Betterment liquidated my investments without my authorization

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GuruNinja
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Betterment liquidated my investments without my authorization

Post by GuruNinja » Wed May 27, 2020 2:05 pm

Hello All,

I had a SEP IRA, and a Traditional IRA with Betterment. In order to consolidate all my investments under a single umbrella, I initiated a request from my brokerage account at MerillLynch to "Transfer my Betterment IRA Assets IN KIND". It was clearly marked on the form that was sent to Betterment to execute the transfer in Kind. However instead of transferring in Kind, Betterment liquidated my securities and sent a check to MerillLynch. Since the market was really down at the time of the request I lost a lot of value.

When I contacted Betterment their customer support agent sent me the below text from a 142 page agreement.

"Client understands that if Client requests a trustee-to trustee transfer from an IRA Account to an IRA account established with another broker-dealer, Betterment Securities reserves the right to effect such transfer exclusively via liquidation of all Assets in the Account, and the issuance of a check to the new trustee, and not via an in-kind transfer."

Do I have any legal options against Betterment? These were my retirement funds that lost value due to Betterment's failure to handle the request as instructed.

I honestly appreciate any suggestions or advice.

fabdog
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Re: Betterment liquidated my investments without my authorization

Post by fabdog » Wed May 27, 2020 2:17 pm

"Client understands that if Client requests a trustee-to trustee transfer from an IRA Account to an IRA account established with another broker-dealer, Betterment Securities reserves the right to effect such transfer exclusively via liquidation of all Assets in the Account, and the issuance of a check to the new trustee, and not via an in-kind transfer."

Do I have any legal options against Betterment? These were my retirement funds that lost value due to Betterment's failure to handle the request as instructed.
What would you think your legal basis was? Granted, it's not likely you read all 142 pages... and they certainly seemed to indicate they would transfer in kind as they had an option on the form to indicate you wanted in kind... but the agreement you had with them gave them this option.

Sorry, but I think you are stuck with the outcome

Mike

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Nestegg_User
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Re: Betterment liquidated my investments without my authorization

Post by Nestegg_User » Wed May 27, 2020 2:25 pm

IANAL, but if that's in the agreement you acknowledged when you set up the account (or was sent sometime afterwards and by continuing the service thereby acknowledged)... they decided (for whatever reason they thought feasible) and they had that ability. It also helps in that they didn't then also have to transfer the basis to the other company. Perhaps because of the higher volatility they wanted to lock in your numbers so that they couldn't be argued that they didn't follow a prudent investor situation and by so transferring the funds in cash wouldn't subject your money to additional risk.

(that such language, and lack of my control, is imbedded within some platforms is why I never would be in them)

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galawdawg
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Re: Betterment liquidated my investments without my authorization

Post by galawdawg » Wed May 27, 2020 2:36 pm

Were all of the funds you held at Betterment eligible to be held at MerrillLynch? Were these full transfers from each account or partial transfers? If you initiated the transfer from MerrillLynch, what did MerrillLynch indicate when you contacted them about the issue? IANYL.

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galawdawg
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Re: Betterment liquidated my investments without my authorization

Post by galawdawg » Wed May 27, 2020 2:42 pm

Nestegg_User wrote:
Wed May 27, 2020 2:25 pm
...Perhaps because of the higher volatility they wanted to lock in your numbers so that they couldn't be argued that they didn't follow a prudent investor situation and by so transferring the funds in cash wouldn't subject your money to additional risk...
Liquidating the account involves increased risk. The way to avoid the issue with volatility in the market would be the transfer in-kind. That avoids all time out of the market. Instead, by liquidating and transferring cash in a volatile market, there exists the possibility that the shares are liquidated during a market downturn and share prices increase during the transfer when the investor is out of the market.

jjface
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Re: Betterment liquidated my investments without my authorization

Post by jjface » Wed May 27, 2020 2:44 pm

Sounds like a good reason to avoid them. They should at least contact you if they want to liquidate. Probably did it to save the work. Easy to sell and cut a check. Even easier if they are not responsible for the timing of the sale but can proceed at their leisure anyway.

The next line in the terms reads:

"Betterment Securities will not be liable for any fluctuation in market prices subsequent to liquidation"
Last edited by jjface on Wed May 27, 2020 2:54 pm, edited 3 times in total.

Topic Author
GuruNinja
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Re: Betterment liquidated my investments without my authorization

Post by GuruNinja » Wed May 27, 2020 2:51 pm

Nestegg_User wrote:
Wed May 27, 2020 2:25 pm
Perhaps because of the higher volatility they wanted to lock in your numbers so that they couldn't be argued that they didn't follow a prudent investor situation and by so transferring the funds in cash wouldn't subject your money to additional risk.

(that such language, and lack of my control, is imbedded within some platforms is why I never would be in them)
Thanks for the response @Nestegg! I would have expected them to at least contact me before liquidating.

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GuruNinja
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Re: Betterment liquidated my investments without my authorization

Post by GuruNinja » Wed May 27, 2020 2:53 pm

galawdawg wrote:
Wed May 27, 2020 2:36 pm
Were all of the funds you held at Betterment eligible to be held at MerrillLynch? Were these full transfers from each account or partial transfers? If you initiated the transfer from MerrillLynch, what did MerrillLynch indicate when you contacted them about the issue? IANYL.
Yeah all the funds were MerillLynch eligible and it was a full account transfer. According to MerillLynch they followed my instructions and clearly indicated to Betterment that the funds be transferred in kind. What happened was beyond their control.

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GuruNinja
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Re: Betterment liquidated my investments without my authorization

Post by GuruNinja » Wed May 27, 2020 2:56 pm

jjface wrote:
Wed May 27, 2020 2:44 pm
Sounds like a good reason to avoid them. They should at least contact you if they want to liquidate. Probably did it to save the work. Easy to sell and cut a check. Even easiler if they are not responsible for the timing of the sale but can proceed at their leisure anyway.

The next line in the terms reads:

"Betterment Securities will not be liable for any fluctuation in market prices subsequent to liquidation"
Yeah I have transferred all my assets from Betterment as they have such a dubious language.

the way
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Re: Betterment liquidated my investments without my authorization

Post by the way » Wed May 27, 2020 3:01 pm

This is a good heads-up for others. Thank you for posting.

