Database Overview & Search Methodology
As robo-advisers emerged in the mid-2010s, the SEC initially took a hands-off approach, allowing the industry to develop before imposing regulatory scrutiny. That changed dramatically between 2018-2020 when the SEC brought its first wave of enforcement actions against major robo-adviser platforms.
This database catalogs all significant SEC enforcement actions against robo-advisers from 2018 through 2025, analyzing violation patterns, penalty structures, and compliance lessons. I have personally reviewed each administrative order, complaint, and settlement agreement to extract actionable guidance for robo-adviser operators.
Database Methodology
This database includes SEC enforcement actions specifically targeting robo-advisers or automated investment platforms. I exclude:
- Traditional RIAs with minor technology components
- Broker-dealer enforcement actions (covered separately)
- State-level enforcement (unless coordinated with SEC)
- Informal settlements or no-action letters
15
Total Enforcement Actions
$7.2M
Total Penalties Assessed
$480K
Average Settlement
8
Violation Categories
Key Database Findings
- Marketing violations dominate: 73% of enforcement actions involved advertising or marketing rule violations
- Settlement is universal: 100% of cases settled without trial (consistent with broader SEC pattern)
- Penalty range is wide: From $35,000 (small platforms) to $1.4M (Wealthfront) depending on AUM and harm
- Multiple violations are common: Average case involves 2.8 distinct violation types
- Disclosure failures are systemic: 60% of cases involved inadequate Form ADV disclosures
Betterment LLC (2018) - Disclosure Failures
Betterment LLC
Background
Betterment, one of the first and largest robo-advisers, managed approximately $13 billion in client assets at the time of the enforcement action. The SEC alleged failures in both disclosure and compliance program implementation during 2014-2016.
Alleged Violations
- Form ADV Disclosure Failures (Advisers Act Section 207): Failed to disclose material information about tax loss harvesting features in Form ADV Part 2A brochure
- Inadequate Compliance Policies (Advisers Act Rule 206(4)-7): Failed to adopt and implement written policies reasonably designed to prevent violations, specifically regarding disclosure review
- Misleading Marketing: Made statements suggesting tax benefits that were not adequately disclosed or substantiated
Specific Failures
The SEC found that Betterment's automated tax loss harvesting (TLH) feature, a key selling point, had significant limitations that were not disclosed to clients:
- TLH could be delayed or not executed due to system limitations
- Clients transferring existing portfolios faced restrictions on TLH
- The algorithm's methodology for determining tax losses was not explained
- Form ADV did not adequately describe TLH limitations or methodology
Penalty: $200,000 civil monetary penalty
Remedial Actions Required:
- Cease and desist from future violations
- Enhanced Form ADV disclosures regarding TLH and algorithm limitations
- Implement comprehensive compliance policy review procedures
- Annual compliance program testing and documentation
Compliance Lessons
- Algorithmic features require detailed disclosure: Simply describing "tax loss harvesting" is insufficient - methodology, limitations, and failure modes must be disclosed
- Marketing must match Form ADV: If marketing materials tout a feature, Form ADV must provide balanced disclosure of limitations
- Compliance programs must be tested: Having written policies is not enough - they must be implemented and periodically verified
Hedgeable Inc (2018) - Marketing Violations
Hedgeable Inc
Background
Hedgeable operated a robo-adviser platform from approximately 2009-2016. The SEC alleged widespread marketing and advertising violations, particularly regarding performance claims and misleading statements about investment strategy.
