Conduct, Exchange Act 

Release No. 34–86031 [84 FR 33318 (July 12, 2019)] 

(‘‘Reg BI Adopting Release’’). Following the 

adoption of Reg BI, which, among other things, 

incorporated and enhanced the principles found in 

FINRA’s suitability rule (Rule 2111), FINRA 

amended Rule 2111 to, among other things, state 

that the rule does not apply to recommendations 

subject to Reg BI. See Exchange Act Release No. 

89091 (June 18, 2020) [85 FR 37970 (June 24, 

2020)]. 

31Reg BI Adopting Release, supra note 30, at 

33337. The determination of whether a 

recommendation has been made turns on the facts 

and circumstances of a particular situation. Id. at 

33335 (‘‘Factors considered in determining whether 

a recommendation has taken place include whether 

a communication ‘reasonably could be viewed as a 

‘‘call to action’’ ’ and ‘reasonably would influence 

an investor to trade a particular security or group 

of securities.’ The more individually tailored the 

communication to a specific customer or a targeted 

group of customers about a security or group of 

securities, the greater the likelihood that the 

communication may be viewed as a 

‘recommendation.’ ’’) (citation omitted); see also 

NASD Notice to Members 01–23 (Apr. 2001) 

(Online Suitability—Suitability Rules and Online 

Communications) (providing examples of electronic 

communications that are considered to be either 

within or outside the definition of 

‘‘recommendation’’). To the extent that a brokerdealer makes a recommendation, as that term is 

interpreted by the Commission under Reg BI, to a 

retail customer through or in connection with a 

DEP, Reg BI would apply to the recommendation. 

32The disclosure obligation requires the brokerdealer to provide certain required disclosure before 

or at the time of the recommendation, about the 

recommendation and the relationship between the 

broker-dealer and the retail customer. 17 CFR 

240.15l–1(a)(2)(i). 

33The care obligation requires the broker-dealer 

to exercise reasonable diligence, care, and skill in 

making the recommendation. 17 CFR 240.15l– 

1(1)(a)(2)(ii). 

34The conflict of interest obligation requires the 

broker-dealer to establish, maintain, and enforce 

written policies and procedures reasonably 

designed to address conflicts of interest associated 

with its recommendations to retail customers. 

Among other specific requirements, broker-dealers 

must identify and disclose any material limitations, 

such as a limited product menu or offering only 

proprietary products, placed on the securities or 

investment strategies involving securities that may 

be recommended to a retail customer and any 

conflicts of interest associated with such 

limitations, and prevent such limitations and 

associated conflicts of interest from causing the 

broker-dealer or the associated person to place the 

interest of the broker-dealer or the associated 

person ahead of the retail customer’s interest. 17 

CFR 240.15l–1(a)(2)(iii). 

35The compliance obligation requires the brokerdealer to establish, maintain, and enforce written 

policies and procedures reasonably designed to 

achieve compliance with Reg BI. 17 CFR 240.15l– 

1(a)(2)(iv). 

36See, e.g., FINRA Rule 2360(b)(19). 

37 Disclosure obligations include Form CRS 

relationship summary (describing the brokerdealer’s services, fees, costs, conflicts of interest 

and disciplinary history). See 17 CFR 240.17a–14. 

38See 17 CFR 240.15l–1 (Reg BI). 

39See, e.g., FINRA Rule 2360(b)(16)(A) (requiring 

broker-dealers to provide certain risk disclosures 

when approving customers for options 

transactions); FINRA Rule 2264 (Margin Disclosure 

Statement) (specifying disclosures in advance of 

opening a margin account for a non-institutional 

customer); 17 CFR 240.10b–16 (requiring 

disclosures of all credit terms in connection with 

any margin transactions at account opening); 

FINRA Rule 2270 (Day-Trading Risk Disclosure 

Statement) (requiring that a disclosure statement be 

provided to any non-institutional customer that 

opens an account at a broker-dealer that promotes 

a day-trading strategy). 

40See Basic v. Levinson, supra note 18. Generally, 

under the anti-fraud provisions, a broker-dealer’s 

duty to disclose material information to its 

customer is based upon the scope of the 

relationship with the customer, which depends on 

the relevant facts and circumstances. See, e.g., 

Conway v. Icahn & Co., Inc., 16 F.3d 504, 510 (2d 

Cir. 1994) (‘‘A broker, as agent, has a duty to use 

reasonable efforts to give its principal information 

relevant to the affairs that have been entrusted to 

it.’’). 

41See generally 17 CFR 242.605 and 242.606 

(Regulation NMS Rules 605 and 606). For example, 

under NMS Rule 606, broker-dealers must provide 

public reports concerning the venues to which they 

route customer orders for execution and discuss 

material aspects of their arrangements with these 

execution venues, including PFOF that brokerdealers receive from the venues. Pursuant to 

amendments implemented in 2020, these reports 

require enhanced specificity concerning PFOF and 

other types of practices that may present brokerdealer conflicts of interest. See Exchange Act 

Release No. 78309 (Nov. 2, 2018) [83 FR 58338, 

58373–6 (Nov. 19, 2018)]. 

42Rule 17a–5 has two main elements: (1) A 

requirement that broker-dealers file periodic 

unaudited reports about their financial and 

operational condition using the FOCUS Report 

form; and (2) a requirement that broker-dealers 

annually file financial statements and certain 

reports, as well as reports covering those statements 

and reports prepared by an independent public 

accountant registered with the Public Company 

Accounting Oversight Board (‘‘PCAOB’’) in 

accordance with PCAOB standards. 17 CFR 

240.17a–5. The objective of Rule 15c3–1 is to 

require a broker-dealer to maintain sufficient liquid 

assets to meet all liabilities, including obligations 

to customers, counterparties, and other creditors 

and to have adequate additional resources to winddown its business in an orderly manner without the 

need for a formal proceeding if the firm fails 

financially. See 17 CFR 240.15c3–1. Rule 15c3–3 

requires a carrying broker-dealer to maintain 

physical possession or control over customers’ fully 

paid and excess margin securities. The rule also 

requires a carrying broker-dealer to maintain a 

reserve of funds or qualified securities in an 

account at a bank that is at least equal in value to 

the net cash owed to customers. 17 CFR 240.15c3– 

3. 

43See 17 CFR 240.15c2–5 (Disclosure and other 

requirements when extending or arranging credit in 

certain transactions). 

44See 17 CFR 240.10b–16 (Disclosure of credit 

terms in margin transactions). 

generally obtained by broker-dealers 

when a customer executes a margin 

agreement.29

• Standard of Conduct. Regulation 

Best Interest (‘‘Reg BI’’) requires brokerdealers that make recommendations of 

securities transactions or investment 

strategies involving securities (including 

account recommendations) to retail 

customers to act in their best interest, 

and not place the broker-dealer’s 

interests ahead of the retail customer’s 

interest.30 The use of a DEP by a brokerdealer may, depending on the relevant 

facts and circumstances, constitute a 

recommendation for purposes of Reg BI. 

Whether a ‘‘recommendation’’ has been 

made is interpreted consistent with 

precedent under the federal securities 

laws and how the term has been applied 

under FINRA rules.31 Broker-dealers 

satisfy their obligations under Reg BI by 

complying with four specified 

component obligations: A disclosure 

obligation; 32 a care obligation; 33 a 

conflict of interest obligation; 34 and a 

compliance obligation.35 Additional 

suitability obligations are imposed on 

broker-dealers when recommending 

transactions in certain types of 

securities, such as options, to any 

customer.36

• Disclosure Obligations. Brokerdealers are subject to a number of 

customer disclosure obligations, 

including disclosures at the inception of 

the customer relationship,37 disclosures 

that must be made in conjunction with 

recommendations of securities 

transactions or investment strategies 

involving securities,38 and certain 

product- or activity-specific disclosures 

pertaining to among others, options, 

margin, and day trading.39 Additionally, 

broker-dealers are liable under the antifraud provisions for failing to disclose 

material information to their customers 

when they have a duty to make such 

disclosure.40 Broker-dealers are also 

required to make disclosures to 

customers of their order execution and 

routing practices.41

• Reporting and Other Financial 

Responsibility Requirements. Brokerdealers are subject to comprehensive 

financial responsibility rules, including 

reporting requirements under Exchange 

Act Rule 17a–5, minimum net capital 

requirements under Exchange Act Rule 

15c3–1, and customer protection 

requirements under Exchange Act Rule 

15c3–3.42 Broker-dealers are also subject 

to various rules relating to margin, 

including, for example, disclosure and 

other requirements when extending or 

arranging credit in certain 

transactions,43 disclosure of credit terms 

in margin transactions,44 a description 

of the margin requirements that 

determine the amount of collateral 


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45See FINRA Rule 4210 (Margin Requirements). 

See also 12 CFR 220.1 et seq. (Federal Reserve 

Board’s Regulation T regulating, among other 

things, extensions of credit by brokers and dealers); 

46See FINRA Rule 2264 (Margin Disclosure 

Statement). See also FINRA Regulatory Notice 21– 

15 (FINRA Reminds Members About Options 

Account Approval, Supervision and Margin 

Requirements). 

47See, e.g., FINRA Rule 2210 (Communications 

with the Public). FINRA has provided guidance 

regarding the applicability of the communications 

rules in the context of social media and digital 

communications. See FINRA Regulatory Notice 19– 

31 (Disclosure Innovations in Advertising and 

Other Communications with the Public); FINRA 

Regulatory Notice 17–18 (Social Media and Digital 

Communications); FINRA Regulatory Notice 11–39 

(Social Media websites and the Use of Personal 

Devices for Business Communications); FINRA 

Regulatory Notice 10–06 (Social Media websites); 

see also 17 CFR 240.17a–4(b)(4). Paragraph (b)(4) of 

Rule 17a–4 requires a broker-dealer to preserve 

originals of all communications received and copies 

of all communications sent (and any approvals 

thereof) by the broker-dealer (including inter-office 

memoranda and communications) relating to its 

business as such, including all communications 

which are subject to the rules of an SRO of which 

the broker-dealer is a member regarding 

communications with the public. The term 

‘‘communications,’’ as used in paragraph (b)(4) of 

Rule 17a–4, includes all electronic communications 

(e.g., emails and instant messages). See 

Recordkeeping and Reporting Requirements for 

Security-Based Swap Dealers, Major Security-Based 

Swap Participants, and Broker-Dealers, Exchange 

Act Release No. 87005 (Sept. 19, 2019) [84 FR 

68550, 68563–64 (Dec. 16, 2019)]. 

48Among other requirements and prohibitions, 

firms may not ‘‘make any false, exaggerated, 

unwarranted, promissory or misleading statement 

or claim in any communication;’’ firms ‘‘must 

ensure that statements are clear and not misleading 

within the context in which they are made, and that 

they provide balanced treatment of risks and 

potential benefits;’’ and firms ‘‘must consider the 

nature of the audience to which the communication 

will be directed and must provide details and 

explanations appropriate to the audience.’’ See 

FINRA Rule 2210 (Communications with the 

Public). 

49FINRA reviews communications for 

compliance with applicable regulations. Brokerdealers must submit certain retail communications 

to FINRA for its approval at least ten business days 

prior to first use or publication. In addition to 

reviewing filed communications, broker-dealer 

communications can also be subject to spot-check 

reviews by FINRA. See FINRA Rule 2210(c). 