Unfortunately, I don't think you have any recourse https://www.betterment.com/resources/how-to-withdraw/#8
For IRA to IRA transfers, we’ll use the direct transfer process and send a check, to avoid any tax consequence for you. At this time, we aren’t able to transfer IRAs in-kind to your new provider.
(It kind of reminds me of the Enron story where they locked the 401k to change plan administrators right before it crashed and all the emps lost millions. ie really bad timing.)
Last edited by the way on Wed May 27, 2020 3:29 pm, edited 1 time in total.

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Nestegg_User
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Re: Betterment liquidated my investments without my authorization

Post by Nestegg_User » Wed May 27, 2020 3:06 pm

galawdawg wrote:
Wed May 27, 2020 2:42 pm
Nestegg_User wrote:
Wed May 27, 2020 2:25 pm
...Perhaps because of the higher volatility they wanted to lock in your numbers so that they couldn't be argued that they didn't follow a prudent investor situation and by so transferring the funds in cash wouldn't subject your money to additional risk...
Liquidating the account involves increased risk. The way to avoid the issue with volatility in the market would be the transfer in-kind. That avoids all time out of the market. Instead, by liquidating and transferring cash in a volatile market, there exists the possibility that the shares are liquidated during a market downturn and share prices increase during the transfer when the investor is out of the market.
perhaps from a BH perspective, but if a client said move all assets and there was a very volatile market... it could easily be argued that at a particular time, when the client wanted out, that the client already did not want to potentially suffer additional losses, therefore locking in the numbers at the clients requested time would be prudent. If the market had dropped a further 30-40%, wouldn't the OP not have even started a thread (as those losses would have been avoided) ?

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GuruNinja
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Re: Betterment liquidated my investments without my authorization

Post by GuruNinja » Wed May 27, 2020 3:21 pm

Nestegg_User wrote:
Wed May 27, 2020 3:06 pm
galawdawg wrote:
Wed May 27, 2020 2:42 pm
Nestegg_User wrote:
Wed May 27, 2020 2:25 pm
...Perhaps because of the higher volatility they wanted to lock in your numbers so that they couldn't be argued that they didn't follow a prudent investor situation and by so transferring the funds in cash wouldn't subject your money to additional risk...
Liquidating the account involves increased risk. The way to avoid the issue with volatility in the market would be the transfer in-kind. That avoids all time out of the market. Instead, by liquidating and transferring cash in a volatile market, there exists the possibility that the shares are liquidated during a market downturn and share prices increase during the transfer when the investor is out of the market.
perhaps from a BH perspective, but if a client said move all assets and there was a very volatile market... it could easily be argued that at a particular time, when the client wanted out, that the client already did not want to potentially suffer additional losses, therefore locking in the numbers at the clients requested time would be prudent. If the market had dropped a further 30-40%, wouldn't the OP not have even started a thread (as those losses would have been avoided) ?
Thats not true as I had no intentions of getting out..I was only consolidating to ML because I wanted to manage everything from a single account. Throughout the market volatility I believed in holding on to what I owned as I believed that the storm would pass.

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GuruNinja
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Re: Betterment liquidated my investments without my authorization

Post by GuruNinja » Wed May 27, 2020 3:22 pm

the way wrote:
Wed May 27, 2020 3:01 pm
This is a good heads-up for others. Thank you for posting.

Unfortunately, I don't think you have any recourse https://www.betterment.com/resources/how-to-withdraw/#8

(It kind of reminds me of the Enron story where they locked the 401k to change plan administrators right before it crashed and all the emps lost millions. ie really bad timing.)
Yeah it should be a heads up for others to stay away from Betterment.

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galawdawg
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Re: Betterment liquidated my investments without my authorization

Post by galawdawg » Wed May 27, 2020 3:26 pm

Nestegg_User wrote:
Wed May 27, 2020 3:06 pm
galawdawg wrote:
Wed May 27, 2020 2:42 pm
Nestegg_User wrote:
Wed May 27, 2020 2:25 pm
...Perhaps because of the higher volatility they wanted to lock in your numbers so that they couldn't be argued that they didn't follow a prudent investor situation and by so transferring the funds in cash wouldn't subject your money to additional risk...
Liquidating the account involves increased risk. The way to avoid the issue with volatility in the market would be the transfer in-kind. That avoids all time out of the market. Instead, by liquidating and transferring cash in a volatile market, there exists the possibility that the shares are liquidated during a market downturn and share prices increase during the transfer when the investor is out of the market.
perhaps from a BH perspective, but if a client said move all assets and there was a very volatile market... it could easily be argued that at a particular time, when the client wanted out, that the client already did not want to potentially suffer additional losses, therefore locking in the numbers at the clients requested time would be prudent. If the market had dropped a further 30-40%, wouldn't the OP not have even started a thread (as those losses would have been avoided) ?
Transfer in-kind is the only way to avoid the volatility risk. If the investor's instructions were transfer in-kind, then the assets should have transferred in-kind. No brokerage should act contrary to specific, lawful and authorized instructions from their client that are lawful. If the investor wanted to sell his positions and move to all cash then he could instruct his brokerage accordingly.

From the information posted by OP, not withstanding any attempt to disclaim liability, Betterment may have violated FINRA rules concerning account transfers (https://www.finra.org/rules-guidance/ru ... ules/11870, see also https://www.sec.gov/oiea/investor-alert ... count.html) and OP may have recourse options. OP may wish to send a written demand to the compliance directors at Betterment and MerrillLynch that the transfer be amended or adjusted to conform to his instructions, file a complaint with FINRA and/or seek counsel from an attorney who is qualified and experienced in such matters. IANYL.

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ResearchMed
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Re: Betterment liquidated my investments without my authorization

Post by ResearchMed » Wed May 27, 2020 3:41 pm

the way wrote:
Wed May 27, 2020 3:01 pm
This is a good heads-up for others. Thank you for posting.

