SEC Fines Vanguard and Empower More Than $25M for Adviser Compensation Disclosure Failures

The U.S. Securities and Exchange Commission has ordered Vanguard Advisers and Empower Advisory Group, along with Empower Financial Services, to pay more than $25 million in combined penalties for alleged failures to disclose financial incentives tied to managed account enrollments, according to SEC documents regarding the administrative proceedings against the companies. 

The SEC’s enforcement actions follow two separate investigations into both firms’ compensation structures and marketing practices. Regulators concluded that each firm created conflicts of interest by rewarding advisers for steering clients toward fee-based managed account programs, while failing to provide consistent and transparent disclosures to retail and retirement plan investors about the incentive structure. 

According to the SEC order, Vanguard’s practices between August 2020 and December 2023 tied parts of its advisers’ performance evaluations—and ultimately their bonuses or raises—to metrics such as client enrollment and retention in its Personal Advisor Services program. 

Some materials stated that PAS advisers received no extra compensation for enrolling clients, while others revealed bonus eligibility, according to the filing. The SEC found that marketing content downplayed or misstated these conflicts of interest, leaving investors without a clear understanding of their advisers’ motivations. 

Vanguard was found to have violated Sections 206(2) and 206(4) of the Investment Advisers Act, along with Rule 206(4)-7, for failing to adopt adequate policies and ensure full disclosure of conflicts. The firm was ordered to pay a $19.5 million civil penalty, which will be distributed to impacted clients through a fair fund, according to the filing.  

Similarly, the SEC determined that Empower’s retirement plan advisers had asset-based enrollment goals for managed account programs from July 2019 through December 2022. Adviser compensation reviews incorporated these targets, which varied by territory and retirement plan size. Empower Advisory Group and Empower Financial Services were cited for violating Section 206(2) of the Advisers Act and Regulation Best Interest. Combined, they will pay nearly $6 million in disgorgement, prejudgment interest and penalties, with funds also earmarked for affected plan participants. 

Both Vanguard and Empower have since implemented remedial measures, the SEC stated. 

Vanguard revised its marketing materials and client disclosures, while Empower removed asset-based enrollment goals from adviser performance evaluations and strengthened compliance oversight. Regulators acknowledged the firm’s cooperation and corrective actions in their orders. 

“Vanguard is committed to supporting everyday investors and retirement savers. We are pleased to have reached an agreement to put this matter behind us,” a Vanguard spokesperson said. 

An Empower spokesperson said in a statement, “Empower is neither admitting nor denying the SEC’s findings. The SEC acknowledged Empower’s significant remediation efforts and substantial cooperation with the SEC staff during the investigation. All of the issues identified by the SEC have been fully remediated.”