Episode 396: Theresa Ebden - Protecting Investors at the OSC

28:34We have to figure out how to do that. It's inevitable because when you can be impersonated perfectly with AI, it's just really scary. The thing with the trusted contact person, you self-select that. You, the investor, have the control to appoint your trusted contact person. So should your advisor or your financial provider think something may be amiss or you at a point in time where maybe you've had an accident or some other reason for cognitive decline, if unusual activity is happening on the account, it just gives the organization the ability to call someone and say, we've noticed these things and slow it down a bit.

29:13in a nutshell. That's oversimplifying it, but yes, it's absolutely. And you know, we're finding that people do sign up for it when they're made aware of it. There just needs to be more education on it, even younger people. You alluded to Finfluencers earlier. Can you describe what a Finfluencer is? In a way, you could almost say that you're a Finfluencer, right? A Finfluencer is not a bad thing at all. It's a good thing. I've been wondering if I was a Finfluencer. Well, you're an influencer in the financial realm. You're an online personality who offers advice, tips, or guidance on how to manage money, invest wisely, or achieve financial goals.

29:49Influencers generally do fall into one of three categories. So there are unregistered individuals, unregistered individuals hired by financial firms and registered investment advice professionals, the latter one. While some influencers may offer quality advice or guidance, others may have, like you really don't know until you check it out. It's not always immediately available or available at all, but you don't know if they have a contract with the organization they're recommending or the type of investment they're recommending. There might be questionable credentials. You don't always know what you're getting.

30:26And so investors don't always trust social media financial advice. They are more willing to trust specific influencers with whom they feel they've developed a trust-based relationship. Let's talk a little bit about that trust because it's interesting to get a sense of just how trusting people are of advice that they're getting online from people they don't know. They don't necessarily understand their background. How seriously are retail investors taking this kind of advice that they get online? I would say in our research about a third, so 35 % of respondents reported making a financial decision based on advice from a Finfluencer.

31:09And about a quarter in experiments, 24 % of those people exposed to Finfluencer style posts bought the promoted asset versus about 7 % who were not exposed. So we can see that there is a significant influence there. Our behavioral insights team has done work to show those trends. Do we know why people are getting their financial advice from influencers? I mean, I think it's just part and parcel of the movement of the times where people get their information from the days of being on the subway and seeing everyone reading the newspaper and flipping on the news at six o 'clock at night and knowing a person who could help them with that.

31:51It's changed. Our points of connection through the day are multiples of what they were before. Popular self-reported reasons include the perceived ease of access through those multitude of connections. Simplicity, it doesn't cost anything. And it is often very informative. Social media posts can often feel more concrete and emotionally engaging than traditional financial information. And I think that does increase its persuasive power. If you know anyone who's sort of a big YouTube consumer, you can sort of almost watch it happen if it's on a topic that you don't care about and see how they dig in and they start to have their favorite people that they listen to on whatever topic it may be.

32:40So the reality is influencer advice is convenient and accessible, and that's why people are doing it. So interesting. Is there a specific demographic group or type of person that's more likely than others to take Finfluencer advice? We did some work on that as well. When exposed to finance-related social media content, about a fifth, 21 % of investors bought the asset promoted in a post compared to 29 % of non-investors. So that suggests non-investors are at an elevated risk of being influenced by influencer content on social media. So thinking back to that example of someone who may see an Instagram post with a politician promoting a crypto asset, maybe they've never bought an investment in their life, they are more likely to go for that scam.

33:34They are also more likely to listen to a Finfluencer. Of those who have made financial decisions based on Finfluencer advice, they're also more likely to have been scammed on social media to the tune of 12.2 times more likely. They are more likely to trust the financial influencers that they follow, 7.2 times more likely. They are nearly five times more likely to trade stocks or other investments frequently several times a week is how we define frequently. And they're nearly four times more likely to believe that the financial influencers they follow provide useful information. Some other interesting facts that I found, they are three times more willing to take moderate risks and accept some losses to potentially earn higher returns.

34:25And they're twice as likely to have experienced significant investment losses in the past. That's a major one. they're also twice as likely to manage their investments using a self-service mobile app. And then so finally, of those who have made financial decisions based on FinFluencer advice, they're also less likely to work with a financial advisor or a portfolio manager. In fact, three times less likely. And similarly, roughly three times less likely to spend less than an hour on social media per day. So there are some pretty clear divisions there. That's super interesting. Obviously, we don't tell people that they shouldn't have financial advisors.