Unfortunately, I don't think you have any recourse https://www.betterment.com/resources/how-to-withdraw/#8
For IRA to IRA transfers, we’ll use the direct transfer process and send a check, to avoid any tax consequence for you. At this time, we aren’t able to transfer IRAs in-kind to your new provider.
(It kind of reminds me of the Enron story where they locked the 401k to change plan administrators right before it crashed and all the emps lost millions. ie really bad timing.)
What "tax consequences" would there be from an "IRA to IRA transfer"?

Regardless, it does seem to be clear that they have announced within their docs that they will NOT transfer in kind.

My concern is that they ignored *written* instructions. Shouldn't they have contacted the OP to explain "we cannot do that, per <docs>. Would you like for us to do the transfer as cash, or would you prefer to cancel the transfer", etc.

RM
This signature is a placebo. You are in the control group.

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Nestegg_User
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Re: Betterment liquidated my investments without my authorization

Post by Nestegg_User » Wed May 27, 2020 3:50 pm

galawdawg wrote:
Wed May 27, 2020 3:26 pm
Nestegg_User wrote:
Wed May 27, 2020 3:06 pm
galawdawg wrote:
Wed May 27, 2020 2:42 pm
Nestegg_User wrote:
Wed May 27, 2020 2:25 pm
...Perhaps because of the higher volatility they wanted to lock in your numbers so that they couldn't be argued that they didn't follow a prudent investor situation and by so transferring the funds in cash wouldn't subject your money to additional risk...
Liquidating the account involves increased risk. The way to avoid the issue with volatility in the market would be the transfer in-kind. That avoids all time out of the market. Instead, by liquidating and transferring cash in a volatile market, there exists the possibility that the shares are liquidated during a market downturn and share prices increase during the transfer when the investor is out of the market.
perhaps from a BH perspective, but if a client said move all assets and there was a very volatile market... it could easily be argued that at a particular time, when the client wanted out, that the client already did not want to potentially suffer additional losses, therefore locking in the numbers at the clients requested time would be prudent. If the market had dropped a further 30-40%, wouldn't the OP not have even started a thread (as those losses would have been avoided) ?
Transfer in-kind is the only way to avoid the volatility risk. If the investor's instructions were transfer in-kind, then the assets should have transferred in-kind. No brokerage should act contrary to specific, lawful and authorized instructions from their client that are lawful. If the investor wanted to sell his positions and move to all cash then he could instruct his brokerage accordingly.

From the information posted by OP, not withstanding any attempt to disclaim liability, Betterment may have violated FINRA rules concerning account transfers (https://www.finra.org/rules-guidance/ru ... ules/11870, see also https://www.sec.gov/oiea/investor-alert ... count.html) and OP may have recourse options. OP may wish to send a written demand to the compliance directors at Betterment and MerrillLynch that the transfer be amended or adjusted to conform to his instructions, file a complaint with FINRA and/or seek counsel from an attorney who is qualified and experienced in such matters. IANYL.

If you read another blogger:
https://bettermentsucks.com/
It appears that they allow ACATS for transferring assets ** IN ** but require lots of paper to transfer assets, in Kind, ** OUT ** and looking at the language that they have in the original agreement even gives them LOTS of leeway to sell securities that "do not align with our strategy" (whatever that is)
[https://www.betterment.com/resources/acats-overview/]

again, not what I would have used; and I pretty much assume that you would be required to use some arbitration in resolution (which it seems is in every financial company's boilerplate for customer agreement)... so the old "good luck with that" is probably appropriate, since I think that the vast majority side with the company (especially if it's listed as within the companies prerogative in the original agreement)

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Re: Betterment liquidated my investments without my authorization

Post by indexfundfan » Wed May 27, 2020 3:53 pm

galawdawg wrote:
Wed May 27, 2020 3:26 pm
From the information posted by OP, not withstanding any attempt to disclaim liability, Betterment may have violated FINRA rules concerning account transfers (https://www.finra.org/rules-guidance/ru ... ules/11870, see also https://www.sec.gov/oiea/investor-alert ... count.html) and OP may have recourse options. OP may wish to send a written demand to the compliance directors at Betterment and MerrillLynch that the transfer be amended or adjusted to conform to his instructions, file a complaint with FINRA and/or seek counsel from an attorney who is qualified and experienced in such matters. IANYL.
This may be worth a shot. If the losses are not too much, Betterment may just make you whole to avoid bad publicity.
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Re: Betterment liquidated my investments without my authorization

Post by RudyS » Wed May 27, 2020 4:42 pm

indexfundfan wrote:
Wed May 27, 2020 3:53 pm
galawdawg wrote:
Wed May 27, 2020 3:26 pm
From the information posted by OP, not withstanding any attempt to disclaim liability, Betterment may have violated FINRA rules concerning account transfers (https://www.finra.org/rules-guidance/ru ... ules/11870, see also https://www.sec.gov/oiea/investor-alert ... count.html) and OP may have recourse options. OP may wish to send a written demand to the compliance directors at Betterment and MerrillLynch that the transfer be amended or adjusted to conform to his instructions, file a complaint with FINRA and/or seek counsel from an attorney who is qualified and experienced in such matters. IANYL.
This may be worth a shot. If the losses are not too much, Betterment may just make you whole to avoid bad publicity.
The opera isn't over "till the fat lady sings." Sorry about the non-PC comment, but what I'm saying is, don't give up hope till you've exhausted all the above-mentioned avenues. There might also be a question about the reasonableness of an expectation for someone to read, word for word, a 142 page agreement as well as non-notification of inability to meet a request but to take an unwanted alternative action.

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Nate79
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Re: Betterment liquidated my investments without my authorization

Post by Nate79 » Wed May 27, 2020 5:02 pm

My understanding was that Betterment does not transfer in kind and I recall many stories that people found this out the hard way.

Olemiss540
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Re: Betterment liquidated my investments without my authorization

Post by Olemiss540 » Wed May 27, 2020 5:12 pm

I love a snippet being quoted in a 142 page document as proof the administrator had reasonable justification for being inept.

