More On Legal & Compliancefrom The Advisor's Professional Library
- Disaster Recovery Plans and Succession Planning RIAs owe a fiduciary duty to clients to prepare for disasters and other contingencies. If an RIA does not have a disaster recovery plan, clients financial well-being may be jeopardized. RIAs should also engage in succession planning, ensuring a smooth transaction if an owner or principal leaves.
- Whistleblowers A whistleblower is any individual providing the SEC with original information related to a possible violation of federal securities law. The Dodd-Frank Act established a whistleblower program that enables the SEC to reward individuals who voluntarily provide such information.
Morgan Stanley Smith Barney recently recruited a team of financial advisers from Wells Fargo Advisors, which followed a fine by the Financial Industry Regulatory Authority (FINRA) over disclosure rules.
On August 20, Ben Dembin and Francis Schiavetti joined Morgan Stanley Smith Barney's Boca Raton, Fla., office, according to Dow Jones. The team reportedly produces about $1.2 million in annual fees and commissions and manages $107 million in client assets.
Before joining MSSB, Dembin worked at Wells Fargo and its predecessor firm Wachovia Securities for nearly five years, while Schiavetti worked at the two firms for nearly four years.
The number of Morgan Stanley financial advisors -- including those involved in the joint venture with Smith Barney -- fell by about 50 to 18,087 during the second quarter of 2010 from the first quarter. It has the most advisors of the four wirehouse firms, topping Bank of America-Merrill Lynch and Wells Fargo by nearly 3,000 brokers.
The Wells Fargo Advisors group includes 15,102 financial advisors and 5,094 licensed bankers with $1.1 trillion in assets under management.
In the second quarter, Morgan Stanley said that its global wealth-management clients withdrew net $5.5 billion, including net outflows of $7.9 billion in the United States and net inflows in overseas offices of $2.4 billion. In the first quarter, the wealth-management operations had net inflows of $9.3 billion.
The company's total client assets of $1.5 trillion at the end of June were down 6 percent from the first quarter, but topped last year's $1.42 trillion.
In early July, MSSB attracted two teams from UBS in New York and Canton, Ohio, for instance, while in late May it lost a Charlotte, N.C.-based team to Baird.
On August 10, FINRA censured and fined Morgan Stanley $800,000 for failing to make public disclosures required by FINRA's rules governing research-analyst conflicts of interest.
"The firm also failed to comply with a key provision of the 2003 Research Analyst Settlement by failing to disclose the availability of independent research in customer account statements," FINRA said in a press release.
In addition to the censure and fine, Morgan Stanley is now required to review a sample of its research reports and certify to FINRA that they comply with FINRA's research analyst conflict-of-interest rules. These reviews and certifications must take place every six months for two years.
"This case strikes at the heart of FINRA's research disclosure requirements, which were written in response to scandals involving research analyst conflicts of interest,"
said James S. Shorris, FINRA executive vice president and acting chief of enforcement in a statement. "Here, thousands of Morgan Stanley research reports did not include accurate information about the firm's relationships with the companies it covered, depriving potential investors of important information."
From April 2006 to June 2010, Morgan Stanley issued equity research reports that failed to disclose accurate information about the relationships Morgan Stanley, or its analysts, had with companies covered in its research reports, according to FINRA.
This behavior resulted in roughly 6,840 deficient disclosures in about 6,630 equity research reports and 84 public appearances by research analysts. Among the deficient disclosures were:
Morgan Stanley also failed to disclose that independent, third-party research was available when sending about 127,600 monthly account statements to customers from August 2007 to February 2008.
In settling this matter, Morgan Stanley neither admitted nor denied the charges, but consented to the entry of FINRA's findings, according to the independent regulatory organization.
The firm made several changes recently to its U.S. executive team. It appointed James Tracy as chief operating officer of distribution and development for wealth management in the U.S. and Douglas Ketterer as head of its private-wealth management unit in the U.S. in July.