The Securities and Exchange Commission (SEC) has fined Vanguard more than $100 million for violations related to its target date investment funds. The charges stem from changes made in December 2020, when Vanguard lowered the minimum investment requirement for its institutional target date funds. This adjustment led to a series of investor movements and financial consequences that were not adequately disclosed, according to the SEC's findings.
In December 2020, under former CEO Tim Buckley's leadership, Vanguard reduced the minimum investment requirement for its institutional target date funds from $100 million to $5 million. This change encouraged retirement plan investors to exit the investor share class and switch to the institutional version. To accommodate these redemptions, Vanguard had to sell assets in the investor share class funds. Consequently, some remaining shareholders faced unexpected taxable distributions.
The SEC's investigation revealed that Vanguard failed to properly disclose these distributions' nature and the potential tax implications for shareholders. The order specifically noted that retail investors who did not switch to the institutional version encountered larger capital gains distributions and tax liabilities. The SEC stated:
"The order finds that, as a result, retail investors of the Investor TRFs who did not switch and continued to hold their fund shares in taxable accounts faced historically larger capital gains distributions and tax liabilities and were deprived of the potential compounding growth of their investments," – SEC
Vanguard, renowned for its low-cost, investor-friendly approach since its founding by Jack Bogle in the 1970s, has over 50 million investors and manages more than $10 trillion in assets as of last November. Despite the violations occurring under Buckley's tenure, current CEO Salim Ramji, who joined Vanguard from BlackRock in 2024, has expressed the firm's commitment to its investors. Vanguard stated:
"Vanguard is committed to supporting the more than 50 million everyday investors and retirement savers who entrust us with their savings. We're pleased to have reached this settlement and look forward to continuing to serve our investors with world-class investment options," – Vanguard