Yes, there is tiny print absolving every institution of everything but this type of ineptitude should not be overlooked due to said terms and conditions. Glad the OP posted so Betterment ends up paying one way (repairing their mistake) or another (losing valuable reputation within the investment community) and I hope they report this to the appropriate financial watchdogs.
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Re: Betterment liquidated my investments without my authorization

Post by Katietsu » Wed May 27, 2020 5:30 pm

Did you personally use a Betterment document to indicate that you wanted to transfer in kind? Or did you initiate this from Merrill and indicate to Merrill that you wanted to transfer in kind? If the latter, then I do not think Betterment is in the wrong in anyway.

I thought that Betterment never transferred IRA assets in kind. I suspect their form would not even show that as an option. At least that I thought that was there policy when the started doing business. I am pretty sure that was the primary reason that I did not try them out when they were offering me services with free trial periods.

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GuruNinja
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Re: Betterment liquidated my investments without my authorization

Post by GuruNinja » Wed May 27, 2020 5:41 pm

galawdawg wrote:
Wed May 27, 2020 3:26 pm
Nestegg_User wrote:
Wed May 27, 2020 3:06 pm
galawdawg wrote:
Wed May 27, 2020 2:42 pm
Nestegg_User wrote:
Wed May 27, 2020 2:25 pm
...Perhaps because of the higher volatility they wanted to lock in your numbers so that they couldn't be argued that they didn't follow a prudent investor situation and by so transferring the funds in cash wouldn't subject your money to additional risk...
Liquidating the account involves increased risk. The way to avoid the issue with volatility in the market would be the transfer in-kind. That avoids all time out of the market. Instead, by liquidating and transferring cash in a volatile market, there exists the possibility that the shares are liquidated during a market downturn and share prices increase during the transfer when the investor is out of the market.
perhaps from a BH perspective, but if a client said move all assets and there was a very volatile market... it could easily be argued that at a particular time, when the client wanted out, that the client already did not want to potentially suffer additional losses, therefore locking in the numbers at the clients requested time would be prudent. If the market had dropped a further 30-40%, wouldn't the OP not have even started a thread (as those losses would have been avoided) ?
Transfer in-kind is the only way to avoid the volatility risk. If the investor's instructions were transfer in-kind, then the assets should have transferred in-kind. No brokerage should act contrary to specific, lawful and authorized instructions from their client that are lawful. If the investor wanted to sell his positions and move to all cash then he could instruct his brokerage accordingly.

From the information posted by OP, not withstanding any attempt to disclaim liability, Betterment may have violated FINRA rules concerning account transfers (https://www.finra.org/rules-guidance/ru ... ules/11870, see also https://www.sec.gov/oiea/investor-alert ... count.html) and OP may have recourse options. OP may wish to send a written demand to the compliance directors at Betterment and MerrillLynch that the transfer be amended or adjusted to conform to his instructions, file a complaint with FINRA and/or seek counsel from an attorney who is qualified and experienced in such matters. IANYL.
Thanks galawdawg , this is valuable perspective that you have shared. I will certainly follow-up on this.

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GuruNinja
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Re: Betterment liquidated my investments without my authorization

Post by GuruNinja » Wed May 27, 2020 5:42 pm

ResearchMed wrote:
Wed May 27, 2020 3:41 pm
the way wrote:
Wed May 27, 2020 3:01 pm
This is a good heads-up for others. Thank you for posting.

Unfortunately, I don't think you have any recourse https://www.betterment.com/resources/how-to-withdraw/#8
For IRA to IRA transfers, we’ll use the direct transfer process and send a check, to avoid any tax consequence for you. At this time, we aren’t able to transfer IRAs in-kind to your new provider.
(It kind of reminds me of the Enron story where they locked the 401k to change plan administrators right before it crashed and all the emps lost millions. ie really bad timing.)
What "tax consequences" would there be from an "IRA to IRA transfer"?

Regardless, it does seem to be clear that they have announced within their docs that they will NOT transfer in kind.

My concern is that they ignored *written* instructions. Shouldn't they have contacted the OP to explain "we cannot do that, per <docs>. Would you like for us to do the transfer as cash, or would you prefer to cancel the transfer", etc.

RM
Yeah, that would have been my expectation.

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GuruNinja
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Re: Betterment liquidated my investments without my authorization

Post by GuruNinja » Wed May 27, 2020 5:47 pm

Katietsu wrote:
Wed May 27, 2020 5:30 pm
Did you personally use a Betterment document to indicate that you wanted to transfer in kind? Or did you initiate this from Merrill and indicate to Merrill that you wanted to transfer in kind? If the latter, then I do not think Betterment is in the wrong in anyway.

I thought that Betterment never transferred IRA assets in kind. I suspect their form would not even show that as an option. At least that I thought that was there policy when the started doing business. I am pretty sure that was the primary reason that I did not try them out when they were offering me services with free trial periods.
This was the Merill document that says transfer in kind. It's always the new broker that initiates the transfer. However, since this was a written document I would expect them either to honor the request or deny it if they cannot perform the action listed in the request.

sailaway
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Re: Betterment liquidated my investments without my authorization

Post by sailaway » Wed May 27, 2020 5:54 pm

When I google "will betterment transfer in kind" the first hit is a Betterment FAQ that says "At this time, we aren't able to transfer IRAs in-kind to your new provider."

By agreeing to the terms, you did give them your authorization. They do not profess to have a system for an in kind transfer out.

kaneohe
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Re: Betterment liquidated my investments without my authorization

Post by kaneohe » Wed May 27, 2020 6:31 pm

What did you do w/ the funds after transfer? and when? how long did the transfer take?

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tvubpwcisla
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Re: Betterment liquidated my investments without my authorization

Post by tvubpwcisla » Wed May 27, 2020 6:38 pm

Sorry to hear about your experience and thanks for sharing. Something we will all be careful of going forward. After the funds were liquidated and sold, were they reinvested right away at Merrill? It's possible you lost on the liquidation side but more than made up for it if those funds were reinvested right away and you might quantify the loss as a tax deduction. Do you know how much you think you lost by Betterment doing this to you? You could call and talk to one of the managers and ask if there is a process you can follow to file a formal complaint and request a certain amount of damages, especially if it was human error with a box checked or not checked. I think it would be extremely difficult for you to get anywhere to be honest. I think I would let it go as a lesson learned.

