This case involves the improper management of client accounts because of a failure to comply with the policies and procedures established by PIP. Although PIP informs its clients that it will continually monitor their account for inactivity to determine whether the clients would be better off in less expensive brokerage-only account, that does not happen with Raymond’s clients. Raymond does not note or discuss the inactivity in at least 150 accounts as promised, violating his duty to his clients under CFA Institute Standard III(A): Loyalty, Prudence, and Care.
PIP’s compliance procedures indicate that compliance personnel are also expected to monitor client inactivity and contact branch managers about inactive accounts, which also did not happen in Raymond’s case. Bower, as chief compliance officer, failed to supervise his compliance staff properly to ensure the implementation of firm policy, a violation of CFA Institute Standard IV(C): Responsibilities of Supervisors.
Presumably, once informed of the account inactivity, the branch manager is responsible for following up with the financial adviser to determine whether a change to a brokerage-only account is warranted. Neither Raymond nor Bower, who are explicitly responsible for monitoring account inactivity, bring Raymond’s 150 inactive accounts to Jaynes’s attention. It is unclear from the facts whether Jaynes has direct responsibility for monitoring account inactivity. But Jaynes does have overall responsibility for managing his branch’s advisers to make sure they are managing client accounts appropriately and complying with rules, regulations, and firm policies and procedures. Because his supervision of Raymond is ineffective, leading to a compliance breakdown, Jaynes has also violated CFA Institute Standard IV(C): Responsibilities of Supervisors.
The failure to appropriately manage client accounts in this case resulted in a breakdown from Raymond, Jaynes, and Bower in fulfilling their professional responsibilities under the CFA Institute Code and Standards. C is the best choice.
This case is based on a September 2019 US SEC enforcement action.