Your Service Agreement for the Vanguard Financial Plan

Transcription

1 Your Service Agreement for the Vanguard Financial Plan March 29, 2013 Vanguard Advisers, Inc. 100 Vanguard Blvd., Malvern, PA vanguard.com Read this document carefully and keep it for your records. Connect with Vanguard >

2 Contents Part 1: Vanguard Financial Plan Overview The questionnaire Your financial planner Fees Additional information for IRA holders Part 2: Disclosures Your responsibilities Confidentiality Investment results and risks Additional fees Taxes Unaudited financial statements Arbitration Authority Effectiveness Assignment, amendment, and termination of services Vanguard agent authorization forms and other agent authorizations Standard of care

3 Part 1: Vanguard Financial Plan Overview The Vanguard Financial Plan ( VFP ) is an investment advisory plan provided by Vanguard Advisers, Inc. ( VAI ). VAI is registered as an investment advisor with the U.S. Securities and Exchange Commission. It provides a sophisticated analysis and set of recommendations designed to meet the needs of most people. The goal is to help you determine the most effective and practical solutions for your investment, retirement, college, and tax-planning needs. To develop your Vanguard Financial Plan, we ll ask you to complete a questionnaire. You may also be asked for additional information if necessary for more in-depth analysis. Your questionnaire is designed to obtain key financial data and other relevant information about you and your investment goals. Your answers may include information about all of the assets and accounts including those held by your spouse or domestic partner that you want to include in your financial plan. After you submit your questionnaire, we ll assign a financial planner to work with you. Based on your information, Vanguard will prepare a plan that contains investment advice appropriate to your then-current financial circumstances, as well as an explanation of the necessary steps to act on the investment recommendations. Note: The advice that VAI provides may include recommendations to hold or purchase the mutual funds that comprise The Vanguard Group of Investment Companies ( Vanguard Funds ), which is an affiliate of VAI. Your plan will be sent to you for your review. You ll then have an opportunity to consult by telephone with your financial planner to discuss any questions you may have or make appropriate adjustments. After you and your planner have finalized your strategy, we can help you execute the financial plan based on our recommendations. Once the process starts with a review of your questionnaire, we ll recommend an allocation of your assets among stocks and bonds. Within each asset class, your financial planner will also suggest an allocation among different market segments, such as growth and value stocks, domestic and international stocks, and short-, intermediate-, and long-term bonds. Connect with Vanguard >

4 Building on the asset allocation analysis, your initial plan will propose a choice of two portfolios. Each portfolio will incorporate Vanguard s investment philosophy, including a commitment to maintain broad diversification using Vanguard Funds and potentially other investments. The Integrated Portfolio will maintain current holdings (where possible), while integrating them into a diversified portfolio. The Consolidated Portfolio will typically involve moving more assets into Vanguard Funds to potentially achieve lower annual costs, greater tax efficiency (where applicable), and simplicity. Both portfolios will strive to match your target asset mix within acceptable ranges. Depending on your objectives, you may find one more suitable to your style. As appropriate, recommendations may include other investment products from Vanguard. During your consultation, your financial planner will discuss both approaches in more detail to help you determine which may be most suitable for reaching your target allocation. Your financial plan will assess your current retirement status and provide: (1) If you re saving for retirement, a measure of how much you ll need to save and a strategy for accumulating those assets; or (2) If you re nearing or in retirement, a projection of approximately how likely it is that you ll be able to meet your spending needs. Also, based on required minimum distribution or defined spending needs, you may receive guidance on how to rebalance assets to help meet your retirement income needs. If so, you ll need to provide the cost basis of investments in taxable accounts. Upon request, the plan can also calculate how much you d need to save for college expenses. Finally, your financial plan will identify specific investments and amounts that you should buy or sell to act on the recommendations. Where investment-specific cost basis information is included in your questionnaire, the plan will provide an overview of the potential tax consequences (capital gains or losses) of the recommended transactions. Note: This service doesn t provide tax advice. You should consult with your tax advisor to discuss these concerns. Connect with Vanguard >

