Morgan Stanley agreed to pay $5 million to settle SEC charges that it had provided misleading information to some clients in its retail wrap fee programs.
From October 2012 to June 2017, some Morgan Stanley marketing and communications materials gave the false impression to some wrap fee clients that they were not likely to incur additional trade execution costs, according to the SEC.
However, the regulator found that Morgan Stanley routinely directed wrap fee clients’ trades to third-party broker-dealers, which sometimes resulted in clients paying additional transaction fees. These costs were not visible to clients, hindering their ability to assess the value of the services for which they were paying, according to the SEC.
Morgan Stanley’s marketing materials stated that its wrap accounts offered
fee “transparency” and that its wrap fee programs offered access to highly regarded investment managers “while streamlining and simplifying the expense associated with such a portfolio,”
But execution expenses were not visible to clients who selected wrap managers that traded away from the firm on a regular basis with embedded transaction-based charges.
The firm’s $5 million penalty will go to harmed clients, according to the regulator. The SEC order added that in 2015, Morgan Stanley took several actions to remediate the problem, including enhancing account statements and trade confirmations.
In agreeing to settle the matter, Morgan Stanley neither admitted nor denied the charges.
A company spokesman said in an email that the firm is “pleased to have resolved this matter and have corrected these historical issues.”
