The president of zero-commission brokerage Robinhood Financial is warning the Securities and Exchange Commission that any attempts to limit the types of digital engagement practices used by the firm and other players in the brokerage space use could prevent many new investors from participating in the markets — and could be a violation of free speech.

In August, the SEC put out a request for comment on the use of digital engagement practices such as behavioral prompts, differential marketing, game-like features or gamification, and other features designed to engage retail investors, as reported.

At the time, SEC chair Gary Gensler said some of these features “may encourage investors to trade more often, invest in different products, or change their investment strategy.”

“Predictive analytics and other DEPs often are designed with an optimization function to increase revenues, data collection, or customer time spent on the platform. This may lead to conflicts between the platform and investors,” he said at the time.

In response to the SEC’s request for comment, Robinhood president David Dusseault argues that the firm has democratized investing and “opened the markets to tens of millions of retail investors from all backgrounds” because its mission has been to “shrink the investment gap and wealth disparity.”

In his letter to the regulator, Dusseault also writes that the brokerage doesn’t use predictive analytics to make recommendations nor targets users to induce trading, but rather allows users to subscribe to notifications that aggregate information that’s simply presented, making it more accessible to a broader range of investors.

“Our rapid growth proves that retail investors find our mobile app and website helpful and user-friendly; and our customers were waiting for the right platform to help them access and understand the markets,” he wrote, adding that the firm had more than 22 million funded customer accounts as of the end of June and that more than half of its customers say they’re new to investing.

The SEC’s inquiry into digital engagement, meanwhile, could help maintain the status quo that Robinhood seeks to undermine, according to Dusseault.

“Now that technology has created cost-effective ways for brokers to engage customers who have been historically underserved and/or who cannot afford to pay investment professionals, we fear that at the heart of the Commission’s inquiry is a paternalistic view that these ‘have nots’ simply cannot be trusted to make rational decisions to engage in self-directed trading when presented with the types of information and engagement that have benefited the ‘haves’ for generations,” he wrote.

Moreover, Dusseault warns that changes to how the SEC treats digital platforms are likely to be met with vigorous resistance, including on the grounds that new rules could be violations of the First Amendment.

“Whether through words or other modes of communication such as animation and graphics, [digital engagement] practices convey ideas and information and thus constitute speech entitled to First Amendment protection,” he wrote. “An effort to regulate digital engagement practices based on their communicative content would therefore face strict First Amendment scrutiny — which regulations rarely survive.”

Robinhood’s stance that any further regulation of digital engagement practices could push away new investors was echoed in comment letters from other industry players, including TIAA, Morningstar, Envestnet, Yieldstreet and Fidelity, according to FA-IQ sister publication Ignites.

Aron Szapiro, Morningstar’s head of retirement studies and public policy, argued that any digital engagement practices engaging more people to save for retirement should be encouraged, according to the publication.

Moreover, new rules aren’t needed because the SEC’s Regulation Best Interest as well as rules from the Financial Industry Regulatory Authority already address algorithmic communication and design elements of digital investment platforms, wrote David Forman, Fidelity’s chief legal officer, according to Ignites.

Any new regulations that the SEC does decide to implement should be technology-neutral, and no specific practice should be outlawed, according to Ivor Wolk, general counsel at Yieldstreet, the publication writes.

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