35:08We try and be balanced, but we're a little biased. But I know that a lot of non-registered influencers, I know this because I've seen some of their videos, they often create skepticism about traditional regulated financial advice. They tell their followers, you shouldn't have an advisor. You should do this thing or buy this product or whatever. So it's interesting to hear that there is that relationship in the data. You can walk through different industries and see this, everything from health advice to how you organize your day and finance is no exception. The consequences, if you sort of do fall in with a finfluencer who's not got your best interests in mind, consequences can be quite dire.

35:51So how should consumers who are listening and viewing this financial content separate the good from the bad? What are some of the criteria that you can work through? Is it production quality? Is it trying to figure out who the source is? What's some advice that you're going to offer to people to help separate the wheat from the chaff there? Fortunately, and that's a great question. And as you know, to become qualified to give financial advice, you actually have to do a lot of studying, a lot of credentials. And when you get those credentials, you become registered and qualified. So going to checkbeforeyouinvest.ca, which is another service we provide, go there.

36:32And if your person's there, it means they're registered. So at least they do have the qualifications. That's good to know. And then you also want to be digging around their site or their profile and seeing if they disclose any conflicts of interest or compensation. They may not, but that's something to look for. And then as with anything in life, just be very cautious of highly emotional language. If they're creating a sense of urgency, promises of easy returns, these are very common persuasion techniques. If you've ever seen the movie, the beekeeper. There's a scene there where a woman is having her computer compromised and there's some ransomware situation and the choices are made and they're unfortunate, but the emotional language, the urgency, all of that, that's commonly used with bad advice.

37:28It's also commonly used with fraudsters. Emotional manipulation is always something to be very careful of. Something that seems kind of tricky is that we, Dan and I are registered. We have licenses to give financial advice. And so if we said the wrong thing, there would be repercussions. But a lot of the people who are giving maybe the type of advice that should have some oversight are not registered. It seems like it'd be tougher to enforce any regulations. What are the regulatory challenges posed by this influencer issue? It's a great question. And it's actually one that regulators around the world are looking at right now.

38:07You're right. Influencers may unintentionally trigger securities law obligations. They may believe that they're just educating, but their content can still be regulated if it reasonably influences investment decisions. Sometimes influencers may have difficulty distinguishing general advice from registrable advice. There is a general advice exemption from this registration requirement that many influencers could be relying on. Social media formats make it easy to omit or obscure disclosures that are legally required. So I guess check it out, check it twice. I will say that the steps that we've taken to inform consumers about these issues have been a focus lately.

38:54So the OSC, together with the Canadian Securities Administrators, and Ciro released Staff Notice 31369, which you can look it up there if you like. You've probably seen it, but it explains how existing securities laws apply to influencers and online investing content. We made a real effort with this one. Staff notices generally tend to be a bit more legalistic. They are generally written by lawyers, read by lawyers and market participants. This one in particular has been written in a way that is very plain language, very accessible. It emphasizes that securities regulators actively monitor FEM fluencer activity and not financial advice disclaimers do not override legal obligations.

39:42We're running a nationwide social media campaign on this, and then we'll have more coming to ensure that finfluencers and investors are well-informed. There have been efforts by other regulators around the world, notably the FCA and the UK, on finfluencers as well. So this is part and parcel of sort of a larger effort. It's a tricky issue. As you've talked about, there are a ton of people who are getting advice from people who are not qualified to give it. It's scary. We can't just fall back on caveat emptor by our bureau. Steps like this, this influencer initiative, I think, really go the extra mile to make sure that it's really clear.

40:20The rules are there and there's a promotion campaign attached to it to make sure we're getting in front of the people who are providing advice online. Because most people, I think, they want to follow the rules. Generally speaking, most people do. Of course, there are those who don't, but it's just about making sure people also understand that when you go online and you start providing advice, these are the guidelines. It's especially like some of the data you shared on who is more likely to take this influencer advice. They're unsophisticated investors. So the buyer beware, like you said, just doesn't really work.

40:53I think we have a greater duty of care than to say that. I talked about my AI impersonation experience. Can you talk about how else you guys are seeing AI being used to perpetrate investor scams? When it comes to AI, we've talked about the deepfakes. I actually do want to just speak a little bit about what can be done to help as well. We did dig into sort of the different types of scams. But the thing I want to say is we have a fraudulent web removal service, like it's called the takedown service informally. And the CSA has been actively working with a third-party service provider to remove fraudulent investment platforms and cryptocurrency scam websites.

