SEC Fines Robo-Advisor SoFi Wealth Over ETF Conflicts
The firm left some clients with taxable gains as it moved them into proprietary funds, the SEC said.
The Securities and Exchange Commission on Thursday filed a cease and desist order against robo-advisor SoFi Wealth and fined it $300,000 related to conflicts of interest associated with investing client assets in SoFi-sponsored ETFs.
The SEC action charges SoFi with breaching its fiduciary duties and relates to SoFi’s April 2019 investment of assets of approximately 20,000 automated portfolio accounts into two new proprietary exchange-traded funds sponsored by its parent company, Social Finance Inc.
SoFi Wealth approved the inclusion of these SoFi-sponsored ETFs to replace third-party ETFs that had a different asset allocation.
According to the SEC order, SoFi Wealth failed to provide its clients with full and fair disclosure of its conflicts of interest relating to the transactions, including that it:
- had a preference for placing clients into SoFi’s newly created proprietary ETFs rather than third-party ETFs, and SoFi’s economic interest in these proprietary ETFs presented a conflict of interest for SoFi Wealth;
- was investing client assets in these proprietary ETFs to help market the SoFi brand as having a broader array of services and products than previously offered; and
- intended to use client assets to capitalize the new SoFi ETFs with significant investment on their second day of trading, making the ETFs more liquid and favorable to the market.
To accomplish these objectives, the SEC states, SoFi Wealth sold clients’ holdings of third-party ETFs, causing many clients to realize taxable gains.
SoFi is an online financial services provider of student loan refinancing, mortgages, personal loans, credit cards, and investing and banking services through its mobile and desktop interfaces.
The San Francisco-based robo-advisor is the sponsor of the SoFi ETFs, including SoFi SELECT 500 ETF and SoFi NEXT 500 ETF.
The SEC ordered SoFi to pay within 10 days a $300,000 civil money penalty.
The agency also charged SoFi Wealth with failing to adopt written policies and procedures reasonably designed to prevent violations of the Investment Advisers Act.
Specifically, “SoFi Wealth failed to adopt written policies and procedures governing SoFi Wealth’s selection, and inclusion of its proprietary products in its automated investment portfolios and the full and fair disclosure of all material conflicts of interest presented by its use of proprietary products in its automated client accounts,” the order states.
The firm filed with the SEC in February 2019 for four equity ETFs.
SoFi also went public in June via a special-purpose acquisition company (SPAC) and private investment combination.