50See FINRA Rule 2220 (Options 

Communications). For example, when making retail 

communications concerning the sale of options 

products, broker-dealers must submit certain of 

those communications to FINRA for its approval at 

least ten calendar days prior to use. 

51See FINRA Rule 3110 (Supervision). Under 

Exchange Act Sections 15(b)(4)(E) and 15(b)(6), the 

Commission institutes administrative proceedings 

against broker-dealers and supervisors for failing 

reasonably to supervise, with a view to preventing 

violations of the federal securities laws. 15 U.S.C. 

78o(b)(4)(E) and 78o(b)(6). 

52See FINRA Rule 3110(b)(1). 

53See Exchange Act section 15(g), 15 U.S.C. 

78o(g). 

54Exchange Act Rule 17a–3 (delineating certain 

records that broker-dealers must make and keep 

current, including customer account records, copies 

of customer confirmations, records of customer 

complaints, and records related to every 

recommendation of any securities transaction or 

investment strategy involving securities made to a 

retail customer); Exchange Act Rule 17a–4 

(specifying the time period and manner in which 

records made pursuant to Rule 17a–3 must be 

preserved, and identifying additional records that 

must be maintained for prescribed time periods.). 

See 17 CFR 240.17a–3 and 240.17a–4. 

55See FINRA Rule 3110(b)(5). 

56See FINRA Rule 4530; see also FINRA Rule 

4311(g) (addressing certain requirements for 

carrying agreements relating to customer 

complaints). 

57See 17 CFR 240.17a–3(a)(18) (requiring brokerdealers to make and maintain a record for each 

written customer complaint received regarding an 

associated person, including the disposition of the 

complaint). 

58See 17 CFR 248. Regulation S–P implements 

the consumer financial privacy provisions, as well 

as the customer records and information security 

provisions, of Title V of the Gramm Leach Bliley 

Act (‘‘GLBA’’). It also implements the consumer 

report information disposal provisions (Section 

628) of the Fair Credit Reporting Act (‘‘FCRA’’) as 

amended by the Fair and Accurate Credit 

Transactions Act of 2003 (‘‘FACT Act’’). 

59See 17 CFR 248.11 and 248.12. 

60See 17 CFR 248.201. Regulation S–ID 

implements the identity theft red flags rules and 

guidelines provisions (Section 615(e)) of the FCRA 

as amended by the Dodd-Frank Wall Street Reform 

and Consumer Protection Act of 2010 (‘‘Dodd-Frank 

Act’’). 

customers are expected to maintain in 

their margin accounts,45 and a 

requirement to issue a margin disclosure 

statement prior to opening a margin 

account.46

• Communications with the Public 

Rules. Broker-dealers are subject to a 

number of rules governing 

communications with the public, 

including advertising or marketing 

communications. These rules apply to 

broker-dealers’ written (including 

electronic) communications with the 

public and are subject to obligations 

pertaining to content, supervision, 

filing, and recordkeeping.47 All 

communications must be based on 

principles of fair dealing and good faith, 

be fair and balanced, and comply with 

a number of other content standards.48

Through its filings review program, 

FINRA’s Advertising Regulation 

Department reviews communications 

submitted either voluntarily or as 

required by FINRA rules.49 In the case 

of communications relating to options, 

broker-dealers are subject to certain 

heightened obligations.50

• Supervision Obligations and Insider 

Trading Procedures. Broker-dealers 

must ‘‘establish and maintain a system 

to supervise the activities of each 

associated person that is reasonably 

designed to achieve compliance with 

applicable securities laws and 

regulations, and with applicable FINRA 

rules.’’ 51 Among other things, brokerdealers must establish, maintain, and 

enforce written procedures to supervise 

the types of business in which they 

engage and the activities of their 

associated persons that are reasonably 

designed to achieve compliance with 

applicable securities laws and 

regulations, and with applicable FINRA 

rules.52 Broker-dealers must also 

establish, maintain, and enforce written 

policies and procedures reasonably 

designed to prevent the misuse of 

material, nonpublic information by the 

broker-dealer or its associated 

persons.53

• Recordkeeping Obligations. Section 

17(a) of the Exchange Act provides the 

Commission with authority to issue 

rules requiring broker-dealers to make 

and keep for prescribed periods such 

records as the Commission, by rule, 

prescribes as necessary or appropriate in 

the public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Exchange Act. Rules 

17a–3 and 17a–4 prescribe the primary 

recordkeeping requirements for brokerdealers.54

• Customer Complaints. Brokerdealers are required to have procedures 

to document and capture, acknowledge, 

and respond to all written (including 

electronic) customer complaints,55 and 

report to FINRA certain specified events 

related to customer complaints, as well 

as statistical and summary information 

on customer complaints.56 Brokerdealers must also make and keep a 

record indicating that each customer has 

been provided with a notice with the 

address and telephone number to which 

complaints may be directed.57

• Privacy and Cybersecurity. 

Regulation S–P requires broker-dealers 

to disclose certain information about 

their privacy policies and practices, 

limits the instances in which brokerdealers may disclose nonpublic 

personal information about consumers 

to nonaffiliated third parties without 

first allowing the consumer to opt out, 

and requires broker-dealers to adopt 

written policies and procedures that 

address administrative, technical, and 

physical safeguards for the protection of 

customer records and information.58

Regulation S–P also limits the redisclosure and re-use of nonpublic 

personal information, and it limits the 

sharing of account number information 

with nonaffiliated third parties for use 

in telemarketing, direct mail marketing, 

and email marketing.59 Broker-dealers 

are also required, under Regulation S– 

ID, to develop and implement a written 

identity theft prevention program 

designed to detect, prevent, and mitigate 

identity theft in connection with certain 

existing accounts or the opening of new 

accounts.60


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61For example, to the extent that an adviser 

provides investment advice to a client through or 

in connection with a DEP, then all such investment 

advice must be consistent with the adviser’s 

fiduciary duty. 

62This fiduciary duty ‘‘requires an adviser to 

adopt the principal’s goals, objectives, or ends.’’ See 

Commission Interpretation Regarding Standard of 

Conduct for Investment Advisers, Advisers Act 

Release No. 5248 (June 5, 2019) [84 FR 33669, 

33671 (July 12, 2019)] (‘‘IA Fiduciary Duty 

Interpretation’’) (internal quotations omitted). This 

means the adviser must, at all times, serve the best 

interest of its client and not subordinate its client’s 

interest to its own. See id. 

63 In order to provide such advice, an investment 

adviser must have a reasonable understanding of 

the client’s objectives. See id. at 33672–3. 

64See id. at 33669–78. 

65See id. 

66See, e.g., 17 CFR 275.204–3 (requiring an 

adviser to deliver a Form ADV Part 2A brochure to 

advisory clients); 17 CFR 275.204–5 (requiring an 

adviser to deliver Form CRS to each retail investor). 

67See, e.g., 17 CFR 275.204–1. 

68These include, for example, Schedule 13D or 

Schedule 13G reporting of ‘‘beneficial ownership’’ 

of more than 5 percent of shares of a voting class 

of a security registered under Section 12 of the 

Exchange Act and Form 13F quarterly reports filed 

by institutional investment managers that manage 

more than $100 million of specified securities. See 

17 CFR 240.13d–1(a)–(c) and 240.13f–1. 

69These include prohibitions and restrictions on 

market manipulation and insider trading. See, e.g., 

17 CFR 240.10b5–1 and 240.10b5–2. 

70The compliance date for amended rule 206(4)– 

1 under the Advisers Act is November 4, 2022. 

Until then, advisers that do not comply with 

amended 206(4)–1 must comply with existing rule 

206(4)–1, which governs adviser’s advertisements, 

and rule 206(4)–3, which governs cash payments for 

client solicitations. 

71See 17 CFR 275.206(4)–7. 

72See Advisers Act section 203(e)(6), 15 U.S.C. 

80b–3(e)(6). 

73See 17 CFR 275.204–2. 

2. Existing Investment Adviser 

Obligations 

The Investment Advisers Act of 1940 

(‘‘Advisers Act’’) establishes a federal 

fiduciary duty for investment advisers, 

whether or not registered with the 

Commission, which is made enforceable 

by the anti-fraud provisions of the 

Advisers Act. The fiduciary duty is 

broad and applies to the entire adviserclient relationship, and must be viewed 

in the context of the agreed-upon scope 

of that relationship.61 As a fiduciary, an 

investment adviser owes its clients a 

duty of care and a duty of loyalty.62

Under its duty of loyalty, an adviser 

must make full and fair disclosure of all 

material facts relating to the advisory 

relationship and must eliminate or make 

full and fair disclosure of all conflicts of 

interest which might incline an 

investment adviser—consciously or 

unconsciously—to render advice which 

is not disinterested such that a client 

can provide informed consent to the 

conflict. An adviser’s duty of care 

includes, among other things: (i) A duty 

to provide investment advice that is in 

the best interest of the client, based on 

a reasonable understanding of the 

client’s objectives; 63 (ii) a duty to seek 

best execution of a client’s transactions 

where the adviser has the responsibility 

to select broker-dealers to execute client 

trades (typically in the case of 

discretionary accounts); and (iii) a duty 

to provide advice and monitoring at a 

frequency that is in the best interest of 

the client, taking into account the scope 

of the agreed relationship.64 We 

discussed the fiduciary duty and these 

aspects of it in greater detail in a 

Commission interpretation.65

Rules adopted under the Advisers Act 

also impose various obligations on 

registered investment advisers (or 

investment advisers required to be 

registered with the Commission), 

including: 

• Disclosure Requirements. 

Registered investment advisers are 

subject to a number of client disclosure 

obligations, including disclosures before 

or at the time of entering into an 

advisory contract, annually thereafter, 

and when certain changes occur. These 

disclosures include information about a 

number of topics, including an adviser’s 

business practices, fees, conflicts of 

interest, and disciplinary information, 

and about advisory employees and their 

other business activities.66

• Reporting Requirements. 

Investment advisers register with the 

Commission by filing Form ADV and 

are required to file periodic updates.67

Like all market participants, investment 

advisers are subject to reporting 

obligations under the Exchange Act 

under specified circumstances,68 as well 

as trading rules and restrictions under 

the Exchange Act.69

• Marketing Requirements. Rule 

206(4)–1, as amended in December 

2020, governs investment advisers’ 

marketing practices.70 This rule 

contains seven general prohibitions on 

the types of activity that could be false 

or misleading that apply to all 

advertisements. The rule also prohibits 

advertisements that contain 

testimonials, endorsements, third-party 

ratings, and performance information, 

unless certain conditions are met. 

• Compliance Programs. Under rule 

206(4)–7, an investment adviser must 

adopt and implement written policies 

and procedures reasonably designed to 

prevent violation of the Advisers Act 

and the rules thereunder by the firm and 

its supervised persons.71 Among other 

things, an adviser’s compliance policies 

and procedures should address portfolio 

management processes, including 

allocation of investment opportunities 

among clients and consistency of 

portfolios with clients’ investment 

objectives, disclosures by the adviser, 

and applicable regulatory restrictions. 

This rule requires review of such 

policies and procedures at least 

annually, and the designation of a chief 

compliance officer responsible for 

administering such policies and 

procedures. 

• Supervision Obligations and Insider 

Trading Procedures. Investment 

advisers have a duty to reasonably 

supervise certain persons with respect 

to activities performed on the adviser’s 

behalf.72 In addition, section 204A of 

the Advisers Act requires investment 

advisers (registered with the 

Commission or not) to establish, 

maintain, and enforce written policies 

and procedures reasonably designed to 

prevent the misuse of material, 

nonpublic information by the 

investment adviser or any of its 

associated persons. 

