The Securities and Exchange Commission filed charges against Wealthfront and the now-defunct Hedgeable that included accusations of false performance reporting, prohibited testimonials, undisclosed paid promotions and false statements, according to WealthManagement.com.
Costly Marketing Mistakes Lead to Regulatory Run-ins
Robo-advisor Wealthfront, which manages more than $11 billion, allegedly made false statements about its tax-loss harvesting strategy by telling clients it would monitor for transactions that could cause a wash sale and failing to do so, according to the SEC, the publication writes. In reality, more than 31% of accounts were allegedly subject to a wash sale during the strategy’s more than three-year life, WelathManagement.com writes.
Additionally, Wealthfront paid bloggers for client referrals and failed to disclose or document it properly, re-tweeted prohibited testimonials and failed to maintain a compliance program that could reasonably avoid violations, according to the SEC, the publication writes. In response to the charges, Wealthfront said that they take regulatory duties seriously and were happy to have reached a settlement, according to WealthManagement.com.
In a separate SEC order, Hedgeable, which had about $81 million in assets before closing its investment management business earlier this year, was also accused of failing to maintain a compliance program, the publication writes. Furthermore, the robo was charged with making misleading statements by publishing comparisons that only used 4% of their accounts — those with higher-than-average earnings — and not using their competitors’ actual trading models, according to the SEC, WealthManagement.com writes.
Neither company admitted or denied the charges, with Wealthfront settling for $250,000 and Hedgeable for $80,000, according to the publication. In the meantime, advisors should take note, since these enforcement actions show where the SEC stands on several regulatory issues and highlight how marketing mistakes can lead to fines and censures, according to industry professionals, WealthManagement.com writes.
