In May 2020, Morgan Stanley agreed to pay a $5 million penalty to settle with the Securities and Exchange (SEC), which charged the brokerage firm with providing misleading information to its clients in regard to trade execution services and transaction fees related to retail wrap fee programs. The $5 million settlement will be distributed to investors that were harmed due to the brokerage firm’s misleading information through a Fair Fund.
According to the SEC, Morgan Stanley “is a sponsor of wrap fee programs in which retail clients can select one or more third-party sub-advisers (“wrap managers”) to make investment decisions in the clients’ account. Clients pay MSSB an asset-based “wrap fee” in exchange for a range of services, including investment advice and trade execution through MSSB.”
A wrap fee program enables investors to pay an asset-based wrap fee that covers the investment advice clients receive, brokerage services, and trade execution fees. According to the SEC’s order, Morgan Stanley “marketed its wrap fee accounts as offering clients professional investment advice, trade execution, and other services within a “transparent” fee structure.”
According to the SEC, between at least October 2020 and June 2017, Morgan Stanley’s communication gave its customers the impression that they would not incur additional trade execution costs in addition to the wrap fees they already pay. “During that period, however, the order finds that some MSSB managers routinely directed wrap fee clients’ trades to third-party broker-dealers for execution, which in some instances resulted in MSSB clients paying additional transaction fees that were not visible to them. As a result of MSSB’s conduct, the order finds that certain MSSB clients were unable to assess the value of the services received in exchange for the wrap fee paid to MSSB,” according to the SEC.
Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, Morgan Stanley may be liable for investment or other losses suffered by its customers.
Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.