Vanguard, Other BDs Under Scrutiny Over Target Date Fund Tax Bills

 Commentary  January 25, 2022 at 07:44 AM  Share & Print

What You Need to Know

  • American Funds, BlackRock and T. Rowe Price are also targets of the sweep by William Galvin in Massachusetts.

  • A big cut in minimums by Vanguard set off a chain of events that left investors with large capital gains.

William Galvin, Massachusetts’ top securities regulator, said Tuesday that he had launched an investigation into the purchase of target date mutual funds by Massachusetts customers in taxable accounts at five broker-dealers — T. Rowe Price Investment Services, American Fund Distributors, BlackRock Investments, Fidelity Brokerage Services and Vanguard Marketing Corp.

Galvin said that he’s particularly concerned by reports of inadequately disclosed fund changes that shifted financial burdens to small-dollar investors, resulting in large tax bills for those who held the funds in non-retirement accounts.

The Massachusetts Securities Division “is looking at issues like those that recently happened with Vanguard,” a spokesperson for Galvin’s office told  Tuesday in an email.

“Vanguard reduced the minimum investment in its institutional target retirement funds from $100 million to $5 million, causing many plans to switch from the standard funds to the institutional target funds,” the spokesperson said. “That caused the standard funds to offload holdings, triggering capital gains distributed to the smaller dollar investors who remained, and some of those investors had the funds in taxable accounts.”


European Compliance Association

European Compliance Association