Vanguard’s logo appears on letters from Zelinople, Pennsylvania.
Keith Slakosic | Associated Press
Asset management giant Vanguard fined more than $100 million settlement costs The U.S. Securities and Exchange Commission announced Friday disclosures regarding target-date investment funds.
The violations stem from a 2020 change in which Vanguard lowered the minimum investment requirements for its institutional target-date funds. The SEC order found that as Vanguard clients switched from other target-date funds to institutional versions, the change spurred redemptions, creating taxable distributions for some remaining shareholders. The SEC said Vanguard failed to properly disclose the potential impact on distributions of changes in investment thresholds.
“The Order finds that, as a result, retail investors in Investor TRF who do not convert and continue to hold Fund shares in taxable accounts will face historically greater capital gains distributions and tax liabilities and be deprived of the potential of their investments. compound growth.
The SEC said the $106.41 million fine will be distributed among harmed investors. Vanguard agreed to the fine without admitting or denying the SEC’s findings.
Vanguard is one of the world’s largest asset management companies, with global assets exceeding $10 trillion as of November last year. Founded by Jack Bogle in the 1970s, the company has a reputation as a low-cost, investor-friendly company.
Vanguard said: “Vanguard is committed to supporting the more than 50 million everyday investors and retirement savers who entrust their savings to us. We are pleased to reach this settlement and look forward to continuing to provide our investors with world-class investment options.
The fine highlights how investors can face huge tax bills even if they don’t make any asset sales for a year. In December 2020, Vanguard lowered the minimum initial investment in its institutional target retirement funds from $100 million to $5 million, spurring retirement plan investors to cash out of the investor share classes in those funds, according to the SEC. Move to institutional version.
The SEC found that Vanguard subsequently had to sell underlying assets in the fund’s investor share classes to satisfy redemptions from departing investors. As a result, shareholders remaining in the investor stock class will be affected by substantial capital gains distributions, and tax liability According to the order, whether they hold funds in a taxable brokerage account.
Typically, target date funds are kept in a tax-deferred account such as a 401(k) plan or an IRA, which avoids the tax implications of large capital gains distributions.
The fine announced Friday is in addition to the $40 million Vanguard agreed to pay investors as part of the class-action lawsuit.
The timeline for the fund’s target date change is similar to another of Vanguard’s recent legal skirmishes. In 2023, Vanguard was fined $800,000 by the Financial Industry Regulatory Authority for issues with its money market fund account statements in 2019 and 2020.
The alleged breaches occurred under former chief executive Tim Buckley. Current CEO Salim Ramji joined Vanguard in 2024 from BlackRock.
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