Robo-adviser SoFi Wealth has been fined $300,000 and censured by the Securities and Exchange Commission over alleged violations involving its use of exchange traded funds, InvestmentNews reports.
The SEC’s action stems from a 2019 decision by SoFi Wealth related to about 20,000 automated portfolio accounts. The firm invested the assets of those clients into two new ETFs that were sponsored by SoFi Wealth’s parent company Social Finance Inc., replacing third-party ETFs that had been in the accounts.
According to the SEC, SoFi Wealth did not disclose its conflict of interest in the new ETFs to clients in the robo investing program, thus violating the company’s fiduciary duty. The commission said the firm’s objective in moving client assets into the new proprietary ETFs was to increase the liquidity of the funds and make them more attractive to potential investors.
“SoFi Wealth planned to use the new ETFs to market and increase awareness of the SoFi brand beyond its current client base,” the SEC cease-and-desist order stated. “SoFi Wealth sought to use the ETFs to show that SoFi could provide a broader array of investment products and services”.
The SEC added that SoFi Wealth’s decision to sell the third-party ETFs resulted in tax consequences for many of their clients, including about $772,000 in short-term capital gains and $662,000 in long-term capital gains. The commission said it had initiated the cease-and-desist proceedings pursuant to Sections 203 (e) and 203 (k) of the Investment Advisers Act of 1040.
In agreeing to pay the fine, SoFi Wealth did not admit to or deny the SEC’s charges but did say it was pleased to have resolved the matter.
Lewitas Hyman represents financial professionals, financial institutions and investors in investment loss, employment and disclosure matters, and in regulatory investigations. Contact us by phone at (312) 291-4600 or through our online contact form for a free consultation.