Re: [SEC Charges Vanguard Advisers for Failing to Adequately Disclose Conflicts of Interest to Clients]

A couple of excerpts from the ruling:

https://www.sec.gov/files/litigation/admin/2025/ia-6912.pdf wrote:During the Relevant Period, Respondent’s website described PAS Advisors as salaried advisors that do not work on commissions and “have no financial incentives to recommend certain products.” Additionally, Respondent’s website stated that PAS Advisors had “no outside incentives, so they’ll always put your interests first.” These statements were misleading because PAS Advisors were incentivized through their performance reviews’ potential impact on compensation and, in some cases, promotions, to recommend that clients enroll and remain in PAS. These statements regarding financial incentives were removed from the website in 2023.

I think it’s likely true that PAS advisors do not have an incentive to recommend particular INVESTMENT products. But, they didn’t clarify in the marketing that the advisors might recommend PAS itself as a product. What if an advisor thought the brokerage across the street was a better deal? Should Vanguard advisors perhaps say… “I was researching investment advisors for you, and you can get similar services for a fixed $10,000 annual fee vs the $11,000 you are paying us based on assets”?

During the Relevant Period, Respondent had three sets of client disclosures related

to PAS, which were provided to prospective clients as a package prior to their initial consultation:

(1) the PAS Brochure; (2) a Form ADV Part 2B, also known as a Supplement to the PAS Brochure

(“Supplement”); and (3) an Advisor Client Relationship Summary (“Form CRS”). Although

Respondent’s PAS Brochure disclosed that some PAS Advisors were eligible for a discretionary

bonus and that the performance review process created a financial incentive for PAS Advisors to

recommend PAS, Respondent’s Supplement and Form CRS contained statements regarding PAS

Advisors’ compensation that contradicted the PAS Brochure. Therefore these disclosures failed to

adequately disclose the conflicts of interest resulting from Vanguard Advisers’ incentive

compensation structure.

Ok, sure, sloppy. That said, the brochure itself is likely what clients will read. Very few read the ADV and CRS.

In determining to accept the Offer, the Commission considered Respondent’s cooperation with the staff’s investigation and remedial acts undertaken by Respondent as set forth below.

30. As noted, Respondent (i) in 2023 removed the language from its website that stated PAS Advisors received no outside or financial incentives; (ii) in November 2023, updated the Supplement; and (iii) in December 2023 updated its Form CRS.

31. In addition, Respondent hired a consultant to review its disclosure and conflict of interest identification approach.

and

In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the “Offer”) which the Commission has determined to accept.

Vanguard had (perhaps already?) fixed some issues and also Vanguard initially proposed the $20M fine and this was accepted outright.

A violation of Section 206(2) of the Advisers Act may rest on a finding of simple negligence; scienter** is not required.

**knowledge of wrongdoing or the illegality of their actions, or acted with reckless disregard for the truth

I guess that means that the SEC had no reason to attempt to show that violations were intentional.

I think such rulings are beneficial. It shows that the SEC is (at least sometimes) paying attention. It also puts other firms on notice. E.g. if Vanguard can get fined $20,000,000 for something small-ish and essentially technical, it allows for much greater penalties for more egregious or consequential violations (of where there are, unfortunately, so very many).

Almost every brokerage/advisory firm has the following disclaimers “similar services may be available to you at lower cost and we are not obligated to find/share those situation with you” [aka we grossly overcharge you for our fiduciary services even though it is in your best interest to go elsewhere!] and “similar/identical services may be provided to other clients and we are not obligated to inform to offer you that same price” [if you don’t think to ask or you are a bad negotiator or we don’t like you…you will pay more than other clients for the same product].