:x
Last edited by tvubpwcisla on Wed May 27, 2020 6:45 pm, edited 2 times in total.
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123
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Re: Betterment liquidated my investments without my authorization

Post by 123 » Wed May 27, 2020 6:44 pm

The terms and conditions of the Betterment account allowed Betterment to liquidate the assets if they wished to do so at the time of transfer. They elected to do what they were allowed to do so there isn't anything to complain about. Transferring accounts is one area of investing that can pose a lot of risks of things not working as you expected. Perhaps it was an expensive lesson but you will definately investigate the process in more detail the next time the potential situation arises for you.

Opening the account under the terms and conditions you agreed to gave them the full authorizaion they needed.
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typical.investor
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Re: Betterment liquidated my investments without my authorization

Post by typical.investor » Wed May 27, 2020 6:55 pm

galawdawg wrote:
Wed May 27, 2020 3:26 pm
Nestegg_User wrote:
Wed May 27, 2020 3:06 pm
galawdawg wrote:
Wed May 27, 2020 2:42 pm
Nestegg_User wrote:
Wed May 27, 2020 2:25 pm
...Perhaps because of the higher volatility they wanted to lock in your numbers so that they couldn't be argued that they didn't follow a prudent investor situation and by so transferring the funds in cash wouldn't subject your money to additional risk...
Liquidating the account involves increased risk. The way to avoid the issue with volatility in the market would be the transfer in-kind. That avoids all time out of the market. Instead, by liquidating and transferring cash in a volatile market, there exists the possibility that the shares are liquidated during a market downturn and share prices increase during the transfer when the investor is out of the market.
perhaps from a BH perspective, but if a client said move all assets and there was a very volatile market... it could easily be argued that at a particular time, when the client wanted out, that the client already did not want to potentially suffer additional losses, therefore locking in the numbers at the clients requested time would be prudent. If the market had dropped a further 30-40%, wouldn't the OP not have even started a thread (as those losses would have been avoided) ?
Transfer in-kind is the only way to avoid the volatility risk. If the investor's instructions were transfer in-kind, then the assets should have transferred in-kind. No brokerage should act contrary to specific, lawful and authorized instructions from their client that are lawful. If the investor wanted to sell his positions and move to all cash then he could instruct his brokerage accordingly.

From the information posted by OP, not withstanding any attempt to disclaim liability, Betterment may have violated FINRA rules concerning account transfers (https://www.finra.org/rules-guidance/ru ... ules/11870, see also https://www.sec.gov/oiea/investor-alert ... count.html) and OP may have recourse options. OP may wish to send a written demand to the compliance directors at Betterment and MerrillLynch that the transfer be amended or adjusted to conform to his instructions, file a complaint with FINRA and/or seek counsel from an attorney who is qualified and experienced in such matters. IANYL.
I agree the OP should file a FINRA complaint and write compliance at Betterment and MerrillLynch letting them know they have.

And ask your lawyer if your agreement with Betterment means they are free from regulation. I understand you agreed to the provision, but you did not receive notification from Betterment.
The customer will be contacted in writing by the carrying member, and/or by the receiving member, with respect to the disposition of nontransferable assets other than proprietary money market fund assets (if any), indicated in an instruction to transfer specifically designated account assets. (See paragraphs (c)(3) and (4) below for customer notification requirements pertaining to transfers of securities account assets in whole.)
Same link as in previous post: https://www.finra.org/rules-guidance/ru ... ules/11870

Katietsu
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Re: Betterment liquidated my investments without my authorization

Post by Katietsu » Wed May 27, 2020 7:05 pm

I will just say that when I spent less than 10 minutes looking into whether I wanted to try out a Betterment account, it was made very clear that they would not ever transfer in kind. This policy is not just a line in a 142 page document that is included just to cover themselves.

I do understand why the OP is upset. But, I would consider filing a complaint to be inappropriate.

IowaFarmWife
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Re: Betterment liquidated my investments without my authorization

Post by IowaFarmWife » Wed May 27, 2020 7:23 pm

Wow, I'm sorry this happened to you. I am in the midst of transferring both my Betterment and Wealthfront accounts into Fidelity, and this makes me really nervous. I have small account at Betterment ($500-ish), and I may just cash it out and ACH the money into Fidelity. The Wealthfront transfer process is already in the works, so we'll see how this goes over the next few days.
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galawdawg
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Re: Betterment liquidated my investments without my authorization

Post by galawdawg » Wed May 27, 2020 7:26 pm

Katietsu wrote:
Wed May 27, 2020 7:05 pm
I will just say that when I spent less than 10 minutes looking into whether I wanted to try out a Betterment account, it was made very clear that they would not ever transfer in kind. This policy is not just a line in a 142 page document that is included just to cover themselves.

I do understand why the OP is upset. But, I would consider filing a complaint to be inappropriate.
Actually, it appears that Betterment will handle an in-kind transfer for assets being received, just not for assets being sent. https://www.betterment.com/resources/acats-overview/

Why would a complaint to FINRA be inappropriate? Does Betterment's disclaimer or customer agreement relieve them of compliance with FINRA rules?

typical.investor
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Re: Betterment liquidated my investments without my authorization

Post by typical.investor » Wed May 27, 2020 7:34 pm

galawdawg wrote:
Wed May 27, 2020 7:26 pm
Katietsu wrote:
Wed May 27, 2020 7:05 pm
I will just say that when I spent less than 10 minutes looking into whether I wanted to try out a Betterment account, it was made very clear that they would not ever transfer in kind. This policy is not just a line in a 142 page document that is included just to cover themselves.

I do understand why the OP is upset. But, I would consider filing a complaint to be inappropriate.
Actually, it appears that Betterment will handle an in-kind transfer for assets being received, just not for assets being sent. https://www.betterment.com/resources/acats-overview/

Why would a complaint to FINRA be inappropriate? Does Betterment's disclaimer or customer agreement relieve them of compliance with FINRA rules?
I think a FINRA complaint is entirely appropriate. The OP should have received written notification from Betterment if assets couldn't be transferred in-kind as requested.

