The U.S. Securities and Exchange Commission (SEC) revealed late last week that it has fined Vanguard Advisers, Inc. $19.5 million for failing to adequately disclose conflicts of interest in its fee-based advisory programme, Personal Advisor Services (PAS).
SEC Fines Vanguard Advisers $19.5m for Failing to Disclose Conflicts in Advisory Service
According to the SEC’s order, between August 2020 and December 2023, Vanguard incentivised its financial advisers to enrol and retain clients in PAS, without sufficiently informing clients of the potential conflict created by this compensation structure.
While Vanguard’s official brochure acknowledged that advisers could receive bonuses tied to client enrolments, other disclosure documents and marketing materials contradicted this by claiming advisers received no additional financial incentives.
The SEC found that advisers were evaluated against annual performance metrics, such as client implementation and retention rates, that directly influenced bonuses, promotions and salary increases.
The SEC said these incentives created a conflict that was not consistently or clearly communicated to clients.
The regulator concluded that Vanguard had therefore violated Sections 206(2) and 206(4) of the Investment Advisers Act and failed to implement adequate compliance policies.
As part of the settlement, Vanguard has agreed to a cease-and-desist order, censure, and the establishment of a Fair Fund to return money to affected clients, as well as the $19.5m civil monetary penalty.
In determining the settlement, the SEC took into account remedial actions by Vanguard, including updates to disclosures in late 2023 and the hiring of a consultant to review its conflict-management approach.
Vanguard did not admit or deny the SEC’s findings.
