NEW YORK — Zoe Financial Inc. agreed to a cease-and-desist order and a censure without admitting the SEC’s findings. The SEC order finds that Zoe Financial Inc. willfully violated Section 206(2) of the Investment Advisers Act of 1940.

Zoe Financial Inc. 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 Inc. salespeople typically followed up with individuals who did not schedule a meeting with one of the matches generated by the algorithm. Salespeople often recommended additional advisers to the client beyond the recommendations generated by the algorithm.

Zoe Financial Inc. disclosed that certain advisory firms held indirect minority interests in Zoe Financial and that this presented a conflict. The firm did not accurately describe how it mitigated the conflict arising from indirect minority interests held by certain advisory firms. Zoe Financial Inc. did not adequately disclose the resulting conflict of interest in its Form ADV Brochure until December 2024.

Why It Matters

This enforcement action shows the regulatory scrutiny applied to algorithmic referral systems and the fiduciary duties of investment advisers under federal law. The settlement reflects the requirement for transparent disclosure when financial incentives, such as those tied to proprietary platforms like Zoe Wealth, may influence adviser recommendations.

Zoe Financial Inc. had previously been required to disclose conflicts of interest in its referral program, according to a filing with the SEC that detailed how referral fees could create incentives for the company to favor certain advisers. The failure to adequately update disclosures in subsequent filings, particularly regarding the launch of new services and ownership structures, resulted in the current penalties and censure.

Timeline

On 2000-07-12, the Securities and Exchange Commission published a proposed rule titled Revision of the Commission's Auditor Independence Requirements. In January 2023, Zoe Financial Inc. launched Zoe Wealth, offering sub-advisory services, account onboarding assistance, and other back-office support for its network of investment advisers.

On 2026-09-28, Sheldon Pollock stated that investment advisers have a fiduciary obligation to fully and fairly disclose material conflicts of interest. Also on 2026-09-28, the Securities and Exchange Commission announced settled charges against Zoe Financial Inc. for failing to fully and fairly disclose material facts concerning conflicts of interest to its clients and prospective clients.

On the same date, Pollock noted that 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. The SEC order issued on 2026-09-28 finds that Zoe Financial Inc. willfully violated Section 206(2) of the Investment Advisers Act of 1940. Zoe Financial Inc. agreed to pay a civil monetary penalty of $450,000 on 2026-09-28.

What's New

In 2023, Zoe Financial Inc. launched its own RIA, Zoe Wealth Platform, which allowed clients to open investment accounts instantly and provided sub-advisory services, raising concerns about potential conflicts of interest between its referral service and its own advisory offerings. Zoe Financial Inc. had a history of not accurately describing how it mitigated conflicts of interest in its referral program, as shown in its 2024 Form ADV Brochure, which led to the SEC’s enforcement action.

Zoe Financial Inc.'s algorithm for matching users with RIAs did not consider whether an adviser used the Zoe Wealth Platform, despite the fact that some RIAs paid higher fees to Zoe for using the platform, creating a potential conflict of interest. Zoe Financial’s algorithm, as disclosed in its Form ADV Part 3, does not consider an adviser’s referral fee structure or whether they use the Zoe Wealth platform when generating recommendations, despite financial incentives for advisers to adopt the platform.

Zoe Financial Inc. had a financial incentive to promote Ethic, Inc. to RIAs on the Zoe Wealth Platform, as it was compensated based on a percentage of assets under management for those client accounts managed by Ethic, creating an additional conflict of interest. In its 2024 Form ADV Part 2A, Zoe Financial Inc. disclosed that it had arrangements with third-party solicitors who referred users to its platform in exchange for fixed compensation, which created a conflict of interest and required specific disclosures under Rule 206(4)-1 of the Investment Advisers Act.