Digital Engagement Practices in Retail Investing

DIGITAL ENGAGEMENT IN RETAIL INVESTING

The digital transformation of advisory services has been met with varying success rates. The key takeaway is that automation alone isn’t enough—human encouragement remains crucial. Financial institutions now prioritize enhancing the online investor experience to convert casual banking clients into savvy investors.

Gamification and behavioral engagement techniques have emerged as powerful tools in the banker’s arsenal. These strategies are not just noticed by the industry but also by regulators. Their impact on investment decisions, advice quality, and financial goals was thoroughly discussed during the webinar, highlighting what works and what needs rethinking.

Jurgen Vandenbroucke from everyoneINVESTED emphasized the relevance of choice architecture—how presenting situations to clients can encourage desired outcomes or discourage undesired ones. He connected this to European regulatory initiatives, stressing its timely importance in the retail investment space.

THE POWER OF GAMIFICATION AND BEHAVIORAL TECHNIQUES

Matthew Kan from the Ontario Securities Commission (OSC) brought his expertise in behavioral science to the fore. He reviewed the use of Digital Engagement Practices (DEPs), including gamification and dark patterns, in retail investment platforms. He covered how these platforms have grown and the investor protection concerns they raise due to their potential to positively and negatively impact investor outcomes.

Gamification can encourage participation and learning but may increase trading frequency and risk-taking if not designed thoughtfully. The OSC has studied gamification and dark patterns, employing behavioral science insights to understand how they influence behavior.

He delved into the pros and cons of various gamification techniques, such as gamblification, leaderboards, rewards, goal and progress framing, and feedback, and how they can encourage or discourage certain investor behaviors. Similarly, he examined other behavioral techniques like salient prompts, selective simplification, social interactions, and the use of social norms.

EXPERIMENT AND FINDINGS

He zoomed in on an experiment involving a simulated trading environment. It revealed that points and top-traded lists could increase trade volume and herding behavior. This underscores the need for careful application of engagement techniques.

FUTURE FOCUS ON DARK PATTERNS

Matthew also gave us a sneak preview of an upcoming report on dark patterns and their potential to manipulate investor behavior and decision-making, highlighting some techniques like intermediate currency, sensory manipulation, scarcity claims, and hidden fees.

He called for a balanced approach to gamification in financial platforms, considering investor protection and engagement. While DEPs can enhance user engagement, they must be designed thoughtfully to benefit investors without leading to negative consequences like increased trading frequency or risk-taking. The field is evolving, and ongoing research is vital to promote beneficial practices and curb harmful ones.

REPLAY

For those who missed the live session or wish to enter the discussion, watch the session Digital Engagement Practices in Retail Investing, on demand. The replay is available at everyoneinvested.com/webinars.