5 The questionnaire The in-depth questionnaire is used as the basis for the design of your financial plan. You can complete it online or in print. Online. You can access the questionnaire on Vanguard s secure website, vanguard.com, if you re a Vanguard client and a registered website user. If you choose to save a draft while completing the questionnaire online, the information you ve entered so far will be stored for 90 days before it s deleted. In print. Certain clients, including those who don t hold accounts directly with Vanguard, may be eligible or required to enroll through printed versions of the questionnaire. Clients who are currently enrolled in Vanguard Flagship Services or Vanguard Voyager Select Services may choose to complete the printed version of the questionnaire. Certain retirement plan participants may not be eligible to complete a printed version. Your financial plan will be posted automatically to the primary contact s secure vanguard.com account page. If you completed a printed questionnaire, you may also receive a printed plan. You ll have access to your completed plan for six years from the date it s created. Your financial planner Your financial planner from Vanguard will: Have several years of experience with investment products in addition to the Vanguard Funds. Be a Certified Financial Planner professional. Be registered as an investment advisor representative (Series 65 or 66). All of Vanguard s financial planners have completed Vanguard s own financial training program covering: retirement and education investing and analysis, investment and asset allocation principles, our investment advisory methodology, client communications, ethics, and compliance issues. In addition, the planners participate in ongoing seminars and training programs conducted both by Vanguard and by independent financial planning organizations. Connect with Vanguard >

6 Fees None of our fees are commission-based. In other words, neither your financial planner nor any other Vanguard associate receives a commission for recommending specific mutual funds or other investment products to act on your financial plan. Note: We reserve the right to apply additional discounts and fee waivers to certain clients or groups of clients. All pricing is subject to change without notice. The following table describes our fee structure in detail. Fee schedule Your fee is waived if you re: A current Vanguard Flagship Services client. A current Vanguard Voyager Select Services client. A participant in an employer-sponsored retirement plan administered by Vanguard with a balance of $500,000 or more. Age 55 or older and a participant in a retirement plan for which the plan sponsor has authorized the provision of investment advice through Vanguard Financial Planning Services. Note: Fee waiver applies to one financial plan per household for a 12-month period. Your fee is $250 if you re: A current Vanguard Voyager Services client. A participant in an employer-sponsored retirement plan administered by Vanguard with a balance between $50,000 and $500,000. Your fee is $1,000 if you re: Not eligible for any of the services mentioned above. A participant in an employer-sponsored retirement plan administered by Vanguard with a balance of less than $50,000. Eligibility is based on total household assets held at Vanguard, with a minimum of $50,000 to qualify for Vanguard Voyager Services, $500,000 for Vanguard Voyager Select Services, and $1 million for Vanguard Flagship Services. We determine eligibility by aggregating assets of all qualifying accounts held by the investor and his or her immediate family members who reside at the same address, including investments in Vanguard Funds, Vanguard ETFs, certain annuities through Vanguard, The Vanguard 529 Plan, and certain small-business accounts. Assets in employer-sponsored retirement plans for which Vanguard provides recordkeeping services may be included in determining eligibility if the investor also has a personal account holding Vanguard Funds. Note that assets held in a Vanguard Brokerage Services account (other than Vanguard ETFs) aren t included when determining a household s eligibility. Connect with Vanguard >

7 Payment (if applicable) You may pay by check or may provide instructions in good order directing us to deduct the fee from an existing Vanguard mutual fund account. If you elect to receive our services by completing a printed questionnaire, indicate your payment method on your Enrollment Form. If you elect to complete the online questionnaire, Vanguard will contact you separately to collect your payment. We may deduct the appropriate fee from any nonretirement assets that you own through Vanguard if you don t send payment upon request. If you pay by check, you should make it payable to Vanguard Advisers, Inc. If you elect to have the fee deducted from an existing Vanguard account: The deduction must be taken from an account that isn t an IRA, 401(k), or other type of retirement plan account. You agree that this is a one-time authorization, and that subsequent requests for planning services will require a new Enrollment Form and applicable payment for service. You agree that the redemption of shares as a result of the deduction may result in a realized capital gain or loss, or you may be required to pay any applicable redemption fee if the fund you indicate isn t a money market fund. Special note for retirement plan participants If you re a plan participant and your plan sponsor has approved use of the Vanguard Financial Plan in your plan, you may participate in advice engagements as needed. The fees received by VAI and by its employees, agents, and registered advisors for the advice we provide don t vary depending on the basis of any investment options selected. VFP fees paid by participants are in addition to the underlying mutual fund expenses (the fund s expense ratio) that all fund shareholders pay. The advice that VAI provides may include recommendations to hold or purchase the mutual funds that comprise The Vanguard Group of Investment Companies, which is an affiliate of VAI. Acting in accordance with such advice will result in the payment of fees to the Vanguard Funds. Similarly, participants in employer-sponsored retirement plans for which Vanguard provides recordkeeping services may be permitted to invest in collective trusts, company stock funds, or certain customized investment options for which an affiliate of VAI provides services and receives compensation. Because advice provided by VAI may include recommendations to hold or purchase these investment options, acting in accordance with such advice may result in the payment of fees to an affiliate of VAI. Connect with Vanguard >

