December 5, 2023


The SEC is headquartered in Washington.

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Robo-advisory firm Betterment agreed Tuesday settlement fee $9 million claim from the SEC for alleged glitches related to automated tax services.

The payments will be distributed to about 25,000 client accounts that lost about $4 million in potential tax benefits between 2016 and 2019, the SEC said.

Average investor payout will be less than $100, Betterment estimatedAffected customers will receive notice of their compensation when the SEC approves the distribution plan later this year, the company said.

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Betterment did not admit or deny wrongdoing as part of the settlement.

Betterment was one of the first automated investing platforms (so-called robo-advisors) for retail investors, which started popping up around 2008, when the advent of the iPhone created a ubiquitous digital culture.

Betterment’s alleged failures had to do with “tax-loss harvesting.”

A silver lining when stocks fall

In short, this technique—common among financial planners—is designed to reduce or eliminate the tax owed on investment profits by offsetting the taxes owed on investment profits with losses from other investments. For example, this could mean selling losing shares to offset taxes on winners.

The SEC alleges that Betterment “misrepresented or omitted several material facts” in its communications with clients about its tax-loss collection services.

Spotting software tweaks and coding errors

Betterment had resolved related coding and customer disclosure issues by 2019, the company said. Since then, Betterment has “made significant investments to build and strengthen its compliance program,” Betterment said in a written filing Tuesday. statement.

Betterment says the tax loss collection service has saved hundreds of millions of dollars in taxes for the more than 275,000 customers who have used it since launching in 2014.

“(Betterment) is cooperating fully with the SEC’s investigation and is pleased to have reached a resolution on these issues,” it said.