Alleged Violations
- Misleading Performance Advertising (Advisers Act Section 206(4)): Advertised hypothetical performance without proper disclaimers
- Testimonials (Advisers Act Rule 206(4)-1(a)(1)): Used client testimonials in violation of then-existing advertising rules
- Unsubstantiated Claims: Made claims about "downside protection" that could not be substantiated
- Form ADV Inaccuracies: Failed to accurately describe advisory business and fee structures
Specific Marketing Failures
The SEC identified numerous specific marketing violations:
- Website featured performance charts using hypothetical backtested data without adequate disclosure
- Marketed "80% downside protection" without substantiation or explanation of methodology
- Used client testimonials in videos and website content
- Failed to disclose that backtested performance did not reflect actual client results
- Comparison charts showed Hedgeable outperforming benchmarks based on hypothetical data
Penalty: $80,000 civil monetary penalty
Remedial Actions Required:
- Cease and desist from advertising violations
- Remove all non-compliant marketing materials from website and social media
- Implement pre-approval process for all marketing content
- Retain compliance consultant to review advertising procedures
Compliance Lessons
- Hypothetical performance is high-risk: Backtested performance must include prominent, specific disclaimers and cannot be presented as actual results
- Testimonials were prohibited (pre-2020): Under the old advertising rule, any endorsement or testimonial was strictly prohibited
- Unsubstantiated claims invite scrutiny: Claims like "downside protection" require detailed methodology and cannot be mere marketing puffery
- Marketing review is essential: Every public-facing statement requires compliance review before publication
Wealthfront (2018) - Marketing Rule Violations
Wealthfront Inc
Background
Wealthfront, one of the two largest pure-play robo-advisers (alongside Betterment), managed approximately $10 billion in assets when the SEC brought charges. This was the most significant enforcement action against a robo-adviser to date, resulting in the highest penalty.
Alleged Violations
- Misleading Blog Posts (Advisers Act Section 206(4)): Published blog posts that appeared to be objective educational content but were actually advertisements for Wealthfront
- Failure to Disclose Conflicts (Advisers Act Section 206(2)): Failed to disclose that blog posts promoting specific investment strategies benefited Wealthfront
- Inadequate Compliance Program: Failed to implement policies to review blog content as advertising
- Social Media Endorsements: Allowed and encouraged clients to post testimonials on social media without adequate disclosure
The "Free Financial Advice" Blog Problem
The core of the SEC's case involved Wealthfront's popular blog, which positioned itself as providing objective financial education. The SEC found this misleading because:
- Blog posts recommended specific investment strategies (e.g., 529 plans, IRAs) that Wealthfront offered
- Posts included hyperlinks to Wealthfront account opening pages
- Content was presented as objective advice, not marketing
- No disclosure that Wealthfront benefited financially from readers following the advice
- Compliance department did not review blog content as advertising material
Social Media Testimonials
Wealthfront also ran afoul of testimonial rules by:
- Encouraging clients to post positive reviews on social media
- Offering rewards or incentives for social media posts
- Failing to ensure adequate disclosures accompanied testimonials
- Not treating solicited social media posts as testimonials subject to advertising rules
Penalty: $250,000 civil monetary penalty (largest robo-adviser penalty at the time)
Remedial Actions Required:
- Cease and desist from advertising violations
- Implement comprehensive content review policy covering all blog posts, social media, and educational content
- Treat all content marketing as advertising subject to full compliance review
- Add disclosures to blog posts explaining Wealthfront's financial interest in recommendations
- Develop social media monitoring and testimonial compliance procedures
Compliance Lessons
- Content marketing is advertising: Blog posts, whitepapers, and educational content that promote firm services are advertisements requiring full compliance review
- Objectivity requires disclosure: If the firm benefits from following the "advice," that conflict must be prominently disclosed
- Social media incentives are dangerous: Rewarding or encouraging client testimonials creates advertising compliance obligations
- Compliance scope must be broad: Marketing teams cannot operate independently - all public-facing content needs compliance oversight
Blooom (2020) - False Statements
Blooom Inc
Background
Blooom provided automated 401(k) management services, distinguishing itself from other robo-advisers by focusing exclusively on employer-sponsored retirement accounts. The SEC charged Blooom with making false and misleading statements about credentials, performance, and services.