• Recordkeeping Requirements. 

Under rule 204–2, investment advisers 

must make and keep particular books 

and records, including certain 

communications relating to advice given 

(or proposed to be given), the placing or 

execution of any order to purchase or 

sell any security, and copies of the 

advertisements they disseminate.73

• Privacy and Cybersecurity. Advisers 

registered or required to be registered 

with the Commission are also subject to 

Regulation S–P and Regulation S–ID, 

which are discussed above in the 

context of broker-dealers. 

Questions: Current Regulatory 

Compliance Approaches 

3.1 How are firms approaching 

compliance relating to their use of DEPs 

and the related tools and methods, in 

order to ensure compliance with their 

obligations under federal securities laws 

and regulations, including those 

identified above? For example, how do 

firms supervise communications or 

marketing to retail investors through or 

in connection with DEPs? Do firms 

approach compliance relating to the use 

of DEPs and related tools and methods 

differently from how they approach 

compliance relating to other engagement 

with customers or clients? If so, how do 

the approaches differ? For example, do 

such approaches differ based on any 

unique risks associated with or innate 

characteristics of DEPs and the related 

tools and methods? 

3.2 What types of policies and 

procedures and controls do firms 

establish and maintain to ensure the 

design, development, and use of DEPs 

and related tools and methods comply 

with existing obligations? How do firms 


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supervise the design, development, and 

use of these features, tools, and methods 

after implementation and adoption for 

continued compliance? In what ways do 

firms’ policies and procedures, controls, 

and supervision differ with respect to 

their use of DEPs and related tools and 

methods from other policies and 

procedures, controls, and supervision 

that the firms employ? 

3.3 Do firms implement registration 

or certification requirements for 

personnel primarily responsible for the 

design, development, and supervision of 

DEPs? If so, what are the requirements? 

What type of training do firms offer to 

their personnel in connection with the 

design, development, and use of DEPs 

and related tools and methods? Do firms 

outsource the design or development of 

DEPs? Do firms outsource the design 

and development of DEPs outside the 

United States? 

3.4 What policies, procedures, and 

controls do firms have in place with 

respect to the use of DEPs that are 

designed to promote or that could 

otherwise direct retail investors to 

higher-risk products and services, for 

example, margin services and options 

trading? What policies, procedures, and 

controls do firms have in place with 

respect to the use of DEPs that are 

designed to promote or that could 

otherwise direct retail investors to 

securities or services that are more 

lucrative for the firm such as: 

Proprietary products, products for 

which the firm receives revenue sharing 

or other third-party payments, or other 

higher fee products? To what extent do 

these policies and procedures consider 

or address the characteristics of retail 

investors to whom such products and 

services may be promoted or directed? 

For example, do the policies and 

procedures place controls around how 

DEPs may be utilized to promote or 

otherwise direct certain products or 

services to certain types of retail 

investors? 

3.5 What disclosures are firms 

providing in connection with or 

specifically addressing DEPs and the 

related tools and methods (including 

with respect to any data or information 

collected from the retail investor)? How 

are such disclosures presented to retail 

investors? Does such disclosure address 

how the use of DEPs or the related tools 

and methods may affect investors and 

specifically their trading and investing 

behavior? Does such disclosure differ 

from other disclosures that firms 

provide? How do firms currently 

disclose information such as risks, fees, 

costs, conflicts of interest, and standard 

of conduct to retail investors on their 

digital platforms? To what extent and 

how do firms use DEPs to make such 

disclosures? 

3.6 Do broker-dealers consider the 

observable impacts of DEPs when 

determining if they are making 

‘‘recommendations’’ for purposes of Reg 

BI? How does the fact that a DEP might 

impact the behavior of a statistically 

significant number of retail investors 

affect this determination? What 

statistical concepts, tools, and 

quantitative thresholds do brokerdealers use in making this 

determination? 

3.7 Are there particular types of 

DEPs that broker-dealers avoid using 

because they would be 

recommendations? If so, which DEPs 

and why? What are broker-dealers doing 

to ensure that the DEPs they adopt 

comply with Reg BI and other sales 

practice rules, where applicable? 

3.8 Do investment advisers consider 

the observable impacts of DEPs when 

determining if they are providing 

investment advice? How does the fact 

that a DEP might impact the behavior of 

a statistically significant number of 

investors affect this determination? 

What statistical concepts, tools, and 

quantitative thresholds do investment 

advisers use in making this 

determination? 

3.9 Are there particular types of 

DEPs that investment advisers avoid 

using because they would constitute 

providing investment advice? If so, 

which DEPs and why? How do 

investment advisers satisfy their 

fiduciary duty when using DEPs and 

related tools and methods? How do 

investment advisers take into account 

their fiduciary duty when designing and 

developing DEPs? 

3.10 When providing investment 

advice or recommendations to a retail 

investor, do firms adjust that investment 

advice or recommendation to take into 

account any data they have about how 

their DEPs affect investor behavior and 

investing outcomes? If so, how is such 

investment advice or recommendation 

adjusted? 

3.11 How do firms using DEPs 

obtain sufficient retail investor 

information and provide sufficient 

oversight to satisfy their regulatory 

obligations, including, for example, 

applicable anti-fraud provisions and 

account opening or approval 

requirements? 

3.12 How does the recordkeeping 

process used by firms in connection 

with DEPs and the related tools and 

methods compare to the recordkeeping 

process used in connection with firms’ 

traditional business? Do firms generate 

and retain records with respect to the 

development, implementation, 

modification, and use of DEPs, 

including the testing of, or due diligence 

with respect to, the technology that they 

use for those purposes? Do firms 

generate and retain records with respect 

to retail investor interaction with such 

DEPs? If so, what types of records? 

Questions: Suggestions for 

Modifications to Existing Regulations or 

New Regulatory Approaches To Address 

Investor Protection Concerns, Including 

3.13 What additions or 

modifications to existing regulations, 

including, but not limited to, those 

identified above, or new regulations or 

guidance might be warranted to address 

investor protection concerns identified 

in connection with the use by brokerdealers and investment advisers of 

DEPs, the related tools and methods, 

and the use of retail investor data 

gathered in connection with DEPs? 

What types of requirements, limitations, 

or prohibitions would be most 

appropriate to address any such 

identified investor protection concerns? 

3.14 Are there regulations that 

currently prevent firms from using DEPs 

and related tools and methods in ways 

that might be beneficial to retail 

investors? If so, what additions or 

modifications to those regulations 

would make it easier for firms to use 

DEPs and related tools and methods to 

benefit investors? Are there regulatory 

approaches that would facilitate firms’ 

ability to innovate or test the use of new 

technology consistent with investor 

protection? 

3.15 To the extent commenters 

recommend any modifications to 

existing regulations or new regulations, 

how should DEPs and the scope of tools 

and methods be defined to capture 

practices and tools and methods in use 

today and remain flexible to adapt as 

technology changes? Should any such 

modifications or new regulations 

specifically and uniquely address DEPs 

or the related tools and methods (i.e., 

distinct from regulation of interactions 

with retail investors such as marketing, 

investment advice, and 

recommendations)? If so, how? Should 

any such modifications or additional 

regulations be targeted specifically to 

address certain types of DEPs or certain 

tools or methods? If so, how? For 

example, should specific DEPs be 

explicitly prohibited or only permitted 

subject to limitations or other regulatory 

requirements (e.g., filing or preapproval)? 

3.16 Should any such modifications 

or additional regulations be targeted 

specifically to address particular risks, 

such as those related to certain types of 

securities (e.g., options, leveraged and 


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74While we recognize that broker-dealers 

similarly use analytical tools and other technology 

for purposes of developing and providing 

recommendations, those issues are not the focus of 

Section III of the Request. However, the 

Commission welcomes comments on these issues 

relating to broker-dealers as part of the General 

Request for Comment as set forth in Section IV 

below. 

75The International Organization of Securities 

Commissions (‘‘IOSCO’’) has stated that the terms 

financial technologies or ‘‘Fintech’’ are ‘‘used to 

describe a variety of innovative business models 

and emerging technologies that have the potential 

to transform the financial services industry.’’ 

IOSCO Research Report on Financial Technologies 

(Fintech) at 4 (Feb. 2017), https://www.iosco.org/ 

library/pubdocs/pdf/IOSCOPD554.pdf. 

76Many investment advisers also increasingly use 

third-party service providers to generate investment 

models (e.g., model portfolios) or strategies, and 

may use software based on, or otherwise 

incorporating, AI/ML models. 77An algorithm can be defined as a routine 

process or sequence of instructions for analyzing 

data, solving problems, and performing tasks. See 

Dilip Krishna et al., Managing Algorithmic Risks: 

Safeguarding the Use of Complex Algorithms and 

Machine Learning at 3, Deloitte Development LLC 

(2017) (‘‘Deloitte Report’’). 78See, e.g., Investment Adviser Association, 2020 

Evolution Revolution at 8 (2020), https://higherlogic

download.s3.amazonaws.com/INVESTMENT

ADVISER/aa03843e-7981-46b2-aa49- 

c572f2ddb7e8/UploadedImages/resources/ 

Evolution_Revolution_2020_v8.pdf (noting that by 

2020, ‘‘two of the top five advisers as measured by 

number of non-high net worth individual clients 

served [were] digital advice platforms, representing 

7.5 million clients, an increase of 2.7 million clients 

from [the prior year].’’); Robo-Advisers, IM 

Guidance Update No. 2017–02 (Feb. 2017), https:// 

www.sec.gov/investment/im-guidance-2017-02.pdf. 

79A robo-adviser or a third party may develop, 

manage, or own the algorithm used to manage client 

accounts. In some business models, a robo-adviser 

may provide its algorithm or its digital platform to 

another investment adviser. That investment 

adviser may then (i) use the robo-adviser’s existing 

investment options (e.g., asset allocation models), 

(ii) use the algorithm or digital platform as a tool 

to create its own investment options, or (iii) use a 

combination of these features. 

80 In addition, FINRA has observed client-facing 

digital advisers that incorporate trade execution, 

portfolio rebalancing, and tax-loss harvesting. See 

FINRA, Report on Digital Investment Advice at 2 

(Mar. 2016), https://www.finra.org/sites/default/ 

files/digital-investment-advice-report.pdf 

(describing digital investment tools as tools within 

two groups: Financial professional-facing tools and 

client-facing tools). 

81See IA Fiduciary Duty Interpretation, supra 

note 62, at n.27. 

inverse funds, or other complex 

securities), services (e.g., margin), or 

conflicts (e.g., payment and revenue 

sources)? If so, how? Should any such 

modifications or additional regulations 

be targeted specifically to increase 

protection for certain categories of 

investors (e.g., seniors or inexperienced 

investors)? If so, how? 

3.17 Are there laws, regulations, or 

other conduct standards that have been 

adopted in other contexts, fields, or 

jurisdictions that could serve as a useful 

model for any potential regulatory 

approaches? 

3.18 To the extent commenters 

recommend any modifications to 

existing regulations or new regulations, 

what economic costs and benefits do 

commenters believe would result from 

their recommendations? Please provide 

or identify any relevant data and other 

information. 