41:33And so between June 5th and On November 23rd, they deactivated nearly 4 ,000 to 3 ,900 fake investment platforms and cryptocurrency scam websites. I just wanted to sort of flag that as a bright spot work is being done in this area. When it comes to the different types of scams that are out there, we've talked about being skeptical of urgency and hype. But you'll see unsolicited offers. you'll see all the hallmarks of traditional fraud, guaranteed returns, exclusive AI-based opportunities. These are all warning signs. It really is turbocharging those traditional scams, as I said. What I'd like to make sure we talk about is AI as a magnifying glass.

42:24AI-enhanced scams take the traditional scam world and just magnify this for investors. It's a much riskier place than it used to be. And so we are seeing one study we did, participants invested 22 % more in AI enhanced scams than in conventional scams. AI often removes common red flags like poor grammar, inconsistent formatting, making scams appear more legitimate and professional. And they have, as I mentioned, that greater scale and reach. Fraudsters can target more investors more quickly, build lists, build leads, and they become more widespread. There's the different types of scams, but this is also the way that the technology is used to reach the investors as well.

43:17So that sort of leads to the question of how we can mitigate it. Is the solution a technological one or is it just more about raising awareness? Is there anything that people can do to protect themselves beyond simply the typical advice of just learn what the warning signs are and be skeptical? There must be something else that we can do to push back. There is. There are system level mitigations. So you can get tools such as browser plugins or platform level warnings. They flag suspicious investment contact. They can materially reduce scam investments up to 31 % in some experiments. There are just-in-time messaging mitigations.

44:02So these would be prominent alerts that highlight the scam risk at the point of decision, can reduce impulsive investing and fraudulent opportunities. And then when it comes to persuasive techniques, Exposing investors in advance to examples of AI scams and explaining common tactics does reduce susceptibility to fraud. We know this. And so the idea is we call it inoculation. Education is inoculation. Other things investors can do to protect themselves. I mentioned being very skeptical in the journalism world. It's where I started a long time ago in financial journalism. We have a saying, if your mother says she loves you, check it out.

44:46So you really have to be very skeptical of any offer that comes your way. And any advisor or financial professional, sort of worth your time, is going to work hard to make sure that you feel you're making the right decision. And it's okay to ask questions and kick the tires. Ask them what their credentials are and be very suspicious of unsolicited offers. If you don't know this person very well, and suddenly they're coming to you with an investment opportunity, they have a great lifestyle and you're hoping you can have a piece of that too. That's a huge sign. Anything with guaranteed returns, unless it's a GIC, is pretty much a big red flag as well.

45:30And then we talked about exclusive AI-based opportunities. That's a common theme. The verification before investing, so independently confirming the legitimacy of the investment, the promoter, and any claimed endorsements using trusted sources. Get a notebook, write it down, or put it in your OneNote in your computer. Get all the details and check it out. And then when you have all of that information, you need to go get some second opinions. The reality is we spend way more time choosing a fridge or a washing machine than we do checking out and getting second opinions on investing, many of us.

46:10And I think it shouldn't be that way. These are major decisions. Taking time and consulting registered professionals, your trusted friends and family, and regulator-backed resources really does reduce the likelihood of falling victim to a scam. And then finally, of course, to come full circle, get smarter about money. We have a whole section on frauds and scams. And the more education you have, the better you'll be able to spot and prevent the fraud. Yeah, that's awesome. I love the inoculation point. I did a video last year because I was noticing every time I would post a video, there'd be all these bots in the comment sections.

46:47And they would be having these conversations with themselves promoting a specific name, always a full three name name, first, middle, and last name. And there'd be no link, but if you search that name, it would take you to a fake landing page. It was clearly a scam. And so I like click through and had my OPSEC set up pretty well to protect myself, but I communicated with a scammer to just see what would happen and then made a video about it to try and show my viewers like, Hey, if you're seeing these, this is what they're trying to do for that inoculation reason. But then that stopped and now it's the AI thing.

47:21So they move so fast. I think the inoculation can just be tricky. They move fast. And also one thing we haven't really dug in on is the relationship investment scams, sometimes called long haul scams and sometimes very uncharitably called big butchering scams. This is when you have a person who's approached you and over time become your friend, who you may or may not meet, they're getting close to you and suddenly in comes the ask for you to join an investment club or, hey, I've been doing some crypto investing and it worked out really well for me. And maybe it starts with a hundred bucks and it kind of goes and goes and goes.

48:03This can happen to anyone. And there is a loneliness epidemic out there. We have our phones, we're all connected, but real human contact, particularly those who are more vulnerable and isolated, they do tend to be more prone to the relationship investment scam. And they're insidious. I watched a presentation by the Global Anti-Scam Alliance recent IOSCO meeting, and they took us behind the dashboard of how these scam farms operate, which in and of themselves are terrible operations, often powered by trafficked individuals. And you have your dashboard. And And if you've ever gotten a text from someone named Vu, this was the example they gave.

