The Securities and Exchange Commission today announced settled charges against New York-based investment adviser Zoe Financial Inc. for failing to fully and fairly disclose material facts concerning conflicts of interest to its clients and prospective clients. 

According to the SEC order, Zoe Financial operated a referral service which used an algorithm to match third-party investment advisers in its network with individuals seeking a recommendation for an investment adviser. Zoe Financial salespeople typically would then follow up with individuals who did not schedule a meeting with one of the matches generated by the algorithm, and in ensuing conversations, salespeople often recommended additional advisers to the client, beyond the recommendations generated by the algorithm. 

In January 2023, Zoe Financial launched Zoe Wealth, through which Zoe Financial offered sub-advisory services, account onboarding assistance, and other back-office support for its network of investment advisers. The order finds that Zoe Financial had a financial incentive for advisers in its network to use Zoe Wealth and encouraged advisers to do so. Further, as described in the order, while Zoe Financial’s algorithm did not consider whether an adviser used Zoe Wealth when it generated recommendations, salespeople often became involved in the referral process, and on many occasions suggested advisers that had not been initially recommended by the algorithm. The order finds that Zoe Financial did not adequately disclose the resulting conflict of interest in its Form ADV Brochure until December 2024. In addition, according to the order, while Zoe Financial disclosed that certain advisory firms held indirect minority interests in Zoe Financial and that this presented a conflict, Zoe Financial did not accurately describe how it mitigated that conflict. 

“Investment advisers have a fiduciary obligation to fully and fairly disclose material conflicts of interest,” said Sheldon Pollock, Associate Director of the SEC’s New York Regional Office. “Advisers must live up to those disclosure obligations in all aspects of their advisory services, including when they offer a new technology or new feature to their clients.”

Accordingly, the order finds that Zoe Financial willfully violated Section 206(2) of the Investment Advisers Act of 1940. Without admitting the SEC’s findings, Zoe Financial agreed to a cease-and-desist order, a censure, and to pay a civil monetary penalty of $450,000. The order acknowledges certain remedial measures taken by Zoe Financial, including making compliance manual revisions and hiring an in-house chief compliance officer.