III. Use of Technology by Investment 

Advisers To Develop and Provide 

Investment Advice 

The Commission is also issuing the 

Request to assist the Commission and its 

staff in better understanding the nature 

of analytical tools and other technology 

used by investment advisers to develop 

and provide investment advice to 

clients, including (1) oversight of this 

technology; (2) how investment advisers 

and clients have benefited from 

technology; (3) potential risks to 

investment advisers, clients, and the 

markets more generally related to this 

technology; and (4) whether regulatory 

action may be needed to protect 

investors while preserving the ability of 

investors to benefit from investment 

advisers’ use of technology.74

A. Issues for Consideration 

Financial technology enables 

investment advisers to develop and 

provide investment advice in new ways 

or complements existing methods or 

tools for developing and providing 

advice,75 including by allowing digital 

platforms to connect clients, their 

investment advisers, and third-party 

service providers.76 We describe below 

some recent changes in delivery and 

development of investment advice and 

the role of analytical tools and other 

technology in each. These changes are 

those that we understand may directly 

affect clients’ receipt of investment 

advice, and some may overlap 

depending on an adviser’s particular 

business model and services. 

While the increased role of 

technology has presented investment 

advisers and clients with benefits, it 

may also present risks. We recognize 

that some of these risks may be 

presented, or be presented differently, 

for advisers providing traditional 

investment advice that does not rely on 

technology. We understand as well that 

investment advisers may weigh 

differently those potential benefits and 

risks, including those described below, 

in determining how to use technology in 

developing and providing investment 

advice. We therefore are seeking 

comment to understand better the tools 

used by investment advisers to develop 

and provide investment advice and 

investment advisers’ understanding and 

oversight of these tools and the related 

benefits and risks. In addition, we seek 

comment on other ways in which 

technology has changed investment 

advisers’ development and provision of 

investment advice to their clients. 

1. Robo-Advisers 

Some investment advisers, which we 

refer to here as robo-advisers, provide 

asset management services to their 

clients through online algorithm-based 

platforms.77 The number of roboadvisers (also referred to as digital 

investment advisers, digital advisers, or 

automated advisers) has increased over 

the past several years.78 Robo-advisers 

operate under a variety of business 

models and have varying degrees of 

human interaction with clients as 

compared to traditional advisers, and 

some rely exclusively on algorithms to 

oversee and manage individual client 

accounts.79 In some cases, human 

personnel may have limited ability to 

override an algorithm, even in stressed 

market conditions, and there is limited, 

if any, direct interaction between the 

client and the adviser’s personnel. In 

other cases, robo-advisers offer hybrid 

advisory services, which pair algorithmgenerated investment options with 

human personnel who can answer 

questions, discuss and refine an 

algorithm-generated investment plan 

(e.g., clarify information where client 

questionnaire responses seem 

conflicting or address risk tolerance 

levels based on client reaction to 

stressed market conditions), or provide 

additional resources to clients. Some 

robo-advisers offer clients a choice 

between hybrid and non-hybrid 

services, at different price points. 

In addition to using analytical tools to 

engage with clients, robo-advisers may 

use technology (including AI/ML tools) 

for a variety of other functions. For 

example, an adviser may use these tools 

to match clients to individual portfolios 

based on client inputs or determine how 

or when to trade for individual client 

accounts. An adviser also may use these 

tools to determine asset allocations, 

determine how to fill allocations, 

generate trading signals, or make other 

strategic decisions.80

All Commission-registered roboadvisers are subject to all of the 

requirements of the Advisers Act, 

including the requirement that they 

provide advice consistent with the 

fiduciary duty they owe to clients.81

Because robo-advisers rely on 

algorithms, provide advisory services 

over the internet, and may offer limited, 

if any, direct human interaction to their 

clients, they may raise novel issues 

when seeking to comply with the 


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82See 17 CFR 275.203A–2(e) (permitting 

Commission registration by an investment adviser 

that (i) provides investment advice to all of its 

clients exclusively through an interactive website, 

except that the investment adviser may provide 

investment advice to fewer than 15 clients through 

other means during the preceding twelve months; 

(ii) maintains specified records; and (iii) does not 

control, is not controlled by, and is not under 

common control with, another adviser that registers 

with the Commission solely because of its 

relationship with the internet investment adviser). 

Internet investment advisers represented only 1.5 

percent of registered advisers in 2021, but have 

more than tripled in number since 2010—from 57 

in 2010 (approximately 0.5 percent of total 

registered investment advisers) to 203 in 2021 

(approximately 1.5 percent of total registered 

investment advisers). Data from Form ADV, Part 

1A, Item 2.A.(11) (based on Form ADV filings 

through July 2021). 

83See Exemption For Certain Investment 

Advisers Operating through the internet, Advisers 

Act Release No. 2091 (Dec. 12, 2002) [67 FR 77620, 

77621 (Dec. 18, 2002)] (‘‘internet Investment 

Adviser Adopting Release’’) (‘‘Because an internet 

Investment Adviser uses an interactive website to 

provide investment advice, the adviser’s clients can 

come from any state, at any time. As a result, 

internet Investment Advisers must as a practical 

matter register in every state. This ensures that the 

adviser’s registrations will be in place when it later 

obtains the requisite number of clients from any 

particular state’’ that requires state registration.). 

84 Id. at n.15 and accompanying text. Effective 

September 19, 2011, Rule 203A–2(f) was 

renumbered as Rule 203A–2(e). See Rules 

Implementing Amendments to the Investment 

Advisers Act of 1940, Advisers Act Release No. 

3221 (June 22, 2011) [76 FR 42950, 42963 (July 19, 

2011)]. 

85The Commission has cancelled the registrations 

of advisers where the Commission found that those 

advisers did not meet the terms of the exemption. 

See, e.g., Order Cancelling Registration Pursuant to 

Section 203(h) of the Investment Advisers Act of 

1940, Advisers Act Release No. 5110 (Feb. 12, 

2019). 

86Some of these advisers also may be eligible for 

the ‘‘multi-state adviser exemption’’ under 17 CFR 

275.203A–2(d). The multi-state adviser exemption 

permits an adviser who is required to register as an 

investment adviser with fifteen or more states to 

register with the Commission. 

Advisers Act. For example, advisers 

may need to consider whether and how 

automation affects the development of 

digital advice and the potential risks 

that such automation may present. An 

automated algorithm may produce 

investment advice for a particular client 

that is inconsistent with the client’s 

investment strategy or relies on 

incomplete information about the client 

that depends on limited input data. 

Increased reliance on automated 

investment advice may result in too 

much importance being placed on 

clients’ responses to account opening 

questionnaires and other forms of 

automated client evaluation, which may 

not permit nuanced answers or 

determine when additional clarification 

or information could be necessary. This 

reliance may also result in a failure to 

detect changes in clients’ circumstances 

that may warrant a change in 

investment strategy. 

Robo-advisers also must determine 

how to effectively understand and 

oversee use of their algorithms 

(including those developed by third 

parties) and the construction of client 

portfolios, including any potential 

conflicts of interest. For example, roboadvisers’ algorithms may result in 

clients being invested in assets in which 

the adviser or its affiliate holds interests 

or advises separately (e.g., mutual funds 

and exchange-traded funds). In these 

circumstances, the adviser would have 

a conflict of interest that it must 

eliminate or fully and fairly disclose 

such that the client can provide 

informed consent. In addition, any 

override or material changes to the 

algorithm must result in investment 

advice that is consistent with the 

adviser’s disclosures and fiduciary duty. 

2. Internet Investment Advisers 

Some investment advisers may solely 

use an interactive website to provide 

investment advice. These investment 

advisers, otherwise known as ‘‘internet 

investment advisers,’’ are eligible for 

SEC registration even if they do not 

meet the assets-under-management 

threshold if they satisfy certain criteria, 

including that they provide advice to all 

of their clients exclusively through their 

interactive website (‘‘internet clients’’), 

subject to a de minimis exception for 

other clients.82 The Commission has 

stated that the internet investment 

adviser exemption was designed to 

balance the burdens of multiple state 

registration requirements for internet 

investment advisers with the Advisers 

Act’s allocation of responsibility for 

regulating smaller advisers to state 

securities authorities.83

For purposes of the exemption, 

‘‘interactive website’’ means a website 

in which computer software-based 

models or applications provide 

investment advice to clients based on 

personal information each client 

supplies through the website. These 

websites generally require clients to 

answer questions about personal 

finances and investment goals, which 

the adviser’s application or algorithm 

analyzes to develop investment advice 

that the website transmits to the client. 

The Commission has stated that the 

exemption is not available to investment 

advisers that merely use websites as 

marketing tools or use internet tools 

such as email, chat rooms, bulletin 

boards, and webcasts or other electronic 

media in communicating with clients.84

In addition, the Commission 

distinguished the interactive website 

described in the exemption from ‘‘other 

types of websites that aggregate and 

provide financial information in 

response to user-provided requests that 

do not include personal information.’’ 

This exemption is limited in scope. In 

the Internet Investment Adviser 

Adopting Release, the Commission 

stated that internet investment advisers 

typically are not eligible to register with 

the Commission because they ‘‘do not 

manage the assets of their internet 

clients’’ and thus do not meet the 

statutory threshold for registration with 

the Commission. Further, the 

Commission stated that, in order to be 

eligible for registration under this 

exemption, an investment adviser ‘‘may 

not use its advisory personnel to 

elaborate or expand upon the 

investment advice provided by its 

interactive website, or otherwise 

provide investment advice to its internet 

clients.’’ The exemption generally 

requires that the investment adviser 

‘‘provides investment advice to all of its 

clients’’ through its website, which 

means that the adviser must operate an 

interactive website through which 

advice is given. That is, the exemption 

is unavailable to investment advisers 

lacking such a website. 

Despite the limited nature of the 

exemption, we understand that some 

investment advisers may seek to rely on 

it and to register with the Commission 

without meeting the exemption’s terms 

or intended purpose.85 Examinations of 

investment advisers relying on the 

exemption have revealed various 

reasons for non-compliance with the 

exemption’s requirements, including: (i) 

Failure to understand the eligibility 

requirements; (ii) websites that were not 

interactive; (iii) businesses that became 

dormant but did not withdraw their 

registration; and (iv) client access to 

advisory personnel who could expand 

upon the investment advice provided by 

the adviser’s interactive website, or 

otherwise provide investment advice to 

clients, such as financial planning. 

Some robo-advisers may provide a 

broader array of advisory services than 

those provided by internet investment 

advisers but not be eligible for 

Commission registration unless they can 

rely on another exemption or until they 

have met the statutory assets-undermanagement threshold.86 Prohibiting 

these investment advisers from 

registering with the Commission in 

these circumstances could impose 

burdens that the internet investment 

adviser exemption was intended to 

alleviate. Finally, because the internet 

investment adviser exemption was 

established almost twenty years ago, we 

seek to understand better how 


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87 Investment advisers’ use of AI/ML and other 

technological tools must comply with existing rules 

and regulations. The Commission is not expressing 

a view as to the legality or conformity of such 

practices with the federal securities laws and the 

rules and regulations thereunder, nor with the rules 

of self-regulatory organizations. 

88Advisers may also use AI as part of their 

internal operations, including by reviewing and 

classifying information (e.g., in regulatory filings 

and fund prospectuses), by assisting with trade 

matching or custodian reconciliation, for risk 

measurement (in part through earlier and more 

accurate estimation of risks) and stress testing 

purposes, and by facilitating regulatory compliance. 