8 Participants in employer-sponsored retirement plans for which Vanguard provides recordkeeping services often are permitted to invest in non-vanguard mutual funds. Because the advice provided by VAI may include recommendations to hold or purchase non-vanguard mutual funds, acting in accordance with such advice may result in payments to Vanguard as compensation for participant-level recordkeeping and administrative services provided by Vanguard for such funds. This payment may be made by the fund company sponsoring the non-vanguard mutual fund, by the plan sponsor, or by the participant investing in the non-vanguard mutual fund. Note: You may separately arrange for advice from another provider that has no material affiliation with and receives no compensation in connection with the mutual funds, securities, or other property that are the subject of the advice. Additional information for IRA holders VAI intends VFP to comply with the conditions of the statutory exemption for investment advice under Sections 408(b)(14) and (g) of the Employee Retirement Income Security Act ( ERISA ). The service will be audited annually by an independent auditor for compliance with the requirements of the statutory exemption and related regulations. A copy of the most recent version of the auditor s findings will be provided to you or be posted and available for your review at vanguard.com within 30 days of receipt of the report from the auditor. Connect with Vanguard >

9 Part 2: Disclosures Your responsibilities You re responsible for providing us with all necessary information about your financial circumstances and any other facts that might affect the manner in which the services described in this Agreement are provided to you. Also, since this process requires open communication between you and your financial planner, you re responsible for being available for telephone conversations with your planner. Our strategies and recommendations may be based on information you provide in your questionnaire, as well as information we obtain through telephone consultations and other communications with you. If we receive incomplete or inaccurate information, or if you re unable to fully participate in the financial planning process, we won t be responsible for the completeness or accuracy of our recommendations. It s your responsibility to decide whether to act on the advice provided by your Vanguard Financial Plan and to ensure that the recommendations on which you act, with or without our assistance, have been carried out correctly. Note: If you transfer assets from another financial institution to Vanguard, it s your responsibility to notify us when the assets have arrived at Vanguard and to subsequently initiate any remaining transactions. We reserve the right to terminate this Agreement if, in our opinion, you fail to provide complete and accurate information within a reasonable period of time, if the services we provide don t appear to be appropriate for your particular situation, or as otherwise provided on page 11 in Assignment, amendment, and termination of services. Confidentiality Your personal and financial information will be held in strict confidence and won t be disclosed to any unaffiliated third party, except as part of a regulatory examination or as set forth in Vanguard s privacy policy. Our privacy policy is enclosed with this Agreement; you can also read it online at vanguard.com. Connect with Vanguard >

10 Investment results and risks There is no assurance that you ll achieve positive investment returns or that your investment objectives will be achieved by following the advice provided by VAI. Although VAI will recommend investments and strategies that are consistent with widely held principles of long-term investing, diversification, and prudent investment management, all investments are subject to risk. These risks are described in the Vanguard Fund prospectuses, which you should read before investing. You should also understand that the investment strategies used by VAI involve risks and that fluctuations in the financial markets and other factors may cause declines in the value of your investment, over short or even extended periods of time. If you re a participant in an employer-sponsored plan for which Vanguard provides recordkeeping services, you can find past performance and historical rates of return of plan investments recommended by VAI at vanguard.com. Additional fees Vanguard transaction and redemption fees Some Vanguard Funds charge fees on the purchase of shares. These fees, designed to offset the cost of buying and selling securities, are paid directly to the fund and aren t sales charges. Additionally, some Vanguard Funds charge redemption fees to discourage short-term trading. We may recommend Vanguard Funds with either or both of these types of fees. Should you incur such fees as a result of acting on our recommendations, you acknowledge that they ll be assessed on your purchase or deducted from your redemption proceeds in accordance with the conditions set forth in the prospectus of the particular Vanguard Fund you re buying or selling. Additionally, other financial institutions may impose certain fees or other charges on assets that you transfer to Vanguard. In accepting this Agreement, you agree and acknowledge that the payment of all such fees is your sole obligation. Be sure to consult your other financial providers to make sure you re aware of and understand all fees that may result from carrying out our recommendations. Fees for brokerage services and mutual funds from other fund companies Under certain circumstances, we may recommend the purchase or sale of mutual funds from other fund companies. If you decide to act on any such recommendations through Vanguard Brokerage Services ( VBS ) an operating division of Vanguard Marketing Corporation, which is an affiliate of VAI and Vanguard you ll need to open an account with VBS to complete any such transactions, if you don t already have a VBS account. No such brokerage account will be necessary with respect to investments held within your retirement plan, if any. Connect with Vanguard >

