Betterment Reaches Agreement with the SEC to Resolve Legacy Disclosure and Operational Issues
Here's what you need to know
Today, Betterment announced a settlement with the U.S. Securities and Exchange Commission (“SEC”) that primarily covers certain disclosure and operational issues involving automated tax loss harvesting (“TLH”) between January 2016 and April 2019. The SEC found that two coding issues caused TLH not to operate for a limited subset of customers, and that certain disclosures did not fully reflect the operation of TLH. The TLH-related issues involved less than a percent of the total losses harvested by Betterment since TLH was introduced. For the segment of customers who potentially incurred financial impact by missing possible tax loss harvests, the median payout is expected to be less than $100 per customer.
While Betterment reached a settlement with the SEC, it neither admits nor denies any wrongdoing. It fully cooperated with the SEC’s inquiry and is pleased to have reached a resolution on these issues. The SEC Order acknowledges that Betterment addressed the TLH-related coding and disclosure issues by 2019. In the years since 2019, Betterment has also made significant investments to build and strengthen its compliance program.
TLH is one of the ways Betterment helps customers get more value from their investments. TLH provides customers a way to offset capital gains or income with harvested losses, potentially reducing tax liability. Betterment’s offering identifies and sells holdings that have decreased in price during temporary market declines. Since it was introduced in 2014, TLH has been offered to Betterment customers as a value-added feature without additional fees. TLH is estimated to have saved hundreds of millions of dollars in taxes for the more than 275,000 customers who have enabled this feature.
The settlement also covers recordkeeping, policies & procedures, and customer agreement notifications. Betterment will be paying $9 million to resolve the matter, which will be deposited into a “Fair Fund” that will compensate impacted customers for any potential tax benefits they missed due to the legacy TLH issues. Impacted customers will be notified of their compensation later this year, once the SEC approves a distribution plan.
Betterment serves nearly 800,000 customers with low-fee investment, retirement and cash management products and automated tools that allow customers to build a more secure financial future. Betterment is committed, as always, to its mission of making people’s lives better and seeks every opportunity to improve its services and business to achieve that goal.