89See, e.g., Treasury RFI, supra note 11, at 16839 

(describing potential benefits of financial 

institutions’ use of AI); see also FINRA AI Report, 

supra note 11 (highlighting three broad areas where 

broker-dealers are evaluating or using AI: 

Communications with customers, investment 

processes, and operational functions); FSB AI 

Report, supra note 11, at 27. 

90Advisers may obtain these AI/ML tools in 

connection with contracting for cloud services. 

They may use other types of Fintech, as well, such 

as financial aggregator platforms that allow advisers 

to access information about clients’ financial 

accounts, which can inform investment advice. 

Clients may allow such platforms to access 

information about their investment accounts and 

performance to enable a more fulsome analysis of 

their financial resources and investment 

experience. 

91See, e.g., IOSCO, The Use of Artificial 

Intelligence and Machine Learning by Market 

Intermediaries and Asset Managers at 11 (June 

2020) (consultation report), https://www.iosco.org/ 

library/pubdocs/pdf/IOSCOPD658.pdf (‘‘Unlike 

traditional algorithms, ML algorithms continually 

learn and develop over time. It is important that 

they are monitored to ensure that they continue to 

perform as originally intended.’’). 92See, e.g., Coryanne Hicks, What Is a Robo 

Advisor and When to Use One, U.S. News & World 

Report (Feb. 18, 2021), https://money.usnews.com/ 

financial-advisors/articles/what-is-a-robo-advisorand-when-to-use-one. 93See, e.g., European Securities and Markets 

Authority (‘‘ESMA’’) et al., Joint Committee 

Discussion Paper on Automation in Financial 

Advice at 16–17 (Dec. 4, 2015) (‘‘ESMA Discussion 

Paper’’), https://esas-joint-committee.europa.eu/ 

Publications/Discussion%20Paper/20151204_JC_

2015_080_discussion_paper_on_Automation_in_

Financial_Advice.pdf; see also ESMA et al., Report 

on Automation in Financial Advice at 8–9 (2016) 

(‘‘ESMA Report’’), https://esas-joint-committee.

europa.eu/Publications/Reports/EBA%20BS%

202016%20422%20(JC%20SC%20CPFI%20

Final%20Report%20on%20automated%20

advice%20tools).pdf (discussing views on the 

benefits and risks of automated advice from 

respondents to the ESMA Discussion Paper). 

94So ̈hnke M. Bartram, Ju ̈rgen Branke, and 

Mehrshad Motahari, Artificial Intelligence in Asset 

Management, CFA Institute Research Foundation 

Literature Review 25 (2020) (‘‘CFA Literature 

Review’’), https://www.cfainstitute.org/-/media/ 

documents/book/rf-lit-review/2020/rflr-artificialintelligence-in-asset-management.ashx; see also 

ESMA Discussion Paper, supra note 93, at 17 (‘‘A 

well-developed algorithm may be more consistently 

accurate than the human brain at complex 

repeatable regular processes, and in making 

predictions. Automated advice tools therefore could 

reduce some elements of behavioural biases, human 

error, or poor judgement that may exist when 

advice is provided by a human. A well-developed 

algorithm could ensure equal and similar advice to 

all consumers with similar characteristics.’’). But 

see ESMA Report, supra note 93, at 9 (stating that 

several respondents ‘‘stated that whether or not 

automated advice is more consistent and accurate 

depends on both the underlying logic of the 

algorithm and the quality and completeness of the 

information inputted’’); text accompanying infra 

note 97. 

95See, e.g., World Economic Forum, The New 

Physics of Financial Services: Understanding How 

Artificial Intelligence is Transforming the Financial 

Ecosystem 114–123 (Aug. 2018), http://

www3.weforum.org/docs/WEF_New_Physics_of_

Financial_Services.pdf. 

96See, e.g., In the Matter of AXA Rosenberg 

Group LLC et al., Advisers Act Release No. 3149 

Continued 

investment advisers are relying on it 

and whether we should consider 

amending the exemption or creating 

another exemption that reflects 

investment advisers’ current use of 

technology in providing investment 

advice. 

3. AI/ML in Developing and Providing 

Investment Advice 87

Investment advisers may use, or be 

considering the use of, software or 

models based on, or otherwise 

incorporating, AI/ML (including deep 

learning, supervised learning, 

unsupervised learning, and 

reinforcement learning) in developing 

and providing investment advice, 

including by supporting human 

personnel’s decision-making.88

Investment advisers may use such 

models or software to devise trading and 

investment strategies or develop 

investment advice, including to assess 

large amounts of data or to provide 

clients with more customized service.89

In addition, investment advisers may 

use these tools to monitor client 

accounts or track the performance of 

specific securities or other 

investments.90

Because ML models learn and 

develop over time, advisory personnel 

may face challenges in monitoring and 

tracking them, including reviewing both 

a model’s input to assess whether it is 

appropriate and its output to assess 

accuracy or relevance.91 For example, 

advisory personnel may lack sufficient 

knowledge or experience, or rely 

heavily on limited personnel, to 

challenge models’ results. In addition, 

there may be systemic risks associated 

with the use of these technologies, 

including potential interconnectedness 

across the financial system and an 

emerging dependency on certain 

concentrated infrastructure and widely 

used models, which could propagate 

risks across the financial system. 

Further, different market participants 

may use technologies of varying or 

inadequate quality that could prompt 

investment advisers to provide 

unsuitable advice to their clients. 

4. Potential Benefits 

The use of technology in developing 

and providing investment advice has 

provided certain benefits to investment 

advisers and, in turn, their clients. For 

example, digital advisers and internet 

investment advisers may offer lower 

cost advisory services. They also may 

provide attractive, user-friendly design 

features that clients appreciate, and may 

offer advisory services and online access 

at all hours of the day.92 Digital 

investment advice may be more 

accessible than human advisory 

personnel to a wider range of clients, 

including clients who have greater 

confidence in digital investment advice; 

may facilitate access to a wider range of 

investment advisers, including through 

increased competition and a potential 

for lower fees; and may permit clients 

to easily access information about their 

account and investments.93 In addition, 

digital advisers may be less prone to 

‘‘behavioral biases, mistakes, and illegal 

practices’’ than human personnel.94 By 

using AI-based software and methods, 

advisers may provide clients more 

customized advice or advice that 

benefits from analysis of more 

information (or types of information) on 

a more cost-effective basis than could be 

provided using traditional tools. In 

addition, investment advisers may use 

AI/ML to enhance and expand their 

services, generate investment strategies, 

and expand access to investment 

advice.95 Clients may benefit from 

investment advisers’ ability to use this 

this technology to improve trade 

execution, as well. In addition, AI-based 

tools may substantially enhance 

efficiencies in information processing, 

reducing information asymmetries, and 

contributing to the efficiency and 

stability of markets. 

5. Potential Risks 

At the same time, these developments 

may pose new or different risks to 

clients, including risks presented by 

investment advisers’ reliance on 

technology and any third parties that 

provide or service such technology. For 

example, digital advisers may limit 

clients’ access to human personnel, 

including when clients are considering 

major life changes such as retirement or 

when clients have questions that are 

highly fact-specific. Clients of internet 

investment advisers may have issues 

accessing the interactive websites, 

which can present unique challenges 

when the website is the sole means for 

advice delivery. The quality of the 

investment advice may depend on an 

algorithm that human personnel may 

monitor infrequently, incorrectly or face 

challenges overseeing.96 The use of 


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(Feb. 3, 2011) (settled action); see also In the Matter 

of Barr M. Rosenberg, Advisers Act Release No. 

3285 (Sept. 22, 2011) (settled action) (finding, in 

part, that an adviser breached his fiduciary duty by 

directing others to keep quiet about, and delay 

fixing, a material error in computer code underlying 

his company’s automated model). 

97See Deloitte Report, supra note 77, at 4. 

98See CFA Literature Review, supra note 94, at 

25 (‘‘At the same time, because robo-advisors have 

trade execution services integrated into them, they 

often encourage investors to trade more. This 

increased trading can be both a benefit, in terms of 

encouraging investors to rebalance positions more 

often, and a pitfall, because it can lead to excessive 

trading that benefits robo-advising systems through 

commissions at the expense of investors.’’). 

99See FINRA AI Report, supra note 11, at 14; see 

also Treasury RFI, supra note 11, at 16840 

(‘‘Because the AI algorithm is dependent upon the 

training data, an AI system generally reflects any 

limitations of that dataset. As a result, as with other 

systems, AI may perpetuate or even amplify bias or 

inaccuracies in the training data, or make incorrect 

predictions if that data set is incomplete or nonrepresentative.’’); Jessica Fjeld et al., Principled 

Artificial Intelligence: Mapping Consensus in 

Ethical and Rights-based Approaches to Principles 

for AI 47–49 (Berkman Klein Center for internet & 

Society at Harvard University, Research 

Publication, 2020). 100FSB AI Report, supra note 11, at 1. 

algorithms may be subject to their own 

risks, including risks related to the 

input data (such as a mismatch between 

data used for training the algorithm and 

the actual input data used during 

operations), algorithm design (such as 

flawed assumptions or judgments), and 

output decisions (such as disregard of 

underlying assumptions).97 Digital 

advisers may encourage clients to trade 

more to the extent that the adviser 

integrates trade execution services, 

which may benefit the adviser at the 

expense of the client.98 Depending on 

the quality, recency, and thoroughness 

of a client’s information incorporated 

into an algorithm, as well as how 

broadly client risk tolerances or 

investment goals are generalized by the 

algorithm, the use of algorithms may 

cause some clients to receive investment 

advice that is less individualized than 

they reasonably expect. Similarly, 

clients may face risks when AI/ML 

models use poor quality, inaccurate, or 

biased data that produces outputs that 

are or lead to poor or biased advice. In 

this respect, biased data may be 

incorporated unintentionally through 

use of data sets that include irrelevant 

or outdated information, including 

information that exists due to historical 

practices or outcomes, or through the 

selection by human personnel of the 

data or types of data to be incorporated 

into a particular algorithm.99

To the extent that a third party, rather 

than the investment adviser, develops 

the analytical tools, the adviser may face 

challenges in understanding or 

overseeing those third parties or the 

technology. For example, there may be 

challenges in cases where software or a 

model is based on an approach or 

technology that is proprietary to the 

third party or is hosted by a third party, 

or where the investment adviser’s 

personnel do not have the knowledge or 

experience necessary to understand the 

technology or to challenge its results. 

These circumstances may exacerbate 

exposure of investment advisers and 

their clients to cybersecurity and data 

privacy risks. Further, these risks may 

affect more clients than those posed by 

investment advisers using traditional 

methods because of the scale at which 

investment advisers are able to reach 

clients through digital platforms. 

Clients’ ability to understand these 

and other risks rests on the quality and 

sufficiency of their investment advisers’ 

disclosures, which may be particularly 

important to the extent that these 

developments reflect the use of 

underlying technology that is complex 

or otherwise requires technical 

expertise. Disclosure can put clients in 

a position to understand the different 

roles played by technology and advisory 

personnel in developing the investment 

advice that clients receive. Investment 

advisers may face challenges in 

disclosing sufficiently these types of 

risks where any such disclosure might 

be necessarily technical. 