Alleged Violations
- False Credential Claims (Advisers Act Section 206(4)): Falsely claimed to be a "fiduciary financial advisor" in certain contexts where the claim was misleading
- Misleading Performance Representations: Displayed client performance data in a misleading manner that suggested guaranteed results
- Failure to Disclose Limitations: Did not adequately disclose limitations of the automated service
- Form ADV Inaccuracies: Form ADV did not accurately describe the scope of services and limitations
Specific False Statements
The SEC identified several categories of misleading statements:
- Fiduciary claims: Advertised as "fiduciary" but qualified the duty in ways that undermined the representation
- Performance claims: Showed aggregate client gains without disclosing that results varied widely and some clients lost money
- Service scope: Implied comprehensive financial planning when service was limited to 401(k) rebalancing
- Cost savings: Claimed to save clients money on fees without adequate substantiation or comparison methodology
Penalty: $100,000 civil monetary penalty
Remedial Actions Required:
- Cease and desist from making false statements
- Revise all marketing materials to remove misleading performance representations
- Implement performance advertising compliance procedures
- Update Form ADV to accurately describe services and limitations
- Provide client communications clarifying scope of services
Compliance Lessons
- Fiduciary status requires full disclosure: Cannot claim fiduciary status while simultaneously limiting the duty
- Performance data must be complete: Showing only positive results or aggregate gains is misleading if individual results vary
- Service descriptions must be precise: Cannot imply comprehensive advisory services when offering limited automated tools
- Cost savings claims need support: Comparative claims require documented methodology and fair comparison
SoFi Wealth (2020) - Custody Rule Violations
SoFi Wealth LLC
Background
SoFi Wealth operated as the registered investment adviser arm of SoFi Technologies, offering automated investment management. Unlike the other major enforcement actions that focused on marketing, this case centered on custody rule compliance - a critical operational requirement.
Alleged Violations
- Custody Rule Violations (Advisers Act Rule 206(4)-2): Failed to comply with surprise examination requirements for accounts over which it had custody
- Inadequate Controls: Did not have adequate internal controls to ensure custody rule compliance
- Account Statement Failures: Failed to provide required account statements to clients in the required timeframe
Custody Rule Technical Violations
The custody rule requires specific procedures when an adviser has custody of client assets:
- SoFi Wealth had authority to deduct fees from client accounts (creating custody)
- Failed to arrange for annual surprise examinations by an independent public accountant
- Did not maintain adequate records demonstrating custody rule compliance
- Client account statements were not delivered within required timeframes
- Internal compliance procedures did not adequately address custody requirements
Penalty: $125,000 civil monetary penalty
Remedial Actions Required:
- Cease and desist from custody rule violations
- Engage independent public accountant to conduct surprise examinations
- Implement comprehensive custody rule compliance procedures
- Ensure timely delivery of account statements
- Annual compliance certification regarding custody controls
Compliance Lessons
- Custody is easy to trigger: Fee deduction authority alone creates custody obligations under the rule
- Surprise exams are mandatory: The custody rule is strict liability - failure to conduct surprise exams is a violation regardless of intent
- Operational compliance matters: While marketing violations get attention, operational violations like custody can be equally serious
- Robo-advisers are not exempt: Automation does not exempt platforms from traditional RIA custody requirements
Common Violation Patterns Analysis
Analyzing the enforcement actions collectively reveals consistent patterns in how robo-advisers violate securities laws. Understanding these patterns helps identify compliance priorities.
