Archives for September 2025

A reader writes in, asking:

“I saw that Vanguard was recently fined by the SEC for not disclosing conflicts of interest in their PAS [Personal Advisor Services] program. PAS has been a favorite with Bogleheads and I believe you have written about it favorably as well. Does this change your opinion of the program? Or does it change your opinion of Vanguard in general?”

For anybody interested, here’s the official SEC document, and here’s the SEC’s summary.

Here’s a relevant quote explaining the situation:

This matter arises from Respondent’s failure to adequately disclose conflicts of interest in connection with its recommendation to prospective clients and existing clients (collectively referred to as “clients”) to enroll in Respondent’s managed account program known as Personal Advisor Services (“PAS”), a fee-based advisory service that provides clients with ongoing portfolio management of their accounts.

From August 2020 through December 2023 (the “Relevant Period”), Respondent’s performance review system considered, among other things, certain metrics that incentivized its financial advisors that serviced PAS (“PAS Advisors”) to enroll and retain clients in PAS. During the Relevant Period, Respondent failed to adequately disclose the conflict of interest that this incentive compensation system presented because certain disclosures contained contradictory statements about PAS Advisors’ receipt of incentive compensation.

[…]

Additionally, Respondent made misleading statements in marketing materials regarding PAS Advisors’ conflicts of interest, including that PAS Advisors received no outside compensation or financial incentives.

So, in short:

1. Vanguard PAS employees received compensation based on their ability to enroll prospective clients in the PAS program and retain existing clients in the PAS program.
2. And that creates a conflict of interest, which Vanguard did not disclose.
3. And Vanguard’s marketing materials were misleading because they said that PAS advisors did not receive financial incentives, which is inaccurate.

Disclosures and marketing aside, it’s not exactly surprising that the compensation of an advisor working for an RIA would be based at least in part on their ability to retain clients (or convert prospective clients into clients). If you’re on the phone with somebody from Vanguard Personal Advisor Services, discussing potentially signing up for Vanguard Personal Advisor Services, they’re probably going to try to get you to sign up for it. And if you’re already a client, the people at Vanguard PAS with whom you interact will probably try to keep you as a client. Neither of those conflicts of interest strikes me as especially problematic. And if either of those dynamics comes as a surprise to you, your level of skepticism for the financial services industry needs to be cranked upward by factor of 10 at least, otherwise you’re in for a world of financial hurt over your lifetime.

I don’t mean to make light of the importance of full, honest disclosures. In my own client practice, I spend a lot of time trying very carefully to make sure I’m following all the applicable rules. Vanguard failed to disclose something that they should have disclosed, and they got fined for it. I’m not sad to see the fine. But it doesn’t meaningfully change my opinion of Vanguard PAS (or Vanguard in general).

The disclosures regarding, and marketing of, Vanguard PAS are separate from the value proposition of the PAS platform itself. The Personal Advisor Services platform is the same as ever: 0.3% per year to rebalance your portfolio and provide what I’d describe as “light, portfolio-focused financial planning.” For lots of people looking for somebody else to manage the portfolio for them, that’s going to be a good fit. It’s also not for everybody.

A reader writes in, asking:

“I’ve been a boglehead passive investor for several years now. I’ve fed myself a steady diet of writing by Benz, Bernstein, Roth, and Piper. My question though is whether boglehead-ism (if that’s a word) is really only a middle-wealth sort of thing. Does the same advice really apply to people at the more distant ends of the economic spectrum?”

At the lower end of the economic spectrum, there are some priorities that should be taken care of before investing at all. Namely, paying off high-interest debt and building up a bit of an emergency fund should both be done before we start putting any money into mutual funds, ETFs, etc. And it may be the case that there are education opportunities available that offer a better return (by increasing one’s income) than we’d expect to see from stocks and bonds.

But as soon as it makes sense to start investing, the core concepts of passive investing (diversify, keep costs low, buy-and-hold) are applicable. Something like an iShares Core Allocation ETF is a great choice for a new investor. It’s diversified. It’s low cost. It requires no ongoing maintenance, and as an all-in-one fund, it encourages healthy investing behavior (i.e., buying and then leaving it alone).

Admittedly, expense ratios aren’t super critical if we’re talking about a modest amount of money. For example, for a $1,000 portfolio, the difference between a 0.1% expense ratio and a 0.2% expense ratio is a difference in expenses of just $1 per year. But there’s still no downside to picking funds with low expense ratios.

The concept of diversification is, if anything, even more critical at modest levels of wealth. For instance, somebody who is late to the game with saving and investing really can’t afford to be risking large amounts on individual stocks.

And the same goes for taking a buy-and-hold approach rather than trying to move between stocks/bonds/cash at exactly the right times. If you don’t have any money that you can afford to blow up, it makes sense to just pick an asset allocation that’s suited to your risk tolerance, and then stick with it.

At the very wealthy end of the economic spectrum, passive investing may not be the only reasonable option, but it is always a good option. And it would still be my preferred option, for most people.

The larger the portfolio, the more critical it becomes to minimize costs. So as mutual funds go, it still makes sense to pursue super diversified, low-cost ones.

And predicting stock market crashes or interest rate changes doesn’t become any easier just because you have a large portfolio, so the buy-and-hold part of passive investing is still just as relevant as it is for anybody with a smaller portfolio.

One thing that does change is that the larger the portfolio, the more access you will have to various vehicles that invest in private equity or private debt. And at a higher level of wealth, there’s a greater ability to put assets at risk in such vehicles, without risking financial catastrophe.

But just because you can invest in something doesn’t necessarily mean it’s a good idea. The expenses for such private market investments tend to be quite a bit higher than for simple ETFs or index funds. And such private market investments tend to be dramatically less diversified. That means that they have the ability to provide truly mind-blowing performance. They also have the ability to provide quite lousy performance, which is then made even worse by their high costs.

Regardless of performance, relative to boring ETFs, private market investments tend to be more complicated, less transparent, less liquid, and harder to incorporate into tax planning, cash flow planning, or estate planning. In many cases, if the portfolio is already quite large, that means we don’t need returns greater than what we could expect from boring ETFs. And if you don’t need the hoped-for high returns, why bother with the hassle?

To my mind, the passive/Boglehead style of investing is just as prudent, regardless of whether we’re talking about the low range of the wealth spectrum, the high range, or anywhere in between.