There may also be systemic risks 

associated with widespread use of AI/ 

ML, including deep learning, supervised 

learning, unsupervised learning, and 

reinforcement learning, which may 

affect the maintenance of fair, orderly, 

and efficient markets. For example, the 

Financial Stability Board has stated that 

‘‘applications of AI and machine 

learning could result in new and 

unexpected forms of interconnectedness 

between financial markets, for instance 

based on the use by various institutions 

of previously unrelated data 

sources.’’ 100 In addition, there could be 

systemic risk to the extent that digital 

advisers employ models (including 

models from third-party model 

providers) that rely on past performance 

and volatility, which could constitute 

input data that is inappropriate for the 

current market. These and other risks 

may continue to grow as the use of AI 

continues to increase among investment 

advisers. 

We request comment on all aspects of 

investment advisers’ use of technology, 

particularly with respect to developing 

and providing investment advice, and 

the potential effect on investor 

protection and regulatory compliance. 

We specifically request comment on the 

following: 

4.1 How do investment advisers 

currently use technology in developing 

and providing investment advice? What 

types of technology do advisers use for 

these purposes? How do investment 

advisers use technology in any 

quantitative investment processes that 

they employ? 

4.2 Are our descriptions of the 

potential benefits and risks of 

investment advisers’ use of technology 

in developing and providing investment 

advice accurate and comprehensive? If 

not, what additional benefits or risks to 

advisory clients are there from such 

use? What additional benefits or risks 

does using these types of technology 

provide to investment advisers? How do 

investment advisers weigh these 

benefits and risks in using technology to 

develop and provide investment advice? 

Does technology enable investment 

advisers to develop investment advice 

in a more cost-effective way and are 

clients able to receive less expensive 

advice as a result? Does technology 

increase access to investment advice for 

some clients who would otherwise not 

afford it or mitigate (or have the 

potential to mitigate) biases in the 

market that may have prevented access 

to some clients or prospective clients? 

Are there risks associated with the 

quality of services clients ultimately 

receive? If so, what are they and how do 

investment advisers address such risks? 

What factors do advisory clients 

consider in choosing to engage a roboadviser rather than a traditional 

investment adviser? In what ways does 

investment advice developed or 

provided by a robo-adviser differ from 

investment advice developed or 

provided by a traditional investment 

adviser? 

4.3 To the extent investment 

advisers use technology in developing 

and providing investment advice, do 

advisers assess whether the technology 

or its underlying models are explainable 

to advisory personnel or to clients? Is 

the technology or underlying model 

explainable? To what extent do 

investment advisers assess whether the 

results are reproducible? If so, are the 

results reproducible? To what extent do 

investment advisers rely on third parties 

to make these assessments? 

4.4 How do investment advisers 

develop, test, deploy, monitor, and 

oversee the technology they use to 

develop and provide investment advice? 

Do investment advisers develop, test, 

and monitor AI/ML models differently 

from how they develop, test, and 

monitor traditional algorithms? How do 

investment advisers assess the effect on 

client accounts of any material change 

to advisers’ technology, algorithm, or 


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model prior to implementation? Do 

investment advisers communicate with 

clients about such material changes? If 

so, how? 

4.5 What, if anything, do investment 

advisers do to understand how AI/ML 

models will operate during periods of 

unusual or volatile market activity or 

other periods where such models may 

have less, or less relevant, input data 

with which to operate? How does the 

use of these models by investment 

advisers affect the market more 

generally? What formal governance 

mechanisms do investment advisers 

have in place for oversight of the 

vendors that create or manage these 

models? 

4.6 How do investment advisers 

disclose the use of algorithms or models 

to their clients, including the role of 

advisory personnel or third parties in 

creating and managing these algorithms 

or models? Do these disclosures address 

any effects that such use may have on 

client outcomes? When investment 

advice is developed and provided 

through an automated algorithm, how 

do advisers disclose the use of that 

automated algorithm? Do investment 

advisers assess how effective these 

disclosures are in informing clients 

about such use? If so, how effective are 

such disclosures? Please provide any 

available data to show how effective 

such disclosures are. What are clients’ 

expectations for investment advice 

produced by an investment adviser’s 

automated algorithm, and how are those 

expectations shaped by investment 

advisers’ disclosures? 

4.7 How do investment advisers 

account for the use of any poor quality, 

inaccurate, or biased data that are used 

by AI/ML models, and how do 

investment advisers determine the effect 

of this kind of data on the algorithms’ 

output or seek to reduce the use of this 

kind of data? To what extent can the use 

of AI/ML models in developing 

investment advice perpetuate social 

biases and disparities? How have 

commenters seen this in practice with 

regard to the use of AI/ML models (e.g., 

through marketing, asset allocation, 

fees, etc.)? To what extent and how do 

investment advisers employ controls to 

identify and mitigate any such biases or 

disparities? For example, do investment 

advisers evaluate the output of their 

models to identify and mitigate biases 

that would raise investor protection 

concerns? Do investment advisers 

utilize human oversight to identify 

biases that would raise investor 

protection concerns, in both the initial 

coding of their models or in the 

resulting output of those models? 

4.8 Are there any particular 

challenges or impediments that 

investment advisers face in using AI/ML 

to develop and provide investment 

advice? If so, what are they and how do 

investment advisers address such 

challenges or impediments and any 

risks associated with them? 

4.9 When relying on AI/ML models 

to develop investment advice, how do 

advisers determine whether those 

models are behaving as expected? How 

do advisers verify the quality of the 

assumptions and methodologies 

incorporated into such models? How 

frequently do advisers test these 

models? For example, do advisers test a 

model each time it is updated? What 

model risk management steps should 

advisers undertake? What is advisers’ 

understanding of their responsibility to 

monitor, test, and verify model outputs? 

How do advisers’ approaches with 

respect to AI/ML models differ from 

other models that advisers may use in 

developing investment advice? 

4.10 In the context of developing 

and providing investment advice, what 

is the objective function of AI/ML 

models (e.g., revenue generation)? What 

are the inputs relied on by AI/ML 

models used in developing and 

providing investment advice (e.g., visual 

cues or feedback)? Does the ability to 

collect individual-specific data impact 

the effectiveness of the AI/ML model in 

maximizing its objective functions? 

4.11 What cybersecurity and data 

security risks result from investment 

advisers’ use of technology in 

developing and providing investment 

advice? How do investment advisers 

address or otherwise manage those risks 

and how do investment advisers 

disclose these risks to clients? Do 

investment advisers believe that 

delivering investment advice through 

email, which may be encrypted, is more 

secure than delivery through online 

client portals? Conversely, do 

investment advisers believe that 

delivery through online client portals is 

more secure? How do investment 

advisers address these concerns when 

clients are using mobile apps? 

4.12 How do investment advisers 

generate records to support the 

investment advice they develop from 

using these types of technology? What 

types of records do they produce and 

how do investment advisers retain 

them? Does an investment adviser’s 

recordkeeping process differ based on 

the type of technology it uses? If so, 

how? 

4.13 Do investment advisers 

generate and retain records with respect 

to the testing of, or due diligence with 

respect to, the technology that they use 

in developing and providing investment 

advice? 

4.14 To what extent do investment 

advisers market the types of technology 

the adviser uses in developing and 

providing investment advice? To the 

extent investment advisers market their 

use of technology, do advisers 

demonstrate that use to clients? To what 

extent do prospective and existing 

clients seek to assess investment 

advisers’ understanding of the 

technology, or seek to understand the 

technology for themselves, in 

determining whether to hire or retain an 

investment adviser? If prospective or 

existing clients make such an 

assessment, how do they do so? 

4.15 How do investment advisers 

disclose the types of technology used in 

developing and providing investment 

advice? What types of potential risks 

and conflicts of interest are disclosed? 

How are fees disclosed? To what extent 

does investment advisers’ use of 

technology produce conflicts of interest 

that are similar to those of investment 

advisers that do not use such 

technologies? To what extent does 

investment advisers’ use of technology 

produce conflicts that result from such 

use? 

4.16 In what ways do investment 

advisers assess whether using these 

types of technology to develop and 

provide investment advice enables them 

to satisfy their fiduciary duty to their 

clients? How do investment advisers 

assess their ability to satisfy their duty 

of care and duty of loyalty when using 

these types of technology? How does an 

investment adviser determine whether 

the advice produced by its automated 

algorithm is in the best interest of a 

particular client? To what extent and 

how often do advisory personnel review 

investment advisers’ algorithms to be 

sure that such advice is in the client’s 

best interest? In conducting such 

review, to what extent do advisory 

personnel understand the algorithm, 

how it was created, and how it operates 

in practice? How do advisers take into 

account their fiduciary duty when 

developing, testing, monitoring, and 

overseeing these types of technology? 

To what extent do investment advisers 

rely on technology vendors or other 

third parties to provide technical 

knowledge so that advisers can 

understand the algorithms and the 

information or analysis they generate? 

When relying on such vendors or third 

parties, how do investment advisers 

assess whether the investment advisers 

are able to satisfy their duty of care and 

duty of loyalty? 

4.17 What types of policies and 

procedures do investment advisers 


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101See, e.g., Sophia Furber, As ‘Big Tech’ 

Dominates Cloud Use for Banks, Regulators May 

Need to Get Tougher, S&P Global (Aug. 18, 2020), 

https://www.spglobal.com/marketintelligence/en/ 

news-insights/latest-news-headlines/as-big-techdominates-cloud-use-for-banks-regulators-mayneed-to-get-tougher-59669007. 

102 Internet Investment Adviser Adopting Release, 

supra note 83, at 77621. 

103 In a wrap fee program, clients generally are 

charged one fee in exchange for investment 

advisory services, the execution of transactions, and 

custody (or safekeeping) as well as other services. 

An adviser acting as a sponsor to such a program 

may choose the service providers, including other 

investment advisers, and provide clients with 

access to those services through internet-based 

platforms that enable clients to engage directly with 

service providers. 

104A model portfolio generally consists of a 

diversified group of assets (often mutual funds or 

ETFs) designed to achieve a particular expected 

return with exposure to corresponding risks that are 

rebalanced over time. See Morningstar, 2020 Model 

Portfolio Landscape (2020) (noting that, while 

models can focus on a single asset class, most 

models combine multiple asset classes). Model 

portfolios are distinct from portfolio allocation 

models, which can be educational tools that 

investors use to obtain a general sense of which 

asset classes (as opposed to which specific 

securities) are appropriate for the investor to 

allocate its assets to (e.g., appropriate balance of 

equities, fixed income, and other assets given age 

and other facts and circumstances). 

105See generally Securities and Exchange 

Commission, Division of Examinations, Risk Alert: 

Observations from Examinations of Investment 

Advisers Managing Client Accounts That 

Participate in Wrap Fee Programs (July 21, 2021), 

at 4 (‘‘Infrequent trading in wrap fee accounts was 

also identified at several examined advisers, raising 

concerns that clients whose wrap fee accounts are 

managed by portfolio managers with low trading 

activity are paying higher total fees and costs than 

they would in non-wrap fee accounts.’’), https://

www.sec.gov/files/wrap-fee-programs-risk-alert_

0.pdf. The Risk Alert represents the views of the 

staff of the Division of Examinations. It is not a rule, 

regulation, or statement of the Commission. The 

Commission has neither approved nor disapproved 

its content. The Risk Alert, like all staff statements, 

has no legal force or effect: It does not alter or 

maintain with respect to the 

technologies they use in developing and 

providing investment advice to clients? 

