Articles Posted in FINRA Fine

BettermentAccording to Financial Industry Regulatory Authority (FINRA) records and a June 22, 2018 report by Investment News, FINRA has issued a $400,000 fine against the online investment advice company Betterment in connection to allegations Betterment FINRA rules related to customer protection and the proper maintenance of books and records.

Betterment Securities, a FINRA member and wholly owned subsidiary of Betterment Holdings, Inc., offers brokerage services to clients of Betterment LLC, a registered investment adviser and also a subsidiary of Betterment Holdings. Betterment LLC “operates as an online wealth management service,” according to FINRA, and Betterment Securities’ customer base is composed of Betterment LLC’s clients. Created in 2010, Betterment LLC “uses software algorithms and technology to maintain its customers’ investment portfolios,” and Betterment Securities is a carrying firm that offers brokerage services to Betterment LLC’s customers; according to FINRA, it “has a primary responsibility to protect its customers’ assets.”

Despite that responsibility, according to FINRA, Betterment Securities failed to ensure its practices were in compliance with FINRA and SEC rules. For instance, between October 2013 and January 2015, it “structured its transactions on days when it was required to calculate its reserve deposits differently than on other days in order to reduce its Customer Reserve Account obligations. That is, the firm allegedly transferred client deposits to an omnibus account that “to fund its pre-settlement withdrawal program,” but on other days, when it was “required to compute its customer reserve requirement,” it did not transfer customer deposits but rather funded the program with loans from its clearing firm. In so doing, FINRA alleges, the firm “engaged in ‘window dressing'” by altering its practices to reduce its reserve requirement.

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