Et tu, Vanguard?

January 24, 2025

The headline is not great: Vanguard to pay more than $100 million over target date fund violations.

Yikes! One of our favorite and highest rated companies just got hit by the SEC. We often tell people that if you are new to asset allocation and or want to make your investing life simple just choose a target date fund aimed at the year you think you might retire. Double yikes! What is going on here?

InvestmentNews 1.17.25

Scott and I do a deep dive in our latest podcast on this topic (see below). The InvestmentNews article announcing the settlement does an excellent job laying out the details of what happened. But here are some broady strokes to the story:

• This only affected taxable accounts (ie: no affect on 403(b) plans)
• It happened because in December 2020 Vanguard lowered the access threshhold to its institutional (lowest priced) target date funds from $100 million (ironic, right) to $5 million.
• This led retirement plans to rapidly (and wisely) switch the to the lower cost product. As described by InvestmentNews: "To meet the demand from redeeming investors, the SEC said Vanguard's investor target-date funds had to sell underlying assets that had appreciated in value. The retail investors who stayed in the funds and held shares in taxable accounts were effectively punished, the SEC explained, as they faced significant tax liabilities from higher-than-normal capital gains distributions.
• No doubt Vanguard should have been aware of the repercussions of their decission to give more people access to lower cost investments. Which makes this the most Vanguard of Vanguard stories. 

Equitable to the Rescue?

Soon after this story came out a teacher emailed us the following note from their former Equitable advisor:  

I hope you’re doing great. I know that when we sat down you mentioned that working with a company that has been fined by the SEC made you nervous (SIC) takes away their credibility. Vanguard was just hit with a $106 million fine from the SEC. I have attached the article below. As you can see, over the SECs history many reputable firms have encountered fines as they operate their business. The best learn from those fines and correct them moving forward. 

I have had several clients with Vanguard accounts reach out regarding this fine and we have taken steps to ensure their financial plan remains on track. I would be happy to offer you the same opportunity. Should you ever need help or have any questions I am happy to be a resource.

The corespondence is rich beyond belief. Equitable is one of our lowest rated companies. The were hit with an actual fine by the SEC and as far as we can tell have not lowered their product costs or made it any easier for educators and others to move their money to lower cost choices available at work. 

As my partner, fiduciary advisor Scott Dauenhauer CFP®, said upon reading this correspondence: "You know everybody who has a Vanguard account is suddenly like maybe we should be with Equitable. Let's call that guy. Give me a break!"  

Stay wise and well and keep Vanguarding. 

 

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