For example, do these investment 

advisers maintain policies and 

procedures under rule 206(4)–7 of the 

Advisers Act that are designed to 

address the technologies that they use or 

provide to clients? How do investment 

advisers’ policies and procedures 

address their use of technology and the 

duties they owe their clients? Do they 

address how advisers determine how to 

incorporate information or analysis 

developed by these types of 

technologies into investment advice that 

satisfies their fiduciary duty? If so, how? 

How do investment advisers introduce 

new technology to their personnel? 

4.18 What types of operational risks 

do investment advisers face using 

digital platforms to interact with 

clients? How do investment advisers 

interact with clients when the platform 

is unavailable—for example, when the 

adviser has lost internet service or when 

the platform is undergoing 

maintenance? What alternative means of 

communication are available to clients 

during those times? When issues arise, 

is the investment adviser responsible to 

the client for resolving those issues, or 

does the investment adviser rely on 

others to resolve the issues or to be 

responsible to the client? What terms of 

service do investment advisers put in 

place with cloud service providers in 

connection with the potential for loss of 

service or loss of data? We understand 

that investment advisers, like other 

financial services companies, may rely 

on a small number of cloud service 

providers.101 What risks does this 

reliance present to the industry (and 

advisory clients)? 

4.19 Under what circumstances do 

robo-advisers typically override their 

algorithm, and in what ways? What 

steps do robo-advisers take to ensure 

that any override of the algorithm is 

consistent with the adviser’s disclosure 

and clients’ best interest? Do roboadvisers document their determinations 

to override the algorithm and, if so, 

what specifically is documented? What 

have robo-advisers found to be the 

outcomes from overriding an algorithm? 

4.20 When evaluating digital 

platforms, how do investment advisers 

weigh the platform’s cost and quality of 

service? 

4.21 Should the Commission 

consider amending Form ADV to collect 

information about the types of 

technology that advisers use to develop 

and provide investment advice? If so, 

what type of technology and why? What 

information about technology should we 

consider collecting? Should the 

Commission require investment 

advisers to describe their efforts to 

monitor the outputs of technology upon 

which they rely? Should the 

Commission consider another method of 

collecting this information? 

4.22 What costs or benefits do 

investment advisers experience in 

registering with the Commission under 

the exemption for internet investment 

advisers? What costs or benefits do 

clients of internet investment advisers 

experience as compared to clients of 

other investment advisers registered 

with the Commission? Do commenters 

believe that the exemption for internet 

investment advisers should be updated 

in any way, including to facilitate its 

use or to modernize it? Are its 

conditions appropriate? Should we 

consider changes to, for example, the de 

minimis exception for non-internet 

clients or the recordkeeping 

requirement? Should we consider 

changes to the exemption’s definition of 

‘‘interactive website’’? Should the 

exemption specify what it means to 

provide investment advice 

‘‘exclusively’’ through the interactive 

website? Would additional guidance on 

any of the exemption’s conditions or 

definitions be useful? 

4.23 The Commission has stated that 

an investment adviser relying on the 

internet investment adviser exemption 

‘‘may not use its advisory personnel to 

elaborate or expand upon the 

investment advice provided by its 

interactive website, or otherwise 

provide investment advice to its internet 

clients.’’ 102 Should the Commission 

consider eliminating or modifying this 

language? Should the Commission 

consider changes to the exemption that 

reflect or otherwise address this 

language? Should the Commission 

provide additional guidance about the 

internet investment adviser exemption? 

4.24 As discussed above, the 

Commission acknowledged that the 

internet investment adviser exemption 

was designed to balance these advisers’ 

multiple state registration requirements 

with the Advisers Act’s allocation of 

responsibility for regulating smaller 

advisers to state securities authorities. 

Consistent with this design, are there 

changes to the exemption that might 

help to ensure that it encompasses those 

investment advisers that provide advice 

through the internet while ensuring that 

advisers that use the internet only as a 

marketing tool, for example, remain 

subject to state registration? Should the 

Commission consider creating a 

registration exemption that reflects 

investment advisers’ current use of 

technology in providing investment 

advice in a better way than the internet 

investment adviser exemption? 

4.25 To what extent do investment 

advisers use digital platforms and other 

analytical tools in connection with wrap 

fee programs? 103 For example, do these 

programs use model portfolios or 

portfolio allocation models (whether 

developed by the investment adviser or 

by a third party that provides such 

models to the adviser for its use) to 

recommend investor allocations? 104 Do 

wrap fee programs with an online 

presence allow clients to engage directly 

with the portfolio manager managing 

the client’s assets or provide access to 

a wider array of service providers than 

the client might otherwise have? Are 

there concerns with respect to these 

programs for clients with minimal or no 

trading activity as commissions for trade 

execution have moved toward zero? 105


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amend applicable law, and it creates no new or 

additional obligations for any person. 

106See 17 CFR 270.3a–4. Certain discretionary 

investment advisory programs may meet the 

definition of ‘‘investment company’’ under the 

Investment Company Act, but the Commission has 

indicated that investment advisory programs that 

provide each client with individualized treatment 

and the ability to maintain indicia of ownership of 

the securities in their accounts are not investment 

companies. Whether such a program is an 

investment company is a factual determination and 

depends on whether the program is an issuer of 

securities under the Investment Company Act and 

the Securities Act. Rule 3a–4 under the Investment 

Company Act provides a non-exclusive safe harbor 

from the definition of ‘‘investment company’’ to 

investment advisory programs that are organized 

and operated in the manner provided in the rule. 

A note to the rule also states that there is no 

registration requirement under Section 5 of the 

Securities Act for programs that rely on the rule, 

and that the rule is not intended to create any 

presumption about a program that does not meet 

the rule’s provisions. 

107See Status of Investment Advisory Programs 

under the Investment Company Act of 1940, 

Investment Company Act Rel. No. 21260 (July 27, 

1995), 60 FR 39574 (Aug. 2, 1995). The Commission 

also stated that to fulfill its duty to provide only 

suitable investment advice, ‘‘an investment adviser 

must make a reasonable determination that the 

investment advice provided is suitable for the client 

based on the client’s financial situation and 

investment objectives. The adviser’s use of a model 

to manage client accounts would not alter this 

obligation in any way.’’ See Status of Investment 

Advisory Programs under the Investment Company 

Act of 1940, Investment Company Act Rel. No. 

22579 (Mar. 24, 1997), 62 FR 15098 (Mar. 31, 1997). 

Are such concerns different for wrap fee 

programs sponsored by robo-advisers as 

compared to those sponsored by 

traditional investment advisers? 

4.26 To what extent do roboadvisers (as well as other sponsors of 

investment advisory programs) rely on 

Rule 3a–4 to determine that they are not 

sponsoring or otherwise operating 

investment companies under the 

Investment Company Act of 1940 (the 

‘‘Investment Company Act’’)? 106 If such 

sponsors do not rely on the rule, what 

policies and practices have sponsors 

adopted to prevent their investment 

advisory programs from being deemed 

to be investment companies? 

4.27 To satisfy the conditions of 

Rule 3a–4, among other things, a 

sponsor and personnel of the manager of 

the client’s account who are 

knowledgeable about the account and 

its management must be reasonably 

available to the client for consultation. 

The rule does not dictate the manner in 

which such consultation with clients 

should occur. How do sponsors and 

other advisers satisfy this condition? 

Should we consider amending Rule 3a– 

4 to address technological 

developments, such as chatbots and/or 

other responsive technologies providing 

novel ways of interacting with clients? 

Should the Commission address these 

developments in some other way? 

Should the Commission provide 

additional guidance about this 

condition? If yes, what specifically 

should this guidance address? 

4.28 To satisfy the conditions of 

Rule 3a–4, among other things, each 

client’s account must be managed on the 

basis of the client’s financial situation 

and investment objectives. Sponsors 

must obtain information from each 

client about their financial situation and 

investment objectives at account 

opening and must contact each client at 

least annually thereafter to determine 

whether there have been any changes in 

the client’s financial situation or 

investment objectives. The Commission 

stated that the receipt of individualized 

advice is ‘‘one of the key differences 

between clients of investment advisers 

and investors in investment 

companies.’’ 107 How do sponsors 

ensure that they have sufficient 

information about a client’s financial 

situation and investment objectives to 

provide investment advice that is in the 

best interest of the client, including 

advice that is suitable for the client? 

Given the availability of new technology 

for developing and providing 

investment advice, does a sponsor’s 

reliance on Rule 3a–4 heighten the risk 

of clients receiving unsuitable advice? If 

so, are there other requirements or 

conditions that might address this risk? 

4.29 One of the conditions of Rule 

3a–4 is that investment advisory 

programs relying on the rule be 

managed in accordance with any 

reasonable restrictions imposed by the 

client on the management of the client’s 

account. In addition, the client must 

have the opportunity to impose 

reasonable restrictions at the time the 

account is opened and must be asked at 

least annually whether the client might 

wish to impose any reasonable 

restrictions or reasonably modify 

existing restrictions. The Commission 

explained that the ability of a client to 

impose reasonable restrictions on the 

management of a client account is a 

critical difference between a client 

receiving investment advisory services 

and an investor in an investment 

company. Since the rule was adopted, 

enhanced technological capabilities and 

industry practices may have made it 

practical for sponsors to provide clients 

with other means of receiving 

meaningful individualized treatment 

regarding the management of their 

accounts. Do sponsors of investment 

advisory programs currently provide 

their clients with ways of customizing 

or personalizing their accounts other 

than through the imposition of 

reasonable restrictions? If yes, please 

provide examples of such practices. To 

what extent do clients avail themselves 

of those options for individualized 

treatment and do they find them to be 

valuable or important? Should we 

consider amending Rule 3a–4 to address 

these developments or should we 

address them in some other way, such 

as by providing additional guidance 

about this condition? 

4.30 In view of the variety and 

increasing availability of technologies 

used by investment advisers to develop 

and provide investment advice, are 

there other regulatory matters that the 

Commission should consider? If so, 

what are they, and why? To the extent 

commenters recommend any 

modifications to existing regulations or 

additional regulations, what economic 

costs and benefits do commenters 

believe would result from their 

recommendations? Please provide or 

identify any relevant data and other 

information. 

IV. General Request for Comment 

This Request is not intended to limit 

the scope of comments, views, issues, or 

approaches to be considered. In 

addition to broker-dealers, investment 

advisers and investors, we welcome 

comment from other interested parties, 

researchers and particularly welcome 

statistical, empirical, and other data 

from commenters that may support their 

views or support or refute the views or 

issues raised by other commenters. 

By the Commission. 

Dated: August 27, 2021. 

Vanessa A. Countryman, 

Secretary. 

Appendix A—Tell Us About Your 

Experiences With Online Trading and 

Investment Platforms 

We’re asking individual investors like you 

what you think about online trading or 

investment platforms such as websites and 

mobile applications (‘‘apps’’). It’s important 

to us at the SEC to hear from investors who 

trade and invest this way so we can 

understand your experiences. 

Please take a few minutes to answer any or 

all of these questions. Please provide your 

comments on or before October 1, 2021—and 

thank you for your feedback! 

1. Do you have one or more online trading 

or investment accounts? 

Æ Yes, I have one or more accounts that I 

access online using a computer. 

Æ Yes, I have one or more accounts that I 

access using a mobile app. 

Æ Yes, I have one or more accounts that I 

access both online using a computer and 

using a mobile app. 