11 Taxes The Vanguard Financial Plan s recommendations may result in taxable gains or losses, or the generation of taxable dividend income or tax-preference items that are taxable under the alternative minimum tax. Although we may provide an overview of the potential tax consequences of our investment recommendations, by accepting advice from us, you agree and acknowledge that the payment of all taxes due on income or capital gains remains your sole obligation. Neither VAI nor any affiliated or related party or person shall have any responsibility to pay these taxes, and any tax information provided isn t a substitute for the advice of a qualified tax advisor. Nonresident aliens may be subject to withholding taxes on income or capital gains. Unaudited financial statements During the planning process, you and your planner may discuss a variety of financial strategies, and your planner will present you with documentation of his or her recommendations. Within this plan, your planner will suggest strategies specifically designed to help you achieve your financial goals. Any financial statements that may be included in your plan are unaudited and may not follow generally accepted accounting principles. Accordingly, third parties shouldn t rely upon these statements to evaluate your creditworthiness and the statements shouldn t be used for any purpose other than to assist you in developing your financial strategy. Arbitration Subject to the following note regarding your rights under federal and state securities laws and under ERISA, all controversies arising out of or relating to any services provided by VAI, the Vanguard Financial Plan, The Vanguard Group, Inc., or any of their affiliates, directors, or employees with respect to transactions of any kind executed pursuant to this Agreement, with respect to any accounts serviced according to this Agreement, or which relate in any way to this Agreement will be resolved by arbitration and governed by the laws of the Commonwealth of Pennsylvania without reference to its conflicts-of-laws rule. Notwithstanding the above, any disputes arising out of or related to any services provided by Vanguard Marketing Corporation are subject to the Vanguard Brokerage Account Agreement. Arbitration shall be conducted in accordance with and subject to the then-applicable Commercial Dispute Resolution Procedures of the American Arbitration Association (the AAA Rules ). Unless otherwise mutually agreed upon by the parties, the arbitration hearings will be held in the city of Philadelphia, Pennsylvania. A panel of three arbitrators will be selected in accordance with the AAA Rules. Connect with Vanguard >

12 The arbitrators will allow such discovery as is appropriate and consistent with the purposes of arbitration in accomplishing a fair, speedy, and cost-effective resolution of disputes. The arbitrators will reference the Federal Rules of Evidence and the Federal Rules of Civil Procedure then in effect in setting the scope of discovery. Judgment upon the award rendered in any such arbitration may be entered in any court having jurisdiction thereof, or application may be made to such court for a judicial acceptance of the award and enforcement, as the law of such jurisdiction may require or allow. You consent to service of process by first-class mail to your addresses maintained on record at Vanguard. You should know that: (1) Arbitration awards will be final and binding on all parties, (2) By obtaining VAI advisory services, all parties are waiving their right to seek remedies in court, including the right to a jury trial, (3) Prearbitration discovery is generally more limited than, and different from, court proceedings, (4) The arbitrators decision isn t required to include factual findings or legal reasoning, and (5) Any party s right to appeal or to seek modification of rulings by arbitrators is strictly limited. Note that the arbitration clause may not constitute a waiver of any right under federal or state securities laws, or under ERISA, including the right to choose the forum in which to seek resolution of disputes. The arbitration clause may not apply to residents of all states. Authority By signing the Enrollment Form (or accepting electronic delivery of this Agreement, the Vanguard Financial Plan Brochure, and the Supplement to the Ask a CFP Professional, Vanguard Financial Plan, and Vanguard Personal Advisor Services Brochures through vanguard.com), you agree that you ve received and read and will be bound by the provisions of this Agreement, the Vanguard Financial Plan Brochure, and the Supplement to the Ask a CFP Professional, Vanguard Financial Plan, and Vanguard Personal Advisor Services Brochures. You also acknowledge that you have full legal authority and capacity to retain us. The Vanguard Financial Plan will provide advice regarding all accounts held at Vanguard or at any other financial institution that you tell us about. By enrolling in the service, you acknowledge that you re the account owner (or a joint account owner) on each of the accounts to be included in your financial plan or that you re an Authorized Person that is, someone who has been granted the authority to transact on each account. If you re not an Authorized Person on any account, you ll be responsible for gaining proper authorization from a registered account owner. (For example, to include your spouse s or partner s IRA in your financial plan, we must receive his or her authorization.) Furthermore, you won t be permitted to act on any plan recommendations that involve transactions on accounts on which you re not an Authorized Person. Connect with Vanguard >