Sure, Betterment might say "at this time, we are unable to ..." on their website someplace, but I'd argue that the OP expected notification per FINRA rules if they couldn't, and that nobody in the world can really know if the situation has changed since "at this time" was posted on their webpage. In fact, their use of that terminology suggests that it will be changed at some point.

Not saying the FINRA complaint will go anyplace, but regulations are there for our protection and the OP was hurt by the regulations not being followed. That's my arguement.

If Betterment is well within their rights, then the lawyers who drew up their policies will have an easy time pointing out to FINRA that they are.

At the very least, the question needs to be asked.

jacoavlu
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Re: Betterment liquidated my investments without my authorization

Post by jacoavlu » Wed May 27, 2020 7:41 pm

IowaFarmWife wrote:
Wed May 27, 2020 7:23 pm
Wow, I'm sorry this happened to you. I am in the midst of transferring both my Betterment and Wealthfront accounts into Fidelity, and this makes me really nervous. I have small account at Betterment ($500-ish), and I may just cash it out and ACH the money into Fidelity. The Wealthfront transfer process is already in the works, so we'll see how this goes over the next few days.
Betterment will transfer in kind out, for a taxable brokerage account. I have done this

Katietsu
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Re: Betterment liquidated my investments without my authorization

Post by Katietsu » Wed May 27, 2020 7:47 pm

galawdawg wrote:
Wed May 27, 2020 7:26 pm
Katietsu wrote:
Wed May 27, 2020 7:05 pm
I will just say that when I spent less than 10 minutes looking into whether I wanted to try out a Betterment account, it was made very clear that they would not ever transfer in kind. This policy is not just a line in a 142 page document that is included just to cover themselves.

I do understand why the OP is upset. But, I would consider filing a complaint to be inappropriate.
Actually, it appears that Betterment will handle an in-kind transfer for assets being received, just not for assets being sent. https://www.betterment.com/resources/acats-overview/

Why would a complaint to FINRA be inappropriate? Does Betterment's disclaimer or customer agreement relieve them of compliance with FINRA rules?
I guess I should say that I would not personally feel comfortable filing a complaint. I would feel that I should have known as moving from a Betterment IRA has always meant liquidating holdings and it has been listed as a downside to using Betterment. To me, to set the bar this low for filing a complaint would mean that I used up too much of my life on complaints and that I used up time that the business or agency could have used on something more serious. But I respect that others may find this error to be more egregious than I do.

Also, I wonder if Merrill was notified. My experience with transferring assets into Merrill has been horrible. Last time, it took 5 weeks. I started with an online submission. That was followed by a paper form request which the lost. Then resubmission. Then an extra document submission. Add in 2 hours on the phone, probably. So, I do not have a lot of faith in Merrill’s competence in that department.

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ResearchMed
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Re: Betterment liquidated my investments without my authorization

Post by ResearchMed » Wed May 27, 2020 8:04 pm

jacoavlu wrote:
Wed May 27, 2020 7:41 pm
IowaFarmWife wrote:
Wed May 27, 2020 7:23 pm
Wow, I'm sorry this happened to you. I am in the midst of transferring both my Betterment and Wealthfront accounts into Fidelity, and this makes me really nervous. I have small account at Betterment ($500-ish), and I may just cash it out and ACH the money into Fidelity. The Wealthfront transfer process is already in the works, so we'll see how this goes over the next few days.
Betterment will transfer in kind out, for a taxable brokerage account. I have done this
Sounds like Betterment has it sort of backwards.

They apparently write, for tax-DEFERRED accounts that they can't do "in kind " in those, "to avoid any tax consequence for you".

But per jocoavlu's post, they WILL do "in kind" in a taxable account, which is precisely when it might be useful to avoid taxable consequences. So they "understand" that part.
But in tax-deferred accounts? Is there any situation that tax consequences would be relevant in an "in kind" transfer, especially between two tax deferred accounts?
Are they confusing this with an "in kind" transfer from tax-deferred (e.g., IRA) to a taxable? Then... there could be tax issues.

RM
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GuruNinja
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Re: Betterment liquidated my investments without my authorization

Post by GuruNinja » Wed May 27, 2020 8:48 pm

tvubpwcisla wrote:
Wed May 27, 2020 6:38 pm
Sorry to hear about your experience and thanks for sharing. Something we will all be careful of going forward. After the funds were liquidated and sold, were they reinvested right away at Merrill? It's possible you lost on the liquidation side but more than made up for it if those funds were reinvested right away and you might quantify the loss as a tax deduction. Do you know how much you think you lost by Betterment doing this to you? You could call and talk to one of the managers and ask if there is a process you can follow to file a formal complaint and request a certain amount of damages, especially if it was human error with a box checked or not checked. I think it would be extremely difficult for you to get anywhere to be honest. I think I would let it go as a lesson learned.

:x
Thanks for the note tvubpwcisla. The funds are sitting in cash right now as it has been really tough to time the market. The check they sent took more than a week and a half and by the time I got the money market had reversed it's course and was already in the positive.

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galawdawg
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Re: Betterment liquidated my investments without my authorization

Post by galawdawg » Thu May 28, 2020 4:12 am

ResearchMed wrote:
Wed May 27, 2020 8:04 pm
Sounds like Betterment has it sort of backwards.

They apparently write, for tax-DEFERRED accounts that they can't do "in kind " in those, "to avoid any tax consequence for you".

RM
Perhaps as to IRA or tax-deferred accounts they are confusing "Indirect" transfers and "in-kind" transfers. :shock:

Given the number of low cost and reputable brokerages out there, I wonder why investors would use a company like Betterment?

sgm7091
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Re: Betterment liquidated my investments without my authorization

Post by sgm7091 » Thu May 28, 2020 4:55 am

I feel OP should do more than complain.

I am not a lawyer but I feel Betterment should have declined the transfer with reasons ‘in kind not available’ - the asset transfer since it asked for IN-KIND explicitly stated. The decline action would have required the OP to evaluate next steps. Notwithstanding any 142 page or other disclosures while opening the account. An account account may have been opened many years ago, and it is not reasonable to expect user to remember special nuances that is contrary to current standard practice in the industry.

