Brooke's Note: Not only is Betterment the biggest free-standing retail robo in terms of assets and revenues, but arguably, it has the best brand. Wealthfront, SigFig, Trizic, Jemstep, Upside etc. seem not to suggest a value or values proposition. Betterment speaks with a touch of poetry both to its aspiration to do things better and cheaper than Wall Street and also to be Vanguard-like squeaky clean. But here is a case where, in its efforts to do better in the former category, it earned an ugly side-door scratch by running afoul of FINRA. It's notable that, as many robos started, they used Apex Clearing, TD Ameritrade or Pershing as their broker-dealer. Betterment got its own BD, which it believes is key in gaining its market leadership. The company's views on that have not changed. In fact, its arch-rival, Wealthfront, has also brought its custody in-house. Wealthfront nixes Apex Clearing and explains it as step in ridding 'semi-manual processes and disjointed systems'

Betterment has learned the hard way that what goes around as start-up, can come back around in late adolescence and result in a black eye from regulators.  

Back when it had $608 million in managed assets, the New York-based startup routinely rushed cash to clients without enough concern for its reserves. In one May 30, 2014 reserve calculation, it overstated customer-related debits in the customer reserve formula by $816,000.

Betterment has done a lot of growing since then. It now manages more than $14 billion, but FINRA has just docked it for $400,000 to atone for a start-up program that allowed customers – as a courtesy – to access cash proceeds from securities sales on the day after the transaction was executed.

It's the latest robo-advisor to get in trouble for having its own broker-dealer -- something human RIAs generally do not have. Acorns, which manages about $900 million of assets, agreed last July to a $175,000 settlement with FINRA, though that amount was reduced after it claimed hardship because of low revenues, according to its BrokerCheck record. .

Acorns got in trouble for having 10 million records in 22 categories in the digital equivalent of erasable ink. The categories included instant messages and trade confirmations. It has since rebuilt its system to include records only in "non-erasable" and "non-rewritable" form.  As Acorns grapples with monetizing 1.1 million micro-accounts, the laid-back LA robo-advisor brings Wealthfront’s former chief exec onto its board

But Betterment managed to elicit one of Wall Street's uglier dings -- a BrokerCheck violation. Betterment, however, did not run afoul of the SEC, which oversees its RIA. No other actions or investigations are pending by any regulators, according to the firm.

Brexit effect

"We take this stuff insanely seriously," says Joe Ziemer. spokesman for Betterment in an interview. All FINRA examinations since 2014 got completed without deficiency findings, he adds.