Prepared Remarks before the Investor Advisory Committee

Good morning. I am pleased to speak with the Investor Advisory Committee. As is customary, I’d like to note that my views are my own as Chair of the Securities and Exchange Commission, and I am not speaking on behalf of my fellow Commissioners or the staff.

This Investment Advisory Committee is meeting on the 90^th anniversary of the agency’s founding. How appropriate, given the words of our third Chair, William O. Douglas: “We are the investors’ advocate.”[1]

I understand that your panel discussions today will focus on how technology is changing investment advice, as well as artificial intelligence in the financial sector. The Committee also will discuss potential recommendations to enhance both financial literacy and protections for self-directed investors.

Investors today can get information from more sources than ever before. They can share advice peer-to-peer via new social media platforms, as well as Reddit communities and YouTube channels. This has brought new voices and new research into the field, providing information to everyday investors.

At the same time, however, it's important to remember that market participants still need to comply with our time-tested laws. Those who promote the offer and sale of securities cannot mislead or defraud the public. Further, if you take money to promote a security, you must disclose that you have received consideration for the promotion, as well as the amount of such consideration.[2]

While today marks the 90th anniversary of the 1934 Securities and Exchange Act, a year before Congress enacted the Securities Act of 1933, which included important provisions protecting the public against fraud and touting of securities. Interesting to me, fraud and touting were included in the same section 17.

At the time, investors would assume that the information they were following on newspapers and tipsheets were independent and unbiased—when in fact, it was bought and paid for.[3]

With section 17, Congress drew an important distinction between the sale and offering of securities and other products in the market. The focus is just as applicable today, with celebrities and finfluencers using social media to endorse financial products and share advice. Just as importantly, I’d like to remind the everyday investors tuning in: A celebrity’s endorsement doesn’t necessarily mean that an investment product is right for you—or even, frankly, that it’s legitimate.

I also encourage investors to recognize various conflicts of interest that could impact your decision-making. Please check out our educational resources and tools to help you in your journey at SEC.gov and Investor.gov.

Regarding artificial intelligence, it’s already transforming much of finance—from call centers and claims processing to making predictions about markets, loans, or credit.

When it comes to robo-advising and brokerage apps, companies can use this technology to make predictions about our behaviors in response to targeted messages, pricing, and products. It’s important to recognize, however, that an AI model’s optimization function may incorporate conflicts of interest between the platform and its customers.

When brokers or advisers act on those conflicts and place their interests ahead of their investors’ interests, those investors may suffer financial harm.

Given that firms are automating human decision making, these challenges hold significant weight in the $110 trillion capital markets we oversee. That's why we proposed a rule regarding potential conflicts in the use of predictive data analytics.[4] Having received robust comments from the public and this Committee, I've asked staff to continue to consider best next steps.

Further, bad actors are finding new ways to exploit AI and deceive the public. Make no mistake: fraud is fraud. The SEC is focused on identifying and prosecuting any form of fraud that might threaten investors, capital formation, or the markets more broadly.

Lastly, as someone who researched the application of AI at MIT, I’ll be the first to say how exciting the field is. I’ll remind everyone that investment advisers and broker dealers might want to tap into your excitement by suggesting they're using this new technology to help you get a better return. Under the securities laws, firms should have a reasonable basis for those claims—and they should communicate full and truthful disclosure about the associated risks.

Investment advisers or broker-dealers also should not mislead the public by saying they are using an AI model when they are not, nor say they are using an AI model in a particular way but not do so. Such AI washing, whether it’s by companies raising money or financial intermediaries, such as investment advisers and broker-dealers, may violate the securities laws.

I understand you're also discussing recommendations to the SEC on financial literacy and protections for self-directed investors. I look forward to the Committee’s thoughts on these matters.

Thank you.