Robo-Advisor Lawsuits: AI Financial Advice & Investment Platform Negligence

Hand over your savings, answer a few questions about your goals and risk tolerance, and an AI-driven platform would put your money to work with the discipline and precision that no human portfolio manager could match consistently. No commissions. No conflicts. Just sophisticated algorithms optimizing your returns around the clock.

Millions of retail investors accepted that promise and opened accounts with robo-advisory platforms at household-name financial institutions and lesser-known fintech companies, and trusted that the algorithm was doing what it claimed to do. In a growing number of documented cases, it did not live up the promises. And in several of those cases, the SEC has already found that investors were misled, fiduciary duties were breached, and clients lost money because of failures that the platforms could have prevented and chose not to disclose.

On March 24, 2026, the SEC issued an enforcement order against Ally Invest Advisors for failing to disclose a conflict of interest that affected clients for nearly six years. That action is the latest in a pattern of robo-advisor enforcement that has now reached Schwab, Betterment, Wahed Invest, and SoFi, spanning hundreds of millions of dollars in settlements and penalties.

The Lyon Firm represents retail investors in complex financial litigation and class action cases. If you used a robo-advisory platform and suffered investment losses, contact our team today for a free and confidential consultation.

Who has a Robo-Advisor Claim?

A robo-advisor is an algorithm-driven investment management service that uses client inputs to construct and manage a portfolio, typically built from exchange-traded funds, and then rebalances it automatically over time.

The appeal is that robo-advisors charge lower fees than human financial advisors and they make investing accessible to people who could not otherwise afford professional advisory services.

But the lower cost structure creates a business problem because if a platform charges no advisory fee or a very low one, it needs to generate revenue somewhere else. In several documented cases, robo-advisors found ways to profit from client assets that were not fully disclosed to those clients.

Under the Investment Advisers Act of 1940, registered investment advisers owe their clients a fiduciary duty. The duty of loyalty requires an adviser to act in the client's best interest and to disclose all material conflicts of interest. The duty of care requires the adviser to make investment recommendations that are suitable for the specific client and to have a reasonable basis for those recommendations.

These obligations apply to robo-advisors registered as investment advisers just as they apply to human ones. The SEC has made this position explicit and has acted on it repeatedly.

The Ally Invest Case

In March 2026, the SEC issued an administrative order against Ally Invest Advisors Inc., because the firm offered a no-advisory-fee robo-advisor account that it marketed to clients as a cost-effective, risk-balanced investment product. Inside that account, Ally's algorithm automatically allocated 30 percent of client assets to cash, a significant drag on returns, particularly during the extended bull market of 2019 through 2022.

Ally told clients the cash allocation was designed to act as a buffer against market risk. Ally did not tell clients was that the 30 percent cash allocation was selected, in part, to generate revenue for Ally's affiliated broker-dealer and affiliated bank.

Ally's broker-dealer received rebates from the interest generated by clients' cash holdings and Ally Bank earned interest by lending out deposited client funds. The no-fee account was not actually free. Clients were paying through suppressed investment returns, and the beneficiary of that implicit cost was Ally itself.

Under the settlement, Ally agreed to pay a $500,000 civil penalty, accept a censure and cease-and-desist order, and notify clients of the SEC's findings. The firm neither admitted nor denied the SEC's findings. Individual Ally Invest clients who held Cash-Enhanced accounts during the relevant period may have legal options beyond the regulatory settlement.

The Schwab Intelligent Portfolio Lawsuit

The Ally Invest action closely mirrors an enforcement the SEC brought against Charles Schwab in June 2022, which resulted in one of the largest robo-advisor penalties in the agency's history.

From March 2015 through November 2018, Schwab's Intelligent Portfolios robo-advisor allocated between 6 and 30 percent of client assets to cash and swept those funds into an affiliated Schwab bank. Schwab earned a spread on the difference between the interest it earned on those deposited funds and the amount it paid to clients.

Schwab disclosed that portfolios would hold a cash allocation. What it did not disclose was why. The firm's own internal analyses showed that the cash allocations would produce lower returns for clients under most market conditions compared to portfolios with less cash. Schwab's marketing described the cash allocation as being determined by a disciplined portfolio construction methodology seeking optimal returns. The SEC found that description was false and misleading.

