SEC sanctions Zoe Financial over adviser referral disclosures
The adviser agreed to a US$450,000 penalty and censure after the SEC found it inadequately disclosed conflicts involving referrals and Zoe Wealth.
The US Securities and Exchange Commission has settled charges against Zoe Financial, finding the investment adviser failed to fully and fairly disclose material conflicts to clients and prospective clients. The company agreed to a cease-and-desist order, a censure and a US$450,000 civil penalty without admitting the findings.
Zoe Financial’s service used an algorithm to match people seeking advice with investment advisers in its network. According to the SEC order, salespeople often recommended additional advisers when following up with people who had not scheduled meetings with the algorithm’s matches.
The company launched Zoe Wealth in January 2023, offering network advisers sub-advisory services, account onboarding and back-office support. The SEC said Zoe had a financial incentive for advisers to use the service and encouraged them to do so. Although the algorithm did not factor in advisers’ use of Zoe Wealth, salespeople often intervened in referrals and suggested advisers outside the algorithm’s initial recommendations.
The SEC order says Zoe Financial did not adequately disclose the resulting conflict in its Form ADV Brochure until December 2024. It also found the firm inaccurately described how it mitigated a conflict arising from indirect minority ownership interests held by certain advisory firms.
The order says Zoe Financial willfully violated Section 206(2) of the Investment Advisers Act of 1940. It also acknowledges remedial steps, including revisions to the compliance manual and the hiring of an in-house chief compliance officer.