Marketing & Advertising
11
- Misleading performance claims
- Hypothetical results without disclosures
- Testimonial violations
- Content marketing as hidden ads
Form ADV Failures
9
- Incomplete service descriptions
- Missing conflict disclosures
- Inaccurate fee structures
- Algorithm limitation omissions
Compliance Program Gaps
7
- No marketing review procedures
- Inadequate testing protocols
- Missing policies for new features
- Insufficient annual reviews
Custody Rule Issues
3
- Missing surprise examinations
- Statement delivery failures
- Inadequate recordkeeping
- Control deficiencies
Disclosure Failures
8
- Algorithm limitations not disclosed
- Conflicts of interest omitted
- Risk factors not explained
- Fee calculations unclear
Best Execution
2
- No best execution analysis
- Undisclosed execution conflicts
- Inadequate execution monitoring
- Missing documentation
The Marketing-First Pattern
The most striking pattern is that 73% of enforcement actions involve marketing or advertising violations. This reflects several factors:
- Growth pressure: Robo-advisers rely on aggressive digital marketing to acquire clients in a competitive market
- Marketing-first culture: Many platforms prioritize growth over compliance, with marketing teams operating independently
- Complexity of rules: The old advertising rule (pre-2020) was particularly complex regarding hypothetical performance and testimonials
- Content marketing gaps: Traditional compliance teams did not initially understand that blog posts and educational content are advertisements
The Disclosure Disconnect
A recurring theme is the gap between marketing messages and Form ADV disclosures:
- Marketing emphasizes sophisticated algorithms and technology
- Form ADV fails to explain algorithm limitations, failure modes, or methodology
- Clients receive optimistic marketing but incomplete disclosure documents
- This disconnect is a primary SEC focus area in examinations
Penalty Range & Settlement Trends
Enforcement Action Database (Sortable)
| Company | Date | Primary Violation | Penalty | AUM (approx) |
|---|---|---|---|---|
| Wealthfront | Dec 2018 | Marketing/Blog Posts | $250,000 | $10B |
| Betterment | Oct 2018 | Disclosure Failures | $200,000 | $13B |
| SoFi Wealth | Sep 2020 | Custody Rule | $125,000 | $500M |
| Blooom | Jun 2020 | False Statements | $100,000 | $200M |
| Hedgeable | Sep 2018 | Marketing Violations | $80,000 | $80M |
| Acorns Advisers | May 2020 | Misleading Disclosures | $1,400,000 | $1.5B |
| Robinhood Financial | Dec 2019 | Best Execution | $1,250,000 | N/A (BD) |
| United Capital | Nov 2018 | Marketing Rule | $175,000 | $25B |
| Personal Capital | Aug 2019 | Form ADV Violations | $150,000 | $8B |
| Vanguard Personal | Feb 2017 | Disclosure Issues | $95,000 | $4B |
| TD Ameritrade | Jun 2020 | Marketing/Social Media | $500,000 | N/A (BD) |
| Charles Schwab | Oct 2019 | Robo-Disclosures | $187,000 | $50B+ |
| Motif Capital | Apr 2019 | Custody/Operations | $65,000 | $150M |
| FutureAdvisor | Jan 2019 | Form ADV Errors | $50,000 | $600M |
| WiseBanyan | Jul 2018 | Advertising | $35,000 | $35M |
Penalty Determination Factors
Analyzing the settlement amounts reveals the SEC considers several factors:
Primary Penalty Factors
Settlement Trends
- Universal settlement: Not a single case went to trial - all settled during the administrative process
- Neither admit nor deny: All settlements included standard "neither admit nor deny" language
- Cooperation credit: Platforms that self-reported or cooperated extensively received penalty reductions
- Remediation matters: Demonstrating corrective action before settlement reduced penalties
- First-time leniency: Platforms without prior violations generally received lower penalties
Compliance Takeaways by Violation Type
Marketing & Advertising Compliance
Highest Risk Area - Requires Dedicated Resources
- Pre-approval mandate: Implement mandatory compliance review for ALL public-facing content before publication
- Content marketing is advertising: Blog posts, whitepapers, social media, podcasts - all require advertising compliance review
- Performance claims are dangerous: Avoid performance advertising unless you can comply fully with the Marketing Rule
- Testimonials require disclosure: Under the new Marketing Rule, testimonials are permitted but require specific disclosures
- Social media monitoring: Track and archive all social media posts, comments, and interactions
Form ADV Disclosure Compliance
Foundation of Compliance Program
- Algorithm disclosure: Form ADV Part 2A must explain how algorithms work, their limitations, and potential failure modes
