Betterment pays $9 million to settle SEC claim for tax loss harvest

Financial Advisors

The Securities and Exchange Commission has indicted digital advice firm Betterment for alleged misrepresentations and omissions related to its tax loss harvesting service.

According to the SEC order, the disclosure and operational issues affected more than 25,000 customer accounts and resulted in the loss of $4 million in potential tax benefits. The New York City-based robo-advisor agreed to settle the case by paying $9 million in civil penalties without admitting or denying the SEC’s findings.

Betterment reportedly did not disclose changes in the frequency of scanning for tax-loss opportunities between 2016 and 2019. The SEC also alleges that Betterment had two computer coding errors that prevented him from disclosing programming limitations that affected certain clients and that his robo-advisors were unable to recoup losses for some clients. .

“Betterment did not accurately describe its tax loss collection service and was not transparent about changes, restrictions and coding errors in the service that adversely affected thousands of clients,” the SEC said. said Antonia Apps, director of the New York regional office of statement issued on Tuesday.

The SEC also charged Betterment with breach of fiduciary duty by failing to give advance notice of changes to advisory agreements and by failing to maintain accurate and up-to-date books and records reflecting written agreements with certain clients. Did.

Betterment had addressed the coding and disclosure issues by 2019, the SEC said in the order.

According to Betterment’s blog post, the coding issue affected a “limited subset of customers” and accounted for “less than 1% of the total losses Betterment has incurred since TLH was introduced.” The median payment is expected to be less than $100 per customer, according to the company.

When asked for comment, a Betterment spokesperson introduced investment news on that blog.

Robo-advisor disclosure and marketing material research is a focus of the SEC under Chairman Gary Gensler. In November 2021, regulators issued a risk alert and a series of inspections found that nearly all robo-advisors failed to meet their compliance obligations, including the software traditional advisors use to automate investments. bottom.

Charles Schwab paid $187 million in June 2022 to settle claims related to disclosure of cash holdings in investor portfolios. Earlier that year, Wahed Invest ordered him to pay $300,000 to settle accusations of misleading remarks. Wealthfront and Hedgeable faced similar SEC charges in 2021.

“Robo-advisors are subject to the same obligations as all investment advisors, being transparent about the services they provide and being proactive about any material changes to those services or issues that could adversely affect their clients. ,” the app said in a statement.

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