The Securities and Exchange Commission (SEC) announced today that it has filed a settled administrative proceeding against Vanguard Advisers, Inc. for failing to adequately disclose conflicts of interest when recommending to prospective clients and existing clients that they enroll in Vanguard Advisers’ managed account program known as Personal Advisor Services (PAS), a fee-based advisory service that provides clients with ongoing portfolio management of their accounts.

According to the SEC’s order, from August 2020 through December 2023, Vanguard Advisers used a compensation system that financially incentivized its advisors that serviced PAS – through bonuses, salary increases, and, at times, promotions – to recommend that clients enroll and remain in the PAS program.

The order finds that Vanguard Advisers 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.

The order also finds that, while Vanguard Advisers’ Form ADV Part 2 Brochure for PAS disclosed that some PAS Advisors were eligible for a discretionary bonus, both the firm’s Form CRS and Supplement to the PAS Brochure contained contradictory disclosures stating that PAS Advisors received no additional compensation.

Additionally, the order finds that Vanguard Advisers made similar misleading statements on its website regarding conflicts of interest, including that PAS Advisors received no “outside incentives” or “financial incentives to recommend certain products.”

Finally, the order states that Vanguard Advisers failed to adopt and implement any written policies and procedures reasonably designed to prevent violations of the Investment Advisers Act of 1940 relating to the disclosure of conflicts of interest.

The order finds that Vanguard Advisers violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder.

Without admitting or denying the SEC’s findings, Vanguard Advisers agreed to the entry of an order in which it is required to cease and desist from committing or causing violations of Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder, censured, and required to pay a civil penalty of $19.5 million.