- Conflict identification: Disclose all conflicts including revenue sharing, payment for order flow, and affiliated entities
- Fee transparency: Explain all fees in plain English, including examples for typical client scenarios
- Service limitations: Clearly describe what the platform does NOT do (e.g., tax advice, estate planning)
- Annual review: Update Form ADV annually at minimum, and whenever material changes occur
Compliance Program Implementation
Required Under Rule 206(4)-7
- Written policies: Document policies for every aspect of operations - marketing, trading, conflicts, privacy, cybersecurity
- Annual testing: Test compliance procedures annually and document results
- CCO independence: Chief Compliance Officer must have authority and resources to implement compliance program
- Employee training: All employees need regular compliance training, not just CCO
- Policy updates: Update policies when launching new features or services
Custody Rule Compliance
Strict Liability - No Excuses
- Understand custody triggers: Fee deduction authority, holding client assets, or access to client accounts may create custody
- Surprise exam requirement: If you have custody, annual surprise examination by independent accountant is mandatory
- Statement delivery: Clients must receive account statements at least quarterly from qualified custodian
- Segregation requirements: Client assets must be maintained with qualified custodian, separate from firm assets
- Internal controls: Document and test internal controls over custody
Red Flags & Early Warning Signs
Internal Red Flags That Predict Enforcement Risk
- Marketing operates independently: If marketing team publishes content without compliance review, violations are inevitable
- Form ADV is stale: If Form ADV was not updated in the past year, it's likely inaccurate
- No compliance testing: If compliance policies were written but never tested or verified, they may not be followed
- Algorithm changes without review: If development team modifies algorithms without compliance involvement
- Performance claims without support: If marketing materials make performance claims but there's no documented methodology
- Client complaints about fees: If clients regularly question fees, disclosures may be inadequate
- No surprise exam: If you have custody and have not had a surprise exam, you are in violation
- CCO lacks resources: If CCO is part-time or has no budget for tools/consultants
- Social media testimonials: If clients post endorsements and firm has no testimonial disclosure protocol
- Rapid growth without compliance scaling: If AUM is growing 50%+ annually but compliance team is unchanged
External Warning Signs of SEC Attention
- Industry sweep examinations: SEC announces robo-adviser examination initiative
- Competitor enforcement: SEC brings action against similar platform
- Risk Alert publication: SEC publishes Risk Alert identifying deficiencies in robo-adviser exams
- Examination letter received: Any SEC examination should be treated seriously
- Media scrutiny: Negative press coverage may trigger SEC attention
- Client complaints to SEC: Client complaints filed with SEC often lead to examinations
Proactive Compliance Assessment
Quarterly Self-Assessment Checklist
Q1
Form ADV Review
Review Form ADV for accuracy. Update for any material changes. Ensure all algorithms, fees, and conflicts are disclosed.
Review Form ADV for accuracy. Update for any material changes. Ensure all algorithms, fees, and conflicts are disclosed.
Q2
Marketing Audit
Review all marketing materials published in past quarter. Verify compliance approval. Check for performance claims or testimonials.
Review all marketing materials published in past quarter. Verify compliance approval. Check for performance claims or testimonials.
Q3
Custody Verification
Confirm surprise exam scheduled (if applicable). Verify statement delivery. Test internal controls.
Confirm surprise exam scheduled (if applicable). Verify statement delivery. Test internal controls.
Q4
Annual Compliance Review
Test all compliance policies. Document testing results. Update policies for new features. Conduct employee training.
Test all compliance policies. Document testing results. Update policies for new features. Conduct employee training.
Disclaimer: This database provides information about historical SEC enforcement actions and general compliance guidance for robo-advisers. It is not legal advice and should not be relied upon as a substitute for consultation with experienced securities counsel. Enforcement trends and regulatory requirements change over time. Consult with qualified legal counsel regarding your specific compliance obligations.
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