OP should pursue vigorously !! Good luck.

Seasonal
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Re: Betterment liquidated my investments without my authorization

Post by Seasonal » Thu May 28, 2020 5:31 am

galawdawg wrote:
Wed May 27, 2020 3:26 pm
From the information posted by OP, not withstanding any attempt to disclaim liability, Betterment may have violated FINRA rules concerning account transfers (https://www.finra.org/rules-guidance/ru ... ules/11870, see also https://www.sec.gov/oiea/investor-alert ... count.html) and OP may have recourse options. OP may wish to send a written demand to the compliance directors at Betterment and MerrillLynch that the transfer be amended or adjusted to conform to his instructions, file a complaint with FINRA and/or seek counsel from an attorney who is qualified and experienced in such matters. IANYL.
Which specific part of the FINRA rules may have been violated?

typical.investor
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Re: Betterment liquidated my investments without my authorization

Post by typical.investor » Thu May 28, 2020 5:40 am

Seasonal wrote:
Thu May 28, 2020 5:31 am
galawdawg wrote:
Wed May 27, 2020 3:26 pm
From the information posted by OP, not withstanding any attempt to disclaim liability, Betterment may have violated FINRA rules concerning account transfers (https://www.finra.org/rules-guidance/ru ... ules/11870, see also https://www.sec.gov/oiea/investor-alert ... count.html) and OP may have recourse options. OP may wish to send a written demand to the compliance directors at Betterment and MerrillLynch that the transfer be amended or adjusted to conform to his instructions, file a complaint with FINRA and/or seek counsel from an attorney who is qualified and experienced in such matters. IANYL.
Which specific part of the FINRA rules may have been violated?
Posted previously...
The customer will be contacted in writing by the carrying member, and/or by the receiving member, with respect to the disposition of nontransferable assets other than proprietary money market fund assets (if any), indicated in an instruction to transfer specifically designated account assets. (See paragraphs (c)(3) and (4) below for customer notification requirements pertaining to transfers of securities account assets in whole.)
OP specified assets to be transferred, Betterment could not, Betterment then liquidated without notification because well I guess that’s easy for them.

sgm7091
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Re: Betterment liquidated my investments without my authorization

Post by sgm7091 » Thu May 28, 2020 6:07 am

Recently I was consolidating accounts from 6+ brokerage to Fidelity. Fortunately I did not have mistakes like this. But in two cases - one with Schwab and one with Wealthfront, got transfer on hold requesting investor (Me) to contact source company. One was similar to this where in-kind was not possible. Other the account solo-401k account setup at destination did not match. Schwab or Wealthfront did not arbitrarily take decisions into their own hands like liquidating. I am sure fine print of many of these will state liquidation under certain circumstances.

On pure ‘reasonable expectation’ aspect, Betterment did wrong. The disclosure in 142 page was probably signed many years ago.

And it is current common practice to have INKIND between brokers - this expectation. It is also a common industry practice to initiate transfer from destination. Betterment should have refused the transfer inkind. If they violated FINRA or SEC rules, that is even better ammo for OP.

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galawdawg
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Re: Betterment liquidated my investments without my authorization

Post by galawdawg » Thu May 28, 2020 6:08 am

Seasonal wrote:
Thu May 28, 2020 5:31 am
Which specific part of the FINRA rules may have been violated?
11870(b)(1), 11870(c)(1), possibly 11870(k)(2) if OP owed any fees to Betterment, 11870(m)(1) and (m)(2). Take a look as well at this interpretive letter "Uniform Practice Code Rule 11870 requires a member to adopt specific measures to facilitate the portability of all transferable securities, including mutual fund shares." https://www.finra.org/rules-guidance/gu ... -public-47

Highlights from that interpretive letter:
NASD Regulation recognizes that investors attach a great deal of importance to the portability of their transferable securities, and we believe that any unreasonable delay in transferring customer securities is unacceptable. For that reason, the NASD's Uniform Practice Code requires that NASD members, whenever practicable, adopt specific measures to facilitate the portability of all transferable securities, including mutual fund shares.

Rule 11870 does recognize that some securities may not always be portable, due to practical considerations. Rule 11870(c) thus provides an exception to the expedited transfer requirements for "nontransferable assets," defined to include any asset that is incapable of being transferred because it is (1) a proprietary product of the carrying broker-dealer or (2) a mutual fund or other asset with which the receiving broker-dealer does not maintain the arrangement necessary to carry the asset for the customer's account.

Rule 11870(m) requires that when both the carrying broker-dealer and the receiving broker-dealer participate in a registered clearing agency having automated customer securities account transfer capabilities with an automated facility for transferring mutual fund positions, those facilities must be used for transferring those positions. The Automated Customer Account Transfer Service system of the National Securities Clearing Corporation (the "ACATS system") allows the transfer of mutual fund shares between broker-dealers. We understand that most transfers of mutual fund shares occur on the ACATS system in an efficient and expeditious manner.
So if OP held "transferable securities" in his Betterment account that could be carried by MerrillLynch, Betterment's policy of automatically liquidating those positions rather than transferring them would appear to run afoul of FINRA rules. However, I am not OP's lawyer and am not an authority in securities law; an attorney with such expertise and experience may disagree.

typical.investor
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Re: Betterment liquidated my investments without my authorization

Post by typical.investor » Thu May 28, 2020 6:13 am

I don't see anything in the customer agreement that transfer out from an IRA is cash only.

I do see they agree to cover your losses if the do not properly complete a transfer.
We will be liable for your losses if we do not properly complete a scheduled Transfer. However, we are not liable under certain circumstances, including but not limited to:
1. If, through no fault of ours, your account does not contain enough money to make the Transfer after the provision of fees due to us are subtracted.
2. If the money in your account is subject to a collateral pledge or other lien to us, or subject to a legal process, such as a lien, levy, seizure, attachment, or IRS backup withholding.
3. If circumstances beyond our control (such as fire, flood, electrical, software systems, computer or telephone failure, or malfunction of a central data processing computer or facility) prevent the completion of the Transfer.
4. If the account from which the Transfer is to be made will be overdrawn by the transaction.
5. If there are other exceptions established by Betterment or by law.
https://www.betterment.com/legal/


In fact, they state:

Full withdrawal terms and conditions are listed on page 21, section 20 of the Betterment Client Agreement.
https://www.betterment.com/customeragreement

I see nothing there stating that you agree to cash only transfers from an IRA.

