- The $9 million settlement between Betterment and the U.S. Securities and Exchange Commission has been split among approximately 25,000 robo-advisor customers, with a median payout of less than $100.
- Betterment’s alleged failures were related to “tax loss harvesting,” a technique common among financial planners.
- Affected customers will be notified of compensation when the SEC approves the marketing plan later this year, the company said.
The headquarters of the U.S. Securities and Exchange Commission in Washington.
Aldrago/Bloomberg via Getty Images
Robo-advisor firm Betterment on Tuesday agreed to settle a $9 million claim with the US Securities and Exchange Commission over alleged missteps related to its automated tax services.
The amount was distributed among approximately 25,000 client accounts, resulting in lost potential tax benefits of approximately $4 million from 2016 to 2019, the SEC claims.
Betterment estimates that the median payout to investors will be less than $100. Affected customers will be notified of compensation later this year when the SEC approves the sales plan, the company said.
Details from Personal Finance:
Two alternatives to the elusive $7,500 EV tax credit
Some trips are ‘off the charts’ and expensive, experts say
This free tax tool may find “overlooked” credits or refunds
Betterment did not admit or deny wrongdoing as part of the settlement agreement.
Betterment was one of the first harvests of automated investment platforms (so-called robo-advisors) for individual investors. He started appearing around 2008 when the advent of the iPhone created a ubiquitous digital culture.
Betterment’s alleged failure relates to “harvesting tax losses.”
Basically, this technique is common among financial planners who try to reduce or eliminate taxes on investment gains by offsetting losses from other investments. This may mean, for example, selling losing shares to offset the winner’s taxes.
The SEC alleged that Betterment “misrepresented or omitted several important facts” in communications with clients regarding its tax loss harvesting services.
Among other things, the company did not disclose software tweaks related to how often it scans customer accounts for tax savings opportunities, and there were two computer coding errors that prevented some customers from recovering their losses, the SEC said. says.
“Betterment did not accurately describe its tax loss collection service and was not transparent about changes, limitations and coding errors in the service that adversely affected thousands of clients,” the SEC said. said Antonia M. Apps, Director of the New York Regional Office of in a written statement on Tuesday.
Betterment fixed the 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,” it said in a written statement on Tuesday.
According to Betterment, more than 275,000 customers have used the service since its introduction in 2014, saving hundreds of millions of dollars in taxes.
“[Betterment] We are cooperating fully with the SEC’s investigation and are pleased to have reached a resolution on these matters.”