48:44It's sort of a scam that was happening for a while. And this person had a dashboard. There's one at 20 to 30 of different pings. And then most people don't respond, but some do. And when they respond, it's figuring out what to say back to them using the AI translator and then getting them to a point where you pass on to the next room, which is the person who's dedicated to talking to that person over time, building the relationship, then to the voice team, then into the mode where you're working on the investing sort of ask. And then, of course, at the very end, there's the recovery room scheme, which happens frequently.

49:23And then the final phase is they completely disappear from your life. It is happening at an alarming rate. It is not unique to Ontario or Canada or even North America. These are happening globally. but the relationship investment scam is a particular insidious one. Something to just be aware of. Money is emotional. And if you've ever tried to talk someone out of a situation that's maybe not good for them emotionally, this can be one of them too. And we have resources on Get Smarter About Money about this, how to handle it if you've been a victim of fraud. And there are resources available because it is an extremely emotional moment when a person realizes that they have fallen victim to a scam.

50:06And unfortunately, we handle that on a daily basis with our contact center. It's one of the most upsetting ones. On some level, some investment scams, I think there's a tendency to feel a little bit like somebody promised you a guaranteed 20 % return and you jumped at it. Maybe you're just being greedy and maybe a little bit foolish. the relationship one is really preying on a person's emotional vulnerability it's not about greed it's not about investment returns it's just about a need for something very fundamentally human somebody just heartlessly taking advantage of it that one really i think is upsetting to have to witness and some of the stories that we've read about people who have fallen victim to that are really depressing.

50:53Anything that can be done to mitigate those is obviously hugely important. I think education, discussing it on major podcasts like this one, this is where it makes a difference is the awareness campaigns, getting out there talking about it, and also making it okay to talk about money. In one OSC in the community event that I was at, I was speaking to a woman in her 90s and she thanked us for coming in and she absorbed the whole presentation. She has some questions related to her own personal investment matters, which we referred to the contact center because they were getting quite detailed and she needed some advice there.

51:33But she did say to me, you know, we just never learned this at school. We didn't talk about money growing up. And many households, that is the case, but it is important too. And I would say for those of you who have children, talk to them about money early on. We're finding younger people getting into the idea of investing, maybe even treating it like a game. It's important to have the money conversations, blunt ones early. I definitely try to do that with my kids. They're pretty engaged about it. They know what I do for a living. They know that I make YouTube videos about finance money that a lot of people watch.

52:09They'll probe and ask questions. and they're pretty curious. They're not like super excited or passionate about it, but they'll say, so what was your podcast about today? And I'll tell them like, oh, cool. My oldest is 11. That's on YouTube. That's already your cool, right? Yeah. So we've been talking about overt illegal scams. Something else that can be insidious, but is not illegal, I don't think, is gamification, as you mentioned earlier, where sometimes these apps are influencing the ways that people behave in a way that's probably not leading to good investor behavior, but is leading to behavior that's profitable for the company that created the app.

52:47Can you talk about how gamification in investing apps might be affecting retail investor behavior? It's a great topic and it's one that the OSC has done a lot of research on. We're very grateful to our thought leadership group and behavioral insights group, and taken a rightfully so a good focus on this and sort of working with best practices globally on this. So gamification and digital engagement practices more broadly can influence investor behavior in positive and negative ways. So it's not inherently good or bad. The existing research that our teams did found some negative effects on investor behavior, including increased trading frequency, which is associated with lower returns and what we call a hurting effect in which investors gravitate towards securities promoted via gamification techniques.

53:44While gamification techniques can make investing platforms more engaging, there is concern, and rightfully so with associated evidence surrounding that downstream impact on investor outcomes. What are some of the mitigation techniques then that can be used to reduce the negative effects? They might not all be negative, but obviously we want to shift it in the positive direction. Mitigations can be deployed at the individual level. So there are things you can do yourself if you're trying out these platforms, as opposed to systemically, to increase the likelihood of investors changing their behavior.

54:24So broadly speaking, mitigations can be used either before an investor encounters gamification techniques or during their encounter with gamification. While research in the investing domain is limited, several techniques that our teams recommend could hold promise in protecting investors from gamification. So those include requiring users to opt in to being exposed to gamification on investing platforms rather than being automatically opted in. And then within platforms, disclosures or labels drawing users attention to some of the risks associated with gamification techniques. And then creating positive frictions within apps.

