Social Finance Inc. is paying money to customers for unexpected capital-gains taxes after the financial technology startup pulled their money from Vanguard Group’s funds into its own exchange-traded funds. The San Francisco firm launched in April two SoFi-branded ETFs that it said would cost zero for a period. The firm didn’t tell customers of SoFi’s robo-advisory business beforehand that it would liquidate some clients’ existing ETF investments and funnel the proceeds into SoFi’s own new funds. The move stood to generate capital gains for some clients, saddling them with tax bills, The Wall Street Journal reported. The two ETFs made their debut in April with a CNBC appearance by Anthony Noto, SoFi’s chief executive.
This month, the firm notified users who were affected that they would receive refunds. SoFi identified about 10,000 out of its roughly 26,500 robo-advisory accounts as potentially affected, according to a person familiar with the matter. “While we believe the changes made in April to improve our portfolios were in your long-term best interest, we recognize that the changes may have had an unexpected tax impact on some of our members,” according to an email to
founder of Backend Benchmarking, a firm in Martinsville, N.J., that opens accounts at robo advisers and compares their performances. SoFi previously told the Journal that it had notified customers of the change “in a timely fashion in accordance with regulations” and added that “institutional asset managers do not typically forecast trades.” SoFi’s moves come as robo advisers are locked in an intense battle for the money and data of young customers and as smaller fund providers face an uphill fight getting on major distribution platforms. Robo advisers are technology platforms that assemble portfolios for people with algorithms and typically charge lower fees than human advisers. SoFi’s two ETFs will be free for a period thanks to fee waivers, which extend through at least June 2020. The funds, which marked SoFi’s first foray into the ETF market, have slightly over $60 million collectively, according to FactSet. Faced with a tougher environment for consumer lending, the online lender is trying to branch out into such areas as banking and investing. As part of an effort to raise its profile, SoFi won the rights to put its name on a new stadium that will be the home of the Los Angeles Rams and the Los Angeles Chargers of the National Football League. Write to Dawn Lim at firstname.lastname@example.org
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