American financial giant Vanguard Group said it made investment errors in several customers’ education-savings accounts.
The asset manager steered more money to stock funds last year than it intended for some individuals in a roughly $27 billion education-savings plan administered by the state of Nevada. Vanguard provides investment-management services for the plan.
The error was introduced when the firm overhauled certain portfolios designed to shift over time as a child nears college age.
Nine of the plan’s 31 portfolios offered wound up with more equity exposure than the asset manager had intended. Vanguard told customers affected this week that it updated the allocation for the affected portfolios.
“When this transition occurred, due to a manual error, some portfolios were given higher allocations to equities than intended,” a Vanguard spokeswoman said. “The glide path design and methodology has been and remains sound; this was an implementation issue and has been corrected.”
Vanguard, the world’s second largest asset manager overseeing $7.2 trillion, has big ambitions to grow by providing ready-made fund combinations for customers based on their needs.
The error is a rare glimpse into glitches in the fast-growing corner of finance. Investment firms provide preset combinations of funds in an effort to meet investors’ goals quickly. As these products become more popular, they are influencing the flow of money across markets.
College savings plans are popular with customers who want a convenient and tax-advantaged way to save for their children’s education. Vanguard oversaw more than $136 billion in 529 plans as of the end of 2020. They are used by students, parents and grandparents to help fund college and other educational needs.
The firm declined to provide how much money had to be reallocated as a result of the error or the number of customers affected by the error.
The Nevada state treasurer’s office said it worked with Vanguard to fix the situation immediately after it learned about the firm’s error.
“We will perform a thorough review of this situation to ensure that any plan participants that were negatively impacted are made whole by Vanguard,” according to a statement. “We are committed to working with Vanguard to ensure an error like this does not happen again.”
Among the options in the Nevada 529 plan, Vanguard offers portfolios of funds that shifted from more stock-heavy to bond-heavy mixes as the children they were supposed to benefit got older and closer to traditional expectations of college age.
In the fall, Vanguard overhauled some portfolios after Nevada’s plan decided to reflect a new reality: people were using the accounts not just for college tuition but other educational needs from elementary-school fees to other learning costs. It changed the lineup so portfolio changes wouldn’t be tied to beneficiaries’ ages, but how close they were to their targeted enrollment date. That is when the error was introduced.
In fund documents, the firm described that it corrected the change and said that “this off-cycle change was made to realign the equity allocations in these portfolios to reflect the asset allocation of Vanguard’s target enrollment glide path methodology.”
This story has been published from a wire agency feed without modifications to the text.
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