Æ Yes, I have one or more accounts that I 

access online, either using a computer or 

a mobile app, but I also access the 

account(s) in other ways (e.g., by calling or 

visiting in person). 


khammond on DSKJM1Z7X2PROD with NOTICES
49086 Federal Register / Vol. 86, No. 167 / Wednesday, September 1, 2021 / Notices 

Æ I have one or more accounts, but I do not 

access them online using a computer or 

using a mobile app. 

Æ No, I don’t have a trading or investment 

account. 

2. If your response to Question 1 is ‘‘Yes’’, 

do you think you would trade or invest if you 

could not do so online using a computer or 

using a mobile app? 

Æ Yes 

Æ No 

3. On average, how often do you access 

your online account? 

Æ Daily/more than once a day 

Æ Once to a few times a week 

Æ Once to a few times per month 

Æ Less often than once a month 

Æ Never 

Æ Other 

If Other, Explain: 

4. On average, how often are trades made 

in your online account, whether by you or 

someone else? 

Æ Daily/more than once a day 

Æ Once to a few times a week 

Æ Once to a few times per month 

Æ Less often than once a month 

Æ Never 

Æ Other 

If Other, Explain: 

5. If you access your account online, did 

you have the account first, and only began to 

access it electronically later? Or did you open 

the account with the idea that you would 

access it electronically immediately? 

Æ I had a pre-existing account and 

downloaded an app or visited a website to 

access my account. 

Æ I downloaded an app or visited a website 

first, and then opened up an account with 

the company. 

6. My goals for trading or investing in my 

online account are (check all that apply): 

b Keep the amount of money I have, while 

keeping up with inflation 

b Save and grow my money for short-term 

goals (in the next year or two) 

b Save and grow my money for medium- to 

long-term goals 

b Have fun 

b Other 

If Other, Explain: 

7. What would you like us to know about 

your experience with the features of your 

online trading or investment platform? 

(Examples of features are: Social networking 

tools; games, streaks, or contests with prizes; 

points, badges, and leaderboards; 

notifications; celebrations for trading; visual 

cues, like changing colors; ideas presented at 

order placement or other curated lists or 

features; subscription and membership tiers; 

or chatbots.) 

8. If you were trading or investing prior to 

using an online account, how have your 

investing and trading behaviors changed 

since you started using your online account? 

(For example, the amount of money you have 

invested, your interest in learning about 

investing and saving for retirement, the 

amount of time you have spent trading, your 

knowledge of financial products, the number 

of trades you have made, the amount of 

money you have made in trading, your 

knowledge of the markets, the number of 

different types of financial products you have 

traded, or your use of margin.) 

9. How much experience do you have 

trading or investing in the following products 

(None, Less than 12 months, 1–2 years, 2–5 

years, 5+ years): 

Investment products None Less than 12 

months 1–2 years 2–5 years 5+ years 

Stocks .................................................................................. Æ Æ Æ Æ Æ 

Bonds ................................................................................... Æ Æ Æ Æ Æ 

Options ................................................................................. Æ Æ Æ Æ Æ 

Mutual Funds ....................................................................... Æ Æ Æ Æ Æ 

ETFs ..................................................................................... Æ Æ Æ Æ Æ 

Futures ................................................................................. Æ Æ Æ Æ Æ 

Cryptocurrencies .................................................................. Æ Æ Æ Æ Æ 

Commodities ........................................................................ Æ Æ Æ Æ Æ 

Closed-End Funds ............................................................... Æ Æ Æ Æ Æ 

Money Market Funds ........................................................... Æ Æ Æ Æ Æ 

Variable Insurance Products ................................................ Æ Æ Æ Æ Æ 

Business Development Companies ..................................... Æ Æ Æ Æ Æ 

Unit Investment Trusts ......................................................... Æ Æ Æ Æ Æ 

10. What is your understanding, if any, of 

the circumstances under which trading or 

investing in your account can be suspended 

or restricted? 

11. What else would you like us to know— 

positive or negative—about your experience 

with online trading and investing? 

Other Ways to Submit Your Feedback 

You also can send us feedback in the 

following ways (include the file number S7– 

10–21 in your response): 

Print Your Responses and Mail 

Secretary 

Securities and Exchange Commission 

100 F Street NE 

Washington, DC 20549–1090 

Print a PDF of Your Responses and Email 

Use the printer-friendly page and select a 

PDF printer to create a file you can email 

to: rule-comments@sec.gov 

Print a Blank Copy of this Flyer, Fill it Out, 

and Mail 

Secretary 

Securities and Exchange Commission 

100 F Street NE 

Washington, DC 20549–1090 

Contact Info (Not Required; to submit 

anonymously, leave blank) 

First Name: lllllllllllllll

Last Name: lllllllllllllll

We will post your feedback on our website. 

Your submission will be posted without 

change; we do not redact or edit personal 

identifying information from submissions. 

You should only make submissions that you 

wish to make available publicly. 


khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 86, No. 167 / Wednesday, September 1, 2021 / Notices 49087 

If you are interested in more information 

on the proposal, or want to provide feedback 

on additional questions, click here. 

Comments should be received on or before 

October 1, 2021. 

Thank you! 

[FR Doc. 2021–18901 Filed 8–31–21; 8:45 am] 

BILLING CODE P 

SMALL BUSINESS ADMINISTRATION 

Change to SBA Secondary Market 

Program 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Notice of change to secondary 

market program. 

SUMMARY: The purpose of this Notice is 

to inform the public that the Small 

Business Administration (SBA) is 

making a change to its Secondary 

Market Loan Pooling Program. SBA is 

increasing the minimum maturity ratio 

for both SBA Standard Pools and 

Weighted-Average Coupon (WAC) Pools 

by 400 basis points, to 93.0%. The 

change described in this Notice is being 

made to cover the estimated cost of the 

timely payment guaranty for newly 

formed SBA 7(a) loan pools. This 

change will be incorporated, as needed, 

into the SBA Secondary Market Program 

Guide and all other appropriate SBA 

Secondary Market documents. 

DATES: This change will apply to SBA 

7(a) loan pools with an issue date on or 

after October 1, 2021. 

ADDRESSES: Address comments 

concerning this Notice to John M. Wade, 

Chief Secondary Market Division, U.S. 

Small Business Administration, 409 3rd 

Street SW, Washington, DC 20416; or 

john.wade@sba.gov. 

FOR FURTHER INFORMATION CONTACT: John 

M. Wade, Chief, Secondary Market 

Division at 202–205–3647; or 

john.wade@sba.gov. 

SUPPLEMENTARY INFORMATION: The 

Secondary Market Improvements Act of 

1984, 15 U.S.C. 634(f) through (h), 

authorized SBA to guarantee the timely 

payment of principal and interest on 

Pool Certificates. A Pool Certificate 

represents a fractional undivided 

interest in a ‘‘Pool,’’ which is an 

aggregation of SBA guaranteed portions 

of loans made by SBA Lenders under 

section 7(a) of the Small Business Act, 

15 U.S.C. 636(a). In order to support the 

timely payment guaranty requirement, 

SBA established the Master Reserve 

Fund (MRF), which serves as a 

mechanism to cover the cost of SBA’s 

timely payment guaranty. Borrower 

payments on the guaranteed portions of 

pooled loans, as well as SBA guaranty 

payments on defaulted pooled loans, are 

deposited into the MRF. Funds are held 

in the MRF until distributions are made 

to investors (Registered Holders) of Pool 

Certificates. The interest earned on the 

borrower payments and the SBA 

guaranty payments deposited into the 

MRF supports the timely payments 

made to Registered Holders. 

From time to time, SBA provides 

guidance to SBA Pool Assemblers on 

the required loan and pool 

characteristics necessary to form a Pool. 

These characteristics include, among 

other things, the minimum number of 

guaranteed portions of loans required to 

form a Pool, the allowable difference 

between the highest and lowest gross 

and net note rates of the guaranteed 

portions of loans in a Pool, and the 

minimum maturity ratio of the 

guaranteed portions of loans in a Pool. 

The minimum maturity ratio is equal to 

the ratio of the shortest and the longest 

remaining term to maturity of the 

guaranteed portions of loans in a Pool. 

Based on SBA’s expectations as to the 

performance of future Pools, SBA has 

determined that for pools formed on or 

after October 1, 2021, SBA Pool 

Assemblers may decrease the difference 

between the shortest and the longest 

remaining term of the guaranteed 

portions of loans in a Pool by 4 

percentage points (i.e., increasing the 

minimum maturity ratio by 400 basis 

points). SBA does not expect a 4 

percentage point increase in the 

minimum maturity ratio to have an 

adverse impact on either the program or 

the participants in the program. 

Therefore, effective October 1, 2021, all 

guaranteed portions of loans in 

Standard Pools and WAC Pools 

presented for settlement with SBA’s 

Fiscal Transfer Agent will be required to 

have a minimum maturity ratio of at 

least 93.0%. SBA is making this change 

pursuant to Section 5(g)(2) of the Small 

Business Act, 15 U.S.C. 634(g)(2). 

SBA will continue to monitor loan 

and pool characteristics and will 

provide notification of additional 

changes as necessary. It is important to 

note that there is no change to SBA’s 

obligation to honor its guaranty of the 

amounts owed to Registered Holders of 

Pool Certificates and that such guaranty 

continues to be backed by the full faith 

and credit of the United States. 

This program change will be 

incorporated as necessary into SBA’s 

Secondary Market Guide and all other 

appropriate SBA Secondary Market 

documents. As indicated above, this 

change will be effective for Standard 

Pools and WAC Pools with an issue date 

on or after October 1, 2021. 

John M. Wade, 

Chief, Secondary Market Division, Office of 

Capital Access. 

[FR Doc. 2021–18858 Filed 8–31–21; 8:45 am] 

BILLING CODE P 

SMALL BUSINESS ADMINISTRATION 

SBIC Licensing and Examination Fees 

Inflation Adjustment 

AGENCY: U.S. Small Business 

Administration. 

ACTION: Notice of SBIC fee increases. 

SUMMARY: The U.S. Small Business 

Administration (SBA) is providing 

notice of the increased licensing and 

examination fees charged to Small 

Business Investment Companies (SBICs) 

due to the annual inflation adjustment 

required under SBIC program 

regulations. 

DATES: The changes to the SBIC program 

licensing and examination fees 

identified in this notice take effect on 

October 1, 2021. 

FOR FURTHER INFORMATION CONTACT: 

Steve Knott, Office of Investment and 

Innovation, at 202–205–7731 or 

steve.knott@sba.gov. 

SUPPLEMENTARY INFORMATION: Beginning 

October 1, 2021, the SBIC program 

regulations at 13 CFR 107.300(b)(2) and 

107.692(b)(2) require SBA to annually 

adjust the licensing and examination 

fees for SBICs using the Inflation 

Adjustment defined in 13 CFR 107.50. 

This document provides notice of that 

adjustment. The table below identifies 

the amounts of the adjusted licensing 

and examination fees payable by SBICs 

and SBIC license applicants, which 

become effective on October 1, 2021. 

SBIC fee type 

Fees amounts 

(effective 

Oct. 1, 2021) 

Licensing Fees (§ 107.300) 

Initial Licensing Fee 

§ 107.300(a) ...................... $10,500 

Final Licensing Fee 

§ 107.300(b) ...................... 36,900 

Examination Fees (§ 107.692(b)) 

Minimum Base Fee .............. 9,500 

Maximum Base Fee for nonLeveraged SBICs .............. 31,600 

Maximum Base Fee for Leveraged SBICs .................. 46,400 


khammond on DSKJM1Z7X2PROD with NOTICES