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Dear Robert,
The SEC issued an Order earlier today requiring that Vanguard Advisers, Inc. pay a civil penalty of $19.5 million, cease and desist from committing or causing any violations and future violations of Sections 206(2) and 206(4) of the Advisers Act and Rule 206(4)-7, be censured.
The SEC found that Vanguard Advisers, Inc.:
1. Failed to adequately disclose conflicts of interest in connection with its recommendation to prospective and existing clients to enroll in the firm’s managed account program known as Personal Advisor Services (“PAS”), a fee-based advisory service that provides clients with ongoing portfolio management of their accounts.
2. From August 2020 through December 2023 (the “Relevant Period”), Vanguard Advisers, Inc.’s performance review system considered, among other things, certain metrics that incentivized its financial advisors that serviced PAS (“PAS Advisors”) to enroll and retain clients in PAS. During the Relevant Period, Vanguard Advisers, Inc. failed to adequately disclose the conflict of interest that this incentive compensation system presented because certain disclosures contained contradictory statements about PAS Advisors’ receipt of incentive compensation.
3. While Vanguard Advisers, Inc.’s Form ADV Part 2 Brochure for PAS (“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 over other advisory programs and brokerage services offered by Vanguard Advisers, Inc. and its affiliates, both the firm’s Form CRS and Supplement to the PAS Brochure contained contradictory disclosures that PAS Advisors received no additional compensation. Additionally, Vanguard Advisers, Inc. made misleading statements in marketing materials regarding PAS Advisors’ conflicts of interest, including that PAS Advisors received no outside compensation or financial incentives.
4. Vanguard Advisers, Inc. failed to adopt and implement written policies and procedures reasonably designed to prevent violations of the Advisers Act relating to the disclosure of conflicts of interest.
The Law Offices of Patrick J. Burns, Jr., P.C., is a nationally recognized securities law firm dedicated to assistingbreakaway advisors transitioning to independence and serving the legal needs of established investment advisory firms. Our team works with individuals establishing their own investment advisory firms, as well as those joining existing practices. PJB Law’s key services include investment advisor registration, transition counseling, mergers and acquisitions, outsourced general counsel, business entity formation, employment/partnership agreement review and handling promissory note issues. Our firm’s highly skilled professionals provide legal assistance to a variety of individuals, from those with small books of business to advisors with multi-billion dollar practices.
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