SEC Fines Vanguard, Empower $26 Million for Failure to Disclose Conflicts of Interest
The U.S. Securities and Exchange Commission has brought separate enforcement actions against two major financial firms, Vanguard Advisers Inc. and Empower Advisory Group LLC, for allegedly failing to adequately disclose conflicts of interest related to their advisory services. Both firms settled with the SEC without admitting or denying the findings.
The SEC found that both companies’ compensation systems incentivized financial advisers to enroll clients in their respective managed account programs, a conflict that was not fully and clearly disclosed to clients.
Vanguard Pays $19.5 Million Penalty
The SEC’s action against Vanguard focuses on its Personal Advisor Services, or PAS, program. The agency found that from August 2020 through December 2023, Vanguard’s financial advisers were incentivized to enroll and retain clients in the fee-based PAS program. An adviser’s performance metrics, including the number of clients enrolled and retained, directly impacted their eligibility for bonuses and merit raises.
Each PAS adviser was assigned a potential bonus range and/or a salary increase range based on their year-end performance ratings. Managers had discretion to award a bonus and/or salary increase within the prescribed range. As a general matter, according to the SEC, the higher the year-end rating, the higher the bonus and salary increase ranges that a PAS adviser could be awarded. Together, the average bonus and merit increase for a high-net-worth adviser totaled approximately 10% to 15% of their salary.
The SEC also determined that Vanguard’s disclosures were misleading and contradictory. While the company’s Form ADV Part 2 Brochure disclosed that some advisers were eligible for a discretionary bonus, its Form CRS and other marketing materials contained conflicting statements that advisers received “no additional compensation” or “no outside incentives.”
For the violations, Vanguard Advisers was censured and ordered to pay a civil monetary penalty of $19.5 million.
Vanguard Advisers, a registered investment adviser has been registered with the SEC as an investment adviser since July 1995 and, on its Form ADV dated March 31, 2025, reported more than $300 billion in regulatory assets under management. Vanguard Advisers is an indirect, wholly owned subsidiary of The Vanguard Group Inc.
Empower Entities to Pay a Combined $5.99 Million
In a separate but related action, the SEC sanctioned both registered investment adviser Empower Advisory and broker-dealer Empower Financial Services Inc., for disclosure failures similar to Vanguard’s. The SEC found that from July 2019 through December 2022, Empower’s compensation system incentivized certain retirement plan advisers to enroll participants in the company’s managed account service.
According to the SEC, the firm’s advisers had a “managed account AUM goal” that was a significant factor in their performance reviews, impacting their year-end bonuses and raises. These incentives were not properly disclosed to clients.
During the relevant period, the average retirement plan adviser salary was approximately $60,000 to $90,000, and the total target bonus amount for retirement plan advisers was generally set at $11,500, with most retirement plan advisers receiving the target bonus amount or slightly more or less than the target amount. Under this compensation structure, the retirement plan advisers who performed well on their annual performance goals, including the managed account AUM goal, where applicable, typically received higher year-end ratings and were therefore rewarded with larger bonuses and merit raises. This compensation structure incentivized retirement plan advisers to enroll plan participants in the managed account service.
Rather than specifically disclosing to plan participants whether they were acting in the capacity of either a registered representative or an investment adviser representative, retirement plan advisers disclosed to plan participants that they were dually licensed and, according to the SEC, “placed the burden on plan participants to clarify the capacity.”
The SEC stated that Empower’s disclosures were not only inadequate but also misleading. Advisers told clients they were salaried, non-commissioned, and acting in the clients’ best interest without revealing their financial incentives to enroll them in the fee-based service. The SEC also noted that Empower failed to establish written policies and procedures to address these conflicts of interest.
For the violations, both Empower Advisory and Empower Financial Services were censured and ordered to pay disgorgement, prejudgment interest, and civil monetary penalties of nearly $5.99 million.
Empower describes itself as the nation’s second largest retirement plan recordkeeper. As of October 2024, Empower served more than 18 million individuals and over 82,000 different retirement plans.
Click here to visit the AltsWire directory page.
