Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards
ThinkAdvisor

Regulation and Compliance > Federal Regulation > SEC

Morgan Stanley to Pay $5M Over Wrap-Fee Issues

X
Your article was successfully shared with the contacts you provided.
photo of Morgan Stanley signs in New York taken by Bloomberg Morgan Stanley’s New York headquarters (Photo: Bloomberg)

The Securities and Exchange Commission says Morgan Stanley has agreed to pay $5 million and settle charges that it gave misleading information to clients about trade execution services and transaction costs for its wrap-fee programs.  

The $5 million will be distributed to investors who had such accounts from October 2012 to June 2017, according to the SEC.

“Investment advisers are obligated to fully inform their clients about the fees that clients will pay in exchange for services,” said Melissa R. Hodgman of the SEC’s Enforcement Division, in a statement. 

“The SEC’s order finds that Morgan Stanley Smith Barney failed to provide certain clients in its retail wrap fee programs accurate information about the costs they incurred for the services they received,” Hodgman explained.

Morgan Stanley had 15,432 advisors as of March 31.

Lack of Transparency

In these programs, clients pay an asset-based “wrap fee” for investment advice and brokerage services, including trade execution. 

The regulatory group says Morgan Stanley “marketed its wrap-fee accounts as offering … services within a ‘transparent’ fee structure; in other words, marketing and client information “gave the impression that wrap-fee clients were not likely to incur additional trade execution costs.”

However, over nearly five years, some Morgan Stanley staff regularly directed clients’ trades to third-party broker-dealers for execution, leading to extra transaction fees that were not clear to some clients. These investors “were unable to assess the value of the services received in exchange for the wrap-fee paid” to the firm, the SEC said. 

For its part, the wirehouse explained: “We are pleased to have resolved this matter and have corrected these historical issues.”

— Check out As Brokerages Race to Cut Commissions, RIAs Should Check Their Fees on ThinkAdvisor.


NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.