Adviser to Pay $2 Million for Failing to Monitor Client Allocations
An investment adviser that operated an asset allocation program agreed to pay $2 Million in fines and restitution for failing to monitor and correct portfolio variance from initial allocation selections. According to the SEC, the respondent promised clients that it would continuously monitor portfolios for consistency with investment objectives. However the firm failed to conduct such monitoring after the issue was identified by the SEC in a routine exam and highlighted later by the firm’s compliance department. A significant portion (more than 40%) of client portfolios varied from the initial allocations. The SEC alleges that the senior executive responsible for the program failed to hire required resources to conduct the monitoring.
OUR TAKE: Even after warnings from the SEC and the Compliance Department, senior management refused to spend the money to hire the resources to conduct the monitoring. We expect the cost of the hire would have been less than $2 Million.