And as to their FAQS which do state "at this time" it's not possible to do an IRA in-kind transfer, that is dated Sep. 01, 2018.

I see nothing giving them the authority to liquidate assets, but I do see they promise to make you right if they err in a transfer. That is what I believe they have done.

sgm7091
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Re: Betterment liquidated my investments without my authorization

Post by sgm7091 » Thu May 28, 2020 6:30 am

Further to my experience, in case of Schwab, when I called them, they told me three options on my solo-401k transfer - a) have Fidelity fix account registration, b) do a rollover in-kind instead of transfer in-kind, c) rollover in wire/check. I was able to get Fido fix 'a' and resubmit of transfer went thru fine.

Schwab were also nice to share with me exactly where the registration mis-matched.

At a minimum they stopped/held off the transfer request - I would expect from my broker/bank etc when request cannot be fulfilled as stated.

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galawdawg
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Re: Betterment liquidated my investments without my authorization

Post by galawdawg » Thu May 28, 2020 6:37 am

typical.investor wrote:
Thu May 28, 2020 6:13 am
I don't see anything in the customer agreement that transfer out from an IRA is cash only.

I do see they agree to cover your losses if the do not properly complete a transfer.
We will be liable for your losses if we do not properly complete a scheduled Transfer. However, we are not liable under certain circumstances, including but not limited to:
1. If, through no fault of ours, your account does not contain enough money to make the Transfer after the provision of fees due to us are subtracted.
2. If the money in your account is subject to a collateral pledge or other lien to us, or subject to a legal process, such as a lien, levy, seizure, attachment, or IRS backup withholding.
3. If circumstances beyond our control (such as fire, flood, electrical, software systems, computer or telephone failure, or malfunction of a central data processing computer or facility) prevent the completion of the Transfer.
4. If the account from which the Transfer is to be made will be overdrawn by the transaction.
5. If there are other exceptions established by Betterment or by law.
https://www.betterment.com/legal/


In fact, they state:

Full withdrawal terms and conditions are listed on page 21, section 20 of the Betterment Client Agreement.
https://www.betterment.com/customeragreement
Interesting language from their customer agreement on IRA to IRA transfers:
Client understands that if Client requests a trustee-to-trustee transfer from an IRA Account to an IRA account established with another broker-dealer, Betterment Securities reserves the right to effect such transfer exclusively via liquidation of all Assets in the Account, and the issuance of a check to the new trustee, and not via an in-kind transfer.
So in the customer agreement, Betterment doesn't tell the customer that it won't or can't do an in-kind transfer out on an IRA, just that "it reserves the right" not to.

By failing to "take exception" as provided by FINRA rules and failing to notify the customer as required by FINRA when an in-kind transfer request will not be fulfilled as to nontransferable assets and provide the customer with alternative methods of disposition prior to transfer, OP is kept in the dark as to whether his holdings will transfer in kind or not. As a result, OP has no remedy or recourse to halt the unexpected liquidation done in contravention of his specific transfer instructions and has apparently suffered a financial loss.

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tvubpwcisla
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Re: Betterment liquidated my investments without my authorization

Post by tvubpwcisla » Thu May 28, 2020 6:44 am

Since the damage has already been done and cannot be reversed, what would the OP seek for resolution? Say a lawyer is brought in and they file a lawsuit or they call Betterment. What is the ask of Betterment at this point? For example, "Hi Betterment, you sold my positions and I wanted to transfer in kind. I am seeking one million dollars in damages."

:confused
Stay invested my friends.

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Re: Betterment liquidated my investments without my authorization

Post by onourway » Thu May 28, 2020 6:49 am

tvubpwcisla wrote:
Thu May 28, 2020 6:44 am
Since the damage has already been done and cannot be reversed, what would the OP seek for resolution? Say a lawyer is brought in and they file a lawsuit or they call Betterment. What is the ask of Betterment at this point? For example, "Hi Betterment, you sold my positions and I wanted to transfer in kind. I am seeking one million dollars in damages."

:confused
The loss can be precisely quantified based on the amount the securities were sold for and what price they were re-purchased at vs. their value if they had been transferred in kind.

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tvubpwcisla
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Re: Betterment liquidated my investments without my authorization

Post by tvubpwcisla » Thu May 28, 2020 6:52 am

onourway wrote:
Thu May 28, 2020 6:49 am
tvubpwcisla wrote:
Thu May 28, 2020 6:44 am
Since the damage has already been done and cannot be reversed, what would the OP seek for resolution? Say a lawyer is brought in and they file a lawsuit or they call Betterment. What is the ask of Betterment at this point? For example, "Hi Betterment, you sold my positions and I wanted to transfer in kind. I am seeking one million dollars in damages."

:confused
The loss can be precisely quantified based on the amount the securities were sold for and what price they were re-purchased at vs. their value if they had been transferred in kind.
He never repurchased. They sat in cash because he couldn't time the market to get back in. I'm curious if anyone knows the dollar amount of the hypothetical loss. If it is $100, I would not pursue and take it as a lesson learned. If it is 10 million dollars, it's a totally different ball game all up.
Stay invested my friends.

sgm7091
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Re: Betterment liquidated my investments without my authorization

Post by sgm7091 » Thu May 28, 2020 6:55 am

galawdawg wrote:
Thu May 28, 2020 6:37 am
Client understands that if Client requests a trustee-to-trustee transfer from an IRA Account to an IRA account established with another broker-dealer, Betterment Securities reserves the right to effect such transfer exclusively via liquidation of all Assets in the Account, and the issuance of a check to the new trustee, and not via an in-kind transfer.

IMO - The above seems a fine t+c to have, but if Betterment had refused/stopped the transfer and provided the same notice/option to the account holder - they would have done their part.

OP could think of additional pressure sharing his/her experience in Social Media, tv/news media etc if Betterment does not act to OP's satisfaction.

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