The SEC charged three Schwab investment adviser subsidiaries and required them to pay $187 million, composed of approximately $52 million in disgorgement and prejudgment interest and a $135 million civil penalty, to be distributed to affected clients.

The Schwab case established an important precedent: the fact that a robo-advisor advertises itself as fee-free does not shield the platform from accountability when the true cost to clients is embedded in the portfolio's structure rather than disclosed as a line-item fee. If investors are paying an implicit cost through suppressed returns, that arrangement must be disclosed clearly.

The Betterment LLC Enforcement

In April 2023, the SEC charged Betterment LLC with material misstatements and omissions related to its automated tax-loss harvesting service. Betterment agreed to pay a $9 million civil penalty, which was distributed to affected clients.

Tax-loss harvesting is a portfolio management technique in which a platform automatically sells securities that have declined in value to generate a realized loss, which can then be used to offset taxable capital gains or income. Betterment marketed this feature as a core value proposition and described it as scanning client accounts on a daily basis for harvesting opportunities.

From January 2016 through April 2019, that description was not accurate. Betterment had changed its scanning frequency from daily to every other day without notifying clients, and the platform also failed to disclose a programming constraint affecting certain accounts and had two separate coding errors that prevented the tax-loss harvesting algorithm from functioning at all for a subset of clients.

More than 25,000 client accounts were affected and clients lost approximately $4 million in potential tax benefits. The SEC found that Betterment had violated its fiduciary duty by failing to disclose material changes to the service and failing to maintain required books and records.

The Betterment case demonstrates that when a robo-advisor promises a specific service feature and then fails to deliver it due to coding errors or undisclosed operational changes, that failure can constitute a breach of fiduciary duty. A $9 million penalty was distributed to affected clients, showing that enforcement proceedings can produce meaningful individual recovery.

The Ally Invest, Schwab, and Betterment cases are not isolated incidents but are part of a documented pattern of robo-advisor misconduct that the SEC has been actively pursuing. SoFi Wealth faced an SEC enforcement action in 2021 for breaching its fiduciary duty to clients and Wahed Invest settled SEC charges in 2022 for advertising the existence of proprietary funds that did not exist and for failing to rebalance client accounts as promised.

FINRA Advertising & Disclosure Obligations

When a robo-advisor's marketing materials describe its algorithmic processes in ways that are technically true but practically misleading, for example describing a cash allocation as optimized for the client's benefit when it was actually sized to generate affiliate revenue, those communications may run afoul of FINRA's advertising rules in addition to the SEC's anti-fraud provisions under the Investment Advisers Act.

This creates potential accountability for investors who opened accounts at platforms operated by FINRA member firms.

Who Can Sue a Brokerage?

Investors may have stronger grounds for a legal claim if they used a robo-advisor platform during a period when the SEC later found the platform was not operating as described or was concealing a conflict of interest.

Another red flag is if an investor paid for or were promised a specific feature such as tax-loss harvesting or automatic rebalancing, and evidence suggests that feature was not functioning as advertised.

If you suspect you have a case, request your complete account history and transaction records going back to the date you opened the account and compare the cash allocation percentages in your historical statements against what the platform's marketing materials described.

This documentation will give your attorney the factual foundation needed to assess whether your experience fits a pattern of misconduct that the SEC has already identified or that may support an independent legal claim.

Why Hire The Lyon Firm?

The Lyon Firm has spent nearly two decades representing individuals in class action and consumer protection litigation. Attorney Joe Lyon has been appointed lead class counsel in federal and state consumer class actions and has represented clients in over 40 multi-district litigations nationwide, achieving multiple seven-figure results.

If you used a robo-advisory platform and believe you were misled about fees or the performance of specific algorithm-driven features, contact The Lyon Firm today. Call us at 513.381.2333 or reach us online.

Consultations are free, confidential, and available to clients across the country. We represent investors on a contingency fee basis, with no fees or costs unless we achieve a recovery for you.