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SEC Charges Two Robo-Advisers with False Disclosures (2018)
- deleted 8y ago[deleted]
- Animats 8y agoNothing to do with them being automated advisers. Just ordinary marketing deception. "Wealthfront improperly re-tweeted prohibited client testimonials, paid bloggers for client referrals without the required disclosure and documentation, and failed to maintain a compliance program reasonably designed to prevent violations of the securities laws." "The performance comparisons were misleading because Hedgeable included less than 4 percent of its client accounts, which had higher-than-average returns."
- strstr 8y ago“Wealthfront disclosed to clients employing its tax-loss harvesting strategy that it would monitor all client accounts for any transactions that might trigger a wash sale – which can diminish the benefits of the harvesting strategy – but failed to do so. Over a period of more than three years during which it made this disclosure, wash sales occurred in at least 31 percent of accounts enrolled in Wealthfront’s tax loss harvesting strategy.” This seems like an actual error related to being a roboadviser.
- pmart123 8y agoNot really. This has more to do with the fact that whatever you state you do as part of your service, you should comply with actually doing. If Wealthfront said “from time to time...we monitor...” it may have been ok. Wealthfront’s testimonials were second to none, and largely against what would typically be allowed so it seems like Wealthfront escaped pretty lightly versus alternative punishments the SEC has used in other cases.
- loeg 8y agoWell, sure, that's broadly true. But the specifics are relevant and the actual false statement made is related to the business of being a robo-advisor (TLH & monitoring for wash sales).
- loeg 8y agoThe failure to monitor and avoid wash sales is very much specific to being a robo-advisor.
- zeckalpha 8y ago(2018)
- sctb 8y agoThanks! Updated.
- dangero 8y agoThis fine of $250,000 to Wealthfront means that their violations were 100% worth it. Their fund is 11 billion+ and they got an advantage over competitors by posting testimonials. SEC rules are very clear on this point and at the time other robo compliance officers were lamenting, “I don’t understand how they are able to do that legally.” Well, guess what? They weren’t, but they took it as a calculated risk and the SEC announced they made the right choice when this fine was announced years later.
- shhehebehdh 8y agoHeck, they probably saved more than that over the years just by failing to implement the compliance program. I can’t imagine such a program would cost less than 250k to implement over three years. So they broke even on this deal before you even factor in ill-gotten gains.
- caprese 8y ago$6 Udemy course, unpaid intern, $250,000 kickback to federal government, $250,006 SEO strategy Invest in your SEO strategy like Wealthfront people!
- WrtCdEvrydy 8y agoThis is America! That intern got a good recommendation!
- caprese 8y agoLook how I'm living now Series F around the corner now
- colechristensen 8y agoThe fine probably has more to do with paying the costs of the SEC than punishing Wealthfront. Regulatory actions don't happen in a vacuum and they aren't forgotten. Repeat actions don't necessarily get the same fine, and additional consequences (like more scrutiny for approval, more intense audits, etc) can come from ignoring regulations. But also remember that these are large organizations being regulated in many many different and often vague ways. Violations happen and are dealt with.
- anonu 8y agoThe robo advisor business isn't a great one. ETFs will provide the majority of the benefits you can get from robos. And you don't need to move your money
- mabbo 8y agoI agree, yet still I use one. It's the convenience factor. For the small fees they pay, they implement the ETF strategy I would otherwise use. When I'm adding money, there's zero work or thinking. Now, if I had $250k or more I might change my mind- there's a certain point where yes, it's worth my time to do this myself. But I'm not there yet.
- toast0 8y agoIf you setup a spreadsheet with your asset allocation, and blanks for your relevant accounts (30-60 minutes), it should take about 5-10 minutes to plug in current numbers when it's time to add money, or every once in a while if you want to rebalance. If you're just starting accumulation, rebalancing with contributions might make the most sense. It doesn't make sense to me to pay AUM % for sometime that takes an hour to setup, and minutes a quarter. If they wanted to charge $10 per deposit, maybe. (I also don't see much value in the automated tax loss harvesting, especially if they're not doing a great job avoiding wash sales, wtf?)
- voiper1 8y agoI tried that with robinhood, but that few minutes every month to dollar-cost average in + dealing with whole shares felt like a big distraction. I switched to m1finance where you can set a "pie" e.g. 80% SPY, 20% bonds and then just add money. They do once-daily investing, and automatically add new money or dividends to even out the pie. Now I once a month I just dump "extra" money in without needing to do any calculations.
- peterbraden 8y agoDo you have a spreadsheet template? Finding the efficient frontier and the relevant numbers seems hard?
- po 8y agoI'm confused, were they not monitoring for wash sales even within Wealthfront controlled accounts? I can see it happening if you had external accounts (and I think usually these kinds of services warn you against that) but within Wealthfront itself is pretty weird.
- emit_time 8y agoTim Ferriss used to advertise for them... a lot... Ooof