Stash Responds to the SEC’s Request for Information on Investment Adviser’s and Broker-Dealer’s Use of Digital Engagement Practices

SEC-registered financial advisers like Stash are already required to act in the best interests of our customers. That extends to how we deploy digital engagement practices.

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The U.S. Securities and Exchange Commission (SEC) is a government agency that works to protect American retail investors.As the financial landscape changes, the SEC is interested in learning more about how digital-first financial companies like Stash operate, the tools we use, and whether our business model and design tactics protect Americans.What makes Stash unique, within this evolving landscape, is that we are an SEC-registered financial adviser, and we are required, by law, to act in our customers’ best interests. The majority of our revenue comes from subscriptions, starting from as little as $1/month. We believe in long-term investing and we don’t gamify our platform. We don’t believe that people should have casinos in their pockets.

In August, the SEC put out a Request for Information (RFI) titled: ‘Request for Information and Comments on Broker-Dealer and Investment Adviser Digital Engagement Practices, Related Tools and Methods, and Regulatory Considerations and Potential Approaches; Information and Comments on Investment Adviser Use of Technology to Develop and Provide Investment Advice.’

To put it plainly, the SEC is asking for companies in our space to share details on how we use digital tools and techniques, such as notifications, email, and app design to encourage behavior, and why we do so. Companies are not required to respond, but some do to explain their techniques and influence potential regulatory rulemakings.

Below you can find our response, written in a specific tone and format designed to address the regulatory issues outlined in the request. The main takeaway is this: Stash, as a fiduciary, is required to act in the best interests of our customers. As an SEC-registered investment adviser, the digital engagement practices we use—such as notifications, email, Stock Parties, and subscriptions—are already regulated by the SEC in light of our obligation to act in the best interests of our customers. Our platform is built to encourage diversification and regular investing over time, and according to our data, we believe it works.

Stash is a fiduciary and our platform empowers Americans to build wealth. This is what sets Stash apart. Read on for our response to the SEC.

This information is for educational purposes only and should not be construed as investment, legal or tax advice.

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To the Office of the Secretary, Securities and Exchange Commission:

We write in response to the Securities and Exchange Commission’s (“SEC”) August 27, 2021 Request for Information and Comments on Broker-Dealer and Investment Adviser Digital Engagement Practices, Related Tools and Methods, and Regulatory Considerations and Potential Approaches; Information and Comments on Investment Adviser Use of Technology to Develop and Provide Investment Advice in the above-referenced matter (the “Request”). Below is our response, submitted by our SEC-registered investment adviser, Stash Investments LLC (our “Adviser”),¹ which describes how we use digital engagement practices (“DEPs”) to fulfill our company mission to empower everyday Americans to invest and build wealth - and do so in a way that is consistent with our fiduciary duty under the current regulatory framework governing investment advisers.

We appreciate that, in the Request, the SEC expressly highlights that financial firms use DEPs for the benefit of retail investors through their digital platforms. We can’t emphasize this point enough. While we acknowledge that DEPs, when used by certain types of financial firms, may have the potential to pose risks, harms, and conflicts that either may not be in the best interest of or may not adequately protect retail investors, we believe that the SEC’s existing regulatory framework and disclosure regime for SEC-registered investment advisers provides sufficient controls and guidelines to adequately mitigate such risks, harms, and conflicts to adviser clients. It is our fiduciary duty to integrate our investing philosophy and compliance with our regulatory obligations into the design of our mobile applications and website, including our use of DEPs, and we believe our DEPs are in our customers’ best interests.

Introduction to Stash

Stash Financial, Inc. (“Stash Financial”) owns and operates a digital-first financial services subscription platform that customers can access via mobile applications (both iOS and Android) and/or through Stash Financial’s website (the “Platform”). We are on a mission to empower everyday Americans to invest and build wealth by providing an affordable, accessible, and simple-to-use Platform with access to the financial markets. We encourage our customers to engage in long-term, diversified investing through regular periodic investments, as opposed to short-term speculation or day-trading - an investment philosophy we describe as the “Stash Way”.² The Platform is designed accordingly, with investment advice and financial education embedded throughout. We do not offer margin accounts, do not permit short selling, do not offer options trading, and do not permit trading in complex derivatives or related financial instruments. Furthermore, we treat every customer equally during our trade allocation process - in other words, there’s no preferential treatment offered to customers based on trading volume, assets under management, or the timing of their indication of interest. As a result of this structure, we do not have a material financial incentive to promote customer trading.

Our customers are primarily middle class Americans with little to no investing experience who historically have been overlooked and underserved by other, more traditional financial firms. We’re proud to count more than 6 million customers, who have set aside more than $3 billion on the Platform thanks to regular and automatic deposits of $31 on average. Today, our customers are 15% more financially literate than the average American³ and studies have shown that they increase their financial literacy the longer they engage with us. Our DEPs have served a key role in our ability to help our customers build wealth and learn good financial habits.

Stash’s Digital Engagement Practices

DEPs are an efficient tool to achieve our mission. We use DEPs to teach financial literacy and other complex concepts in a more digestible way (financial literacy, unfortunately, is not being widely taught in schools); to obtain customer information necessary to provide our services; to encourage retail investors to begin their investing journey; to warn retail investors of volatility and/or any potential risks or harms that may exist in the securities markets; to support our investing philosophy, the Stash Way, and to provide investment advice; and, most importantly, to help our customers build confidence in improving their finances. We do not use DEPs designed to encourage frequent trading, DEPs that incorporate investment strategies that carry additional risk (e.g. options trading or trading on margin); or DEPs that incorporate trading in complex securities (e.g. derivatives).

As a result of our DEPs, our mission, and our duty as an investment adviser, a significant portion of historically underserved retail investors are now interacting with us in a manner consistent with how they communicate digitally with other companies in all types of industries as part of their daily life, in a fast, convenient, and efficient manner, but in our case, all within a fiduciary framework. We can connect directly with millions of retail investors on a daily basis (especially during market events or volatile trading sessions), understand them better over time, and transform that knowledge into a more personalized and actionable digital experience that supports their stated financial goals. In fact, we think our use of DEPs and the scalability they provide are critical in enabling us to provide our services to millions of people who have been overlooked and underserved by more traditional investment firms because they are not high net worth individuals who invest significant amounts of wealth into the market and are not retail investors who trade securities frequently.

Below is a discussion on the categories of DEPs we utilize on the Platform, consistent with how each category is described in the Request.

Conclusion

Our customers are primarily middle class Americans with little to no investing experience, who have been historically overlooked and underserved by more traditional financial firms, exactly the type of retail investors that the SEC seeks to protect. The benefit of DEPs - when employed by investment advisers within the current regulatory framework applicable to advisers - is clear, as described in our response. Our customers would not be investing and learning how to accumulate personal wealth but for our DEPs. We strongly believe the existing regulatory framework governing registered investment advisers is more than adequate to guard against the risks, harms, and conflicts noted in the Request. That principles-based framework supports a reasonable balance between protecting adviser customers while allowing advisers to leverage technological innovation to efficiently reach and serve millions of retail customers at scale.

We thank the Staff again for this opportunity to provide comments on this important matter, and we look forward to collaborating with you further.

Sincerely,Brandon KriegCEO Stash Financial, Inc. and Stash Investments LLC