Vanguard provided investors with inaccurate data for almost a year about the income that clients could expect to earn on money market funds in an embarrassing blunder for the world’s second-largest asset manager. 

The error is the latest in a series of technical gaffes for Pennsylvania-based Vanguard, which oversees $6.3tn on behalf of more than 30m investors worldwide. Vanguard’s clients reported having difficulties logging on to their accounts and making trades on August 31 when both tech group Apple and Tesla, the electric car maker, announced stock splits. Clients complained after suffering disruption to services due to problems with the group’s website and phone lines during periods of market volatility in 2018.

These problems have led some observers to suggest that Vanguard’s determination to reduce fees and charges as much as possible has led to under-investment in client service capabilities, a criticism that the group vigorously denies.

Vanguard has admitted that clients were sent statements with inaccurate information about estimated yields and estimated annual income across most of its money market fund range.

The estimates are intended to provide investors with an illustration of what they might earn and are typically different from the actual returns delivered by money market funds.

The inaccurate data applied to eight money market funds with combined assets of $390bn.

Vanguard emphasised that no client lost money as a result of the errors. “Importantly, there was no impact to clients’ fund holdings, distributions, or account balances,” said Vanguard.

Daniel Wiener, the editor of the Independent Adviser for Vanguard Investors newsletter who first highlighted the problems, noted that his monthly brokerage statements showed the estimated yield on Vanguard’s New York Municipal Money Market fund, known as VYFXX, as unchanged at 1.27 per cent between October 2019 and September 2020. But Vanguard’s website reported the fund’s SEC yield, a metric required by US regulators, as ranging between 0.05 per cent and 2.88 per cent over the same period.

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“What a mess. It is a good thing I wasn’t relying on Vanguard to tell me what kind of income to expect. Otherwise, I would have been sorely disappointed with the reality,” said Mr Wiener, chairman and co-founder of Adviser Investments, a Massachusetts-based wealth manager that uses Vanguard funds widely in building client portfolios.

Mr Wiener also complained that Vanguard had withdrawn a facility that allowed investors to request details on formulas used to calculate information provided in client statements. “That is not what I would call better disclosure,” he said.

A money fund analyst who asked not be named said investors knew that what they would earn would always differ from the estimated data, which provided only a “theoretical illustration” of future returns.

“Short-term interest rates have been bouncing all over the place. No one is investing in money market funds and expecting to earn a yield much above zero. They [money market funds] are being used as home for cash when investors want to escape volatility,” said the analyst.

Via Financial Times