The OSC found some push notifications and rewards programs used promotional or unsubstantiated language to encourage trading.vgajic/iStockPhoto / Getty Images
With stock markets at all-time highs and investors worried about missing out on surging assets, some online investment platforms are encouraging behaviour that regulators warn isn’t good for investors.
The Ontario Securities Commission (OSC) released a staff notice last week detailing a compliance review of the methods online investing platforms use to engage with investors. These include behavioural techniques and “gamification” elements used by some online brokers, robo-advice and crypto platforms.
The OSC’s sweep identified notifications that “appeared to be designed to promote specific assets or encourage trading by creating a ‘fear of missing out’ and/or herding effect,” the notice said.
The regulator found that some push notifications and rewards programs used promotional or unsubstantiated language to encourage trading, leading clients to take on additional risks and pay fees for trades they may not have otherwise made.
For example, the regulator flagged messages encouraging investors to “buy the dip” on days when markets wobbled, or promoting assets that are “pushing higher.” Some notifications that highlighted specific assets also showed the percentage of other clients trading those assets.
The notice also said some platforms used messages targeting clients who trade infrequently, urging them to trade in a particular asset or market trend.
The S&P 500 is at an all-time high, while the S&P/TSX Composite is only slightly off its all-time high reached earlier this month. Gold, meanwhile, has gained more than 50 per cent this year, and bitcoin is up more than 20 per cent. As a result, retail investors have been pouring money into markets, with exchange-traded funds already breaking previous records for annual flows.
The OSC notice comes amid consultations about the role of advice in the online brokerage channel and various studies about the impact of “gamification” and “finfluencers” on investors.
With more investors using online brokerages, advisors should be aware of potential competing influences on clients’ investment decisions. A recent survey from the Securities and Investment Management Association found that 38 per cent of investors have an online brokerage account, while the Canadian Securities Administrators’ 2024 Investor Index put that figure even higher, at 45 per cent.
The OSC notice follows the Canadian Investment Regulatory Organization’s (CIRO) move to give order-execution-only dealers the go-ahead to offer more educational resources to do-it-yourself investors, including alerts, self-assessment tools and sample portfolios.
CIRO’s proposed guidance – released in August and out for consultation until Nov. 10 – narrows the definition of what constitutes a recommendation and allows online brokers to provide “decision-making supports.”
Research from CIRO’s investor office found many DIY investors are open to additional tools through their online platform, including news, educational resources and customizable notifications.
According to SIMA’s survey, DIY investors find several tools from online brokerages useful, including alerts or notifications about market changes and tools that suggest potential investments based on their goals.
Online platforms issuing recommendations outside their registration terms or without assessing an individual client’s suitability remains a thorny issue.
The OSC notice warned that communications linked to specific products or used to influence investment decisions could amount to providing a recommendation or advice.
The sweep examined 13 firms and led to some revising their digital engagement and establishing new controls, the OSC said.
The provincial regulator also highlighted the benefits of digital engagement. Notifications or design elements that remind clients about their savings goals or contributions were a positive development, it said, as were reminders promoting account security.