55:07So confirmation screens to encourage more deliberation among users. Those are some of the different mitigation techniques that can help reduce the negative effects of gamification. Can you talk about how the Get Smarter About Trading Simulator works? Yes, absolutely. Have you tried it yet? I did play with it, yeah. It's a fun tool we created. So you get$10 ,000 in obviously not real funds, and you invest in a list of stocks. And we use a few gamification techniques throughout the simulator. So you get into a simulator, it just basically helps people understand how the gamification techniques may be influencing their trading behavior and help investors make more informed decisions.

55:56And you log in, you see your wallet, your available funds, you're given a list of limited information. It's not the Bloomberg terminal by any means. You've got these fictitious stocks with a bit of share history. They've been up or down. And then you go through eight days. Once you set your book, you move forward and then you go day by day. Do you want to make any changes? I picked everything on day one and went through the first time and just didn't change a thing and ended up slightly down. Eight days is actually not a very long time and you get charged every time you trade, but then they would give you points.

56:36So for those people who would make decisions every single day and would be looking at the points they're getting, which of course don't have a financial value, but their amount is going down, it would be sort of a learning opportunity. But of course, as you're going through the tool, we're collecting the user behaviors. And it's an interesting way to see how people may behave in those situations. It just highlights the specific gamification techniques used. And it just helps you appreciate those subtle but powerful ways that they may try to draw you in. I'm just wondering how gamification can be used to improve investor outcomes, because certainly there's going to be some negative effects associated with it, but there's probably some positive ones as well.

57:19I think that we have a pretty good stat there at 3.5 to 4.5 % increase in diversification when positive gamification techniques were used in our most recent research and experimentations, generally showing that gamification can improve investor outcomes through increases in portfolio diversification. So beyond diversification, gamification can be deployed by platforms to encourage a range of positive investor behaviors, including reaching savings goals and appropriate levels of risk-taking. And the examples that could be used to achieve these outcomes include feedback, goal and progress framing, rewards, and social interactions.

58:05So let's just wrap up with a few final questions. Which of the OSC priorities or initiatives that you're working on now are you most excited about for the future? I'll be honest. When I came on, it was just over a year ago. Leading into starting here, it was the entire strategic plan I was attracted to. It was beautifully laid out. It all made sense, all the pieces of the organization working together. And I found that very attractive for someone coming in and wanting to have this challenge, really apply the MBA, really get into an organization and help drive a very clearly laid out strategy. There are six goals in this strategy.

58:47Goal two, enhance the experience of being an individual investor. That is the one that I live every day. All of them matter, but that is the one that I work on most closely in the investor office. It's really cool. I mean, it's incredible for people in Ontario, but really anybody, because anybody can access the resources the OSC is creating. It's an incredible resource. What a service you guys are providing to the public. Thanks very much. Really, it comes down to ensuring that investors are positioned to make better lifecycle investment decisions, whether it's having that investor redress system in place that we talked about, how we can help reduce investor harm through education, inoculation, making sure that investors and advisors have a better understanding of financial and securities markets.

59:36One thing to watch, we're launching our Fraud Prevention Month campaign soon. Be sure to visit Get Smarter About Money and follow our social media channels. We're hoping that really helps get the word out as well. We'll link to those resources in the episode show notes so people can check it out. It's such a good website. The reason that I always link to it is because it's great content, but it's from a neutral source. There's no conflict of interest where like, oh, are they doing this because they're trying to sell me a product? Between the content being good, it's really good quality and the fact that it's so obviously unbiased, it's such a useful resource.

1:00:12Oh, thank you. Yeah, no, it's a really dedicated group of individuals there. I'll definitely pass that compliment on to them. It's something that everyone's very passionate about over here. You can tell it comes out through the content. Thank you. Final question for you, Teresa. How do you define success in your life? I am a big believer in defining your purpose. I teach a class on developing your leadership purpose at Ivy. Regularly come in and do that and listening to people develop their purpose through the challenge, action, and result they want to drive in their lives. It has a way of helping me also think about what I want to do and coming back to my purpose and then living that purpose, making sure that we have the courage to go out and do the big, bold things that we need to do to go out there, minus about driving change through innovation and bringing different groups together to find that common ground and move forward.

1:01:17And I think that it comes down to courage to change and making sure that you're always prioritizing the collaboration. You know that saying that if you want to go fast, go alone, but if you want to go far, go together. I would say that if I've gone far and perhaps a bit fast with others, then that is true success in life. Nice. It's a great answer and you have clearly thought about it. Thank you. And that, of course, in my kids. Of course. All right. This has been a great conversation, Teresa. We really appreciate you coming on the podcast. Yeah, I've really enjoyed it and all the best. And thanks very much for having me.

1:02:00Thanks so much.

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