U.S. advisory firm Ally Invest Advisors Inc. is being sanctioned in a settlement with regulators over alleged disclosure failures involving its “robo” advisor accounts.
The U.S. Securities and Exchange Commission (SEC) alleged that, between September 2019 and August 2025, the firm breached its fiduciary duty to investors by failing to disclose a conflict of interest in the asset allocation used in its “no fee” robo accounts that it launched, in part, to attract novice retail investors.
Specifically, the SEC alleged that the firm failed to disclose to investors that it allocated 30% of these accounts to cash, in part, to generate revenue for the firm’s affiliated broker-dealer and bank — offsetting the fact that the firm didn’t charge an overall advisory fee on the accounts. This represented a conflict of interest, which regulators alleged wasn’t disclosed to investors.
“Because Ally Invest’s affiliated broker-dealer received a rebate reflecting a portion of the interest that was generated by the cash held in the cash-enhanced accounts, Ally Invest had an incentive to set a higher cash allocation percentage for these accounts,” the SEC’s order alleged. It added that the firm’s affiliated bank also received deposits from certain client accounts, generating net interest revenues for the bank from its cash allocations.
“Although Ally Invest considered several factors in setting the cash allocation at thirty per cent, and advertised to clients that this allocation created a valuable cash buffer meant to balance out potential risk in the cash-enhanced portfolios, it failed to disclose that the thirty per cent cash allocation was selected in part to make up for it not charging an advisory fee on the cash-enhanced accounts, or the associated conflict of interest,” the regulator said.
Additionally, the SEC alleged that the firm inaccurately described the portfolio management methodology that it used in these accounts as utilizing “modern portfolio theory” — when this approach was only used for the non-cash portion of the portfolio.
The firm agreed to settle the case without admitting, or denying, the allegations.
Under the settlement, the firm agreed to pay a US$500,000 penalty, to a censure and a cease-and-desist order, and to alert investors about the settlement with regulators.