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December 21, 2018 at 03:32 PM
The Securities and Exchange Commission took its first enforcement actions against robo-advisors on Friday, tied to false statements about investment products and misleading advertisements.
An SEC order found Wealthfront Advisers, which has $11 billion in client assets, made false statements about a tax-loss harvesting strategy.
The robo-advisor said it would monitor client accounts for transactions that could trigger a wash sale, which can diminish the benefits of harvesting, but failed to do so over three years. During this time, wash sales took place in over 30% of accounts enrolled in Wealthfront’s tax-loss harvesting strategy.
The SEC also says Wealthfront “improperly retweeted prohibited client testimonials, paid bloggers for client referrals without required disclosure and documentation, and failed to maintain a compliance program reasonably designed to prevent violations of the securities laws.”
Without admitting or denying the findings, Wealthfront consented to the entry of the SEC’s order censuring it, requiring it to cease and desist from further violations, and imposing a $250,000 fine.
“Technology is rapidly changing the way investment advisers are able to advertise and deliver their services to clients,” C. Dabney O’Riordan, chief of the SEC Enforcement Division’s Asset Management Unit, said in a statement. “Regardless of their format, however, all advisers must take seriously their obligations to comply with the securities laws, which were put in place to protect investors.”
For its part, Wealthfront said on Friday: “We take our regulatory duties seriously … . The settlement order addressed Wealthfront’s retweets of clients’ positive tweets from our corporate account and compensation to some bloggers for client referrals without proper disclosures.”
In addition, Wealthfront explains, the firm “did not have proper disclosure in its tax-loss harvesting white paper concerning monitoring for any and all wash sales that could occur in client accounts.”
