Vanguard partnership profits up 15% over 2016

Vanguard CEO William McNabb during a May interview at his office in Malvern.

These are good times at Vanguard.

Its 2017 Partnership Plan dividends will likely rise 15 percent from last year, according to Dan Wiener, editor of the Independent Adviser for Vanguard Investors.

Since the top executives earn the bulk of their compensation from the Partnership Plan, that amounts to a significant raise for a lot of local folks. Based partly on assets under management — and Vanguard now manages a record $4 trillion in assets — the Partnership Plan pays out millions each year.

Since founder Jack Bogle created the plan in 1984, dividends have compounded at an annualized rate “a fair bit higher than the 10.2 percent annualized return from Vanguard’s flagship 500 Index fund,” Wiener notes. The 15 percent hike compares to a 12 percent rise in partnership dividends in 2016 and a 13 percent rise in 2015. Payouts were flat in 2014.

Wiener estimates current CEO William McNabb takes home between $12 million and $21 million, based on how partnership units were awarded to previous leaders such as Bogle and Jack Brennan. The Partnership Plan is Vanguard’s internal profit-sharing, designed to reward all employees, from management to phone operators, with a piece of the savings the low-cost fund provider generates each year.

Vanguard declined to comment on Wiener’s estimates.

Partnership awards in 2016 amounted to $185.44 per “partnership unit,” similar to a dividend, Wiener said. Payouts have fallen in only two years, he says: 2001 and 2008, coinciding with market downturns.

In his latest newsletter, Wiener writes: “Since its first year, the Partnership Plan’s dividend has risen 62 times. The value of one share of 500 Index has, with all distributions reinvested, grown 27 times over the same period. The takeaway for a Vanguard investor is pretty clear:  Vanguard is not, and has never been, a nonprofit, though much of the language around ‘operating at cost’ does, at times, make it sound as though it is.

“The company is exceedingly profitable, and hence has the ability to pay its captains millions of dollars every year,” he writes, adding that 90 percent of the top executives’ compensation comes as dividends from the Partnership Plan.

“Just two funds, 500 Index and Total Stock Market Index, generate over half a billion dollars in fees each year,” Wiener writes. “Indexing may have made some investors wealthy over the three decades the Partnership Plan has been around, but the successful marketing and running of index funds is contributing even more to the bank accounts of Vanguard’s executive team.”

Preventing elder financial fraud

How are banks and brokerage firms trying to prevent elder financial abuse? We checked in with the Philadelphia Corporation for Aging’s workshop at the Ralston Center last week to find out from experts including Chuck Silverman, senior vice president at Beneficial Bank, and Linda Mill, director of deposit operations at Ally Bank in Fort Washington.

The stats: Five million elderly American adults lose $2.6 billion annually, and the financial abuse goes undetected in 80 percent of cases, said City Councilman Derek Green. “Seniors feel isolated, and don’t want to tell anyone they got scammed. Fraud artists know that,” Green said.

Mill was blunt about getting money back after an elderly relative is ripped off. “Recovery rates are very low. That’s why prevention is so important,” she said.

“Unfortunately, although we refer a lot of cases to the district attorney, many go unpunished,” Silverman said. “And these cases take time — sometimes two to three years before they get to court.”

Some action tips? Appoint a power of attorney, but don’t necessarily put that person or any relatives on a bank account. Consult with a lawyer before making any financial moves.

“When choosing a power of attorney, pick wisely. Don’t choose your son or daughter who’s not working and has time on their hands,” Mill advised. “If they can’t handle their own finances, they can’t handle yours.”

Also, don’t put a friend or relative on a bank account — otherwise, they own it too. “If that person’s assets are subject to a lawsuit or garnishment, your bank account could be too. Your money becomes their asset. A power of attorney is better,” Silverman said.

Bank tellers are supposed to be trained to spot unusual checks, particularly if the elderly person isn’t present. They’re also supposed to slow down the account owner by asking, “What’s the money for?”

Silverman recently stopped a schoolteacher from sending money abroad to a “boyfriend” in Nigeria whom she had never met. “Talk to your family members, among yourselves, about how to monitor those accounts closely,” he said.

EverSafe is one new monitoring system for your parents’ accounts — brokerage, banking, and credit cards — and costs between $7 and $22 a month.