13 Effectiveness This Agreement will take effect once Vanguard receives and accepts a fully executed copy of your questionnaire. All fees payable as described in this Agreement must be either submitted by check or deducted from a Vanguard nonretirement account. No services will be provided until these conditions have been met. Assignment, amendment, and termination of services Neither party may assign or amend this Agreement without the consent of the other party. We can terminate this Agreement or the VFP service at any time by notifying you in writing and refunding any fees paid for services not rendered. You can terminate this Agreement at any time by notifying Vanguard in writing. If you terminate this Agreement within five business days of the date you sign the Enrollment Form, you ll receive a full refund of any fees paid. If you terminate this Agreement after five days, the amount of your refund if any will depend on the amount of work performed and expenses we ve incurred prior to receipt of your termination notice. Written notice of termination should be sent to Vanguard Advice Services, P.O. Box 709, Valley Forge, PA Note: We reserve the right, at our discretion and without prior notice, to change our investment planning methodology, staffing, fees, frequency or type of interaction with planners, paper-based services, and/or components of our financial planning services, and/or to discontinue this advisory service, in whole or in part, at any time. Changes may affect all clients, individual clients, or only those in certain classes or groups. Qualification criteria are subject to periodic review and may change at any time. We reserve the right to discontinue eligibility criteria and to amend or cancel selected features and benefits at any time without prior notification. In addition, ongoing access by any particular client to services and discounts is subject to periodic review and may be restricted based upon criteria established solely by us. Vanguard agent authorization forms and other agent authorizations If you (the Client ) have executed a non-vanguard Power of Attorney document (the POA ), in a form and substance acceptable to Vanguard, and/or a Vanguard Agent Authorization form, authorizing another individual or individuals ( Named Agent ) to act on your behalf, in addition to having the rights, powers, and obligations as set forth in the POA or Vanguard Agent Authorization form, the Named Agent will have the following authority under this Agreement: Connect with Vanguard >

14 (i) Vanguard agent authorization or acceptable POA. Named Agent will have the same rights, powers, and obligations under this Agreement as Client, including but not limited to access to all information about the accounts in the VFP and terminating this Agreement. (ii) All other limited agent authorizations. Named Agent will have the same rights, powers, and obligations under this Agreement as Client, with the exception of the ability to: Obtain account information for the solely titled assets of other Clients held in the accounts relating to the VFP; or Terminate this Agreement. Trustee signatories Generally, trust instruments, including any amendments thereto, control who is authorized to act on behalf of trust accounts (including revocable trusts). Vanguard may accept a Vanguard limited Agent Authorization form or non-vanguard limited POA on a trust account naming an agent with limited powers, but Named Agent won t be able to approve or make changes to the trust portfolios or terminate this Agreement. Vanguard won t accept a Vanguard Agent Authorization form or non-vanguard POA on a trust account. Standard of care VAI and its representatives will perform the services described in this Agreement in good faith and in accordance with applicable law. However, except for gross negligence, willful malfeasance, or bad faith, neither VAI nor any Vanguard affiliate will be held liable for any action performed or omitted, or for errors of judgment made within the scope of the performance of such services. Federal and state securities laws impose liabilities under certain circumstances on persons, even when they act in good faith, and nothing contained in this Agreement shall constitute a waiver or limitation of rights that you may have under federal or state securities laws. VAI is permitted to provide advice to a range of clients and may give advice to other clients that may differ from the advice given to you. Nothing contained in this Agreement shall constitute a waiver or limitation of rights that you may have under ERISA. Moreover, to the extent that we provide investment advice to a participant or beneficiary of an employee pension benefit plan as defined by Section 3(2) of ERISA with respect to assets of such plan, VAI represents and acknowledges that it is a fiduciary subject to the duties outlined in Section 404 of ERISA. Connect with Vanguard >

15 Vanguard Advice Services P.O. Box 709 Valley Forge, PA Connect w ith Vanguard > vanguard.com > The Vanguard Financial Plan is provided by Vanguard Advisers, Inc., a registered investment advisor. Vanguard Brokerage Services is a division of Vanguard Marketing Corporation, member FINRA. Ask a CFP Professional is provided by Vanguard Advisers, Inc., a registered investment advisor The Vanguard Group, Inc. All rights reserved. U.S. Patent No. 7,149,713. VFPAGRMT