The Securities and Exchange Commission (SEC) announced today that it has filed a stable administrative procedure against Vanguard Advisers, Inc. For the failure of the adequate to disclose customers with customers with portfolio management, the management of prospective customers and existing customers enrolled by Vanguard Advisers’ managed advisers, known as Personal Counselors (PAS).
According to the SEC order, from August 2020 to December 2023, Vanguard advisers used a system of compensation that financially encouraged its PAS advisers – through bonuses, wage increases and, at times, promotions – to recommend customers.
The mandate finds that Vanguard advisers have failed to adequately disclose the conflict of interests presented by this incentive compensation system because some notifications contained contradictory statements on the receipt of incentives by PAS consultants.
The mandate also finds that while Vanguard Adv 2’s Adv brochure on PAS has revealed that some PAS advisers were eligible for a subtle bonus, both the company’s Form CRS and the PAS leaflet contained contradictory revelations that stated that PAS consultants did not.
In addition, the order notes that Vanguard advisers made similar misleading statements on its website on conflict of interest, including PAS Advisors, did not receive “external incentives” or “financial incentives to recommend certain products”.
Finally, the order states that Vanguard advisers have failed to adopt and implement any written policies and procedures that are reasonably designed to prevent violations of the 1940 investment advisers’ law on the disclosure of conflicts of interest.
The mandate finds that Vanguard advisers violated sections 206 (2) and 206 (4) of the 1940 Investment Advisors and Article 206 (4) -7.
Without admitting or refusing the finds of the sec, the Vanguard Advisers agreed to the entry of an order required to stop and abandon the commitment or induction of violations of section 206 (2) and 206 (4) of the 1940 Investment Advisers and Article 206 (4).