Vanguard settles SEC claims over adviser conflicts of interest

Vanguard settles SEC claims over adviser conflicts of interest

The Securities and Exchange Commission (SEC) has fined Vanguard Advisers $19.5 million over allegations that it failed to properly disclose financial incentives tied to its Personal Advisor Services (PAS) program. The settlement, reached on Friday, highlights a period from August 2020 through December 2023, during which Vanguard marketed PAS advisors as salaried employees with no financial incentives to recommend certain products. However, the SEC found that bonuses and raises for these advisors were partially dependent on selling the service and meeting client enrollment and retention targets [1].

Vanguard's disclosures were found to be contradictory. While some information about these incentives was disclosed in its Form ADV supplement, other documents, including customer relationship summaries and the Form ADV brochure, stated that PAS advisors received no additional compensation. The SEC noted that Vanguard did not adopt and implement any written policies to prevent misleading statements about incentive compensation or to ensure full disclosure of conflicts of interest [1].

In a statement, a Vanguard spokesperson expressed the firm's commitment to supporting everyday investors and retirement savers, noting that the matter has been resolved. Vanguard did not admit or deny the SEC's findings but cooperated with the investigation and updated its disclosure documents by the end of 2023. The firm also hired a consultant to review its conflict identification process [1].

PAS, a service that combines a Certified Financial Planner with a digital money manager, provides financial plans and investment recommendations to retail investors with at least $50,000 in assets for an annual advisory fee starting at 0.30% of assets. High-net-worth clients working with PAS advisors were eligible for discretionary bonuses, while those exclusively working with mass affluent clients were eligible for merit raises, depending on meeting client enrollment and retention targets [1].

The SEC's findings indicate that performance on dashboard metrics, including client enrollment and retention rates, influenced advisors' year-end performance ratings, bonuses, and salary increases. This structure incentivized PAS advisors to enroll and retain clients in the service [1].

References:
[1] https://www.advisorhub.com/vanguard-to-pay-19-5-million-for-failing-to-disclose-advisor-conflicts/