Can You Believe This Is Still Happening?

John Noonan Uncategorized

The article below from the Wall Street Journal tells a story that is far more common than you can imagine. It illustrates the difference between a fiduciary and a broker. Make sure you know the difference when you hire an advisor. Do they work directly for you, and are they held to the highest standard of the law to do what is right, as we are? Or do they work for a company, where they are beholden to managers, selling quotas, contracts, and stock holders? If you want to know more about the difference, and how it affects you, just ask us.
John & Bill



Massachusetts Charges Morgan Stanley Over High-Pressure Sales Contest
Massachusetts official says contest created a conflict of interest, violated fiduciary rules

Morgan Stanley has made a push to be more of a full-service bank to the 3.5 million clients of its wealth-management arm. PHOTO:REUTERS

Updated Oct. 3, 2016 12:26 p.m. ET

Massachusetts’ top securities regulator accused Morgan Stanley of paying bonuses to brokers to encourage them to push loans on their wealth-management clients.

A complaint filed Monday by the secretary of the commonwealth alleges that Morgan Stanley brokers in Massachusetts and Rhode Island promoted securities-backed loans, in which clients borrow against the value of their investment portfolios, to win an internal “sales contest” that rewarded them financially.

The complaint says the program tripled new loan originations and created a conflict of interest between the brokers and their clients. It alleges that Morgan Stanley played down the risks, including that the firm could liquidate their investments to repay the loans.

The complaint comes amid a cross-selling scandal at Wells Fargo & Co., where employees opened as many as two million unwanted accounts for unsuspecting customers. That has focused nationwide attention on cross-selling at banks.

“We object strongly to these allegations,” a Morgan Stanley spokesman said in a statement. “The securities-based loan accounts were opened only after discussing the product with each client and obtaining their affirmative consent.”


He added that clients don’t pay any fees to open the account, only when they draw down on the loan.

“The complaint is without merit, and Morgan Stanley intends to defend itself vigorously,” he said.

Morgan Stanley has made a push to be more of a full-service bank to the 3.5 million clients of its wealth-management arm. These clients use a broker to manage their investments and plan for retirement, but tend to do their day-to-day banking and borrowing elsewhere. About 16% of Morgan Stanley’s wealth-management clients have a loan secured by their portfolio.

Chief Executive James Gorman has made it a priority to lend more to wealthy individuals against stock they own as well as assets such as real estate and art collections. Loans in Morgan Stanley’s wealth-management arm hit a record $69 billion in the second quarter.

The firm also has rolled out new incentives to encourage clients to do more of their traditional banking, such as credit-card transactions and savings accounts, with the firm.

According to the complaint, a group of Morgan Stanley offices in Massachusetts and Rhode Island began the internal sales contest in 2014. Brokers could make as much as $5,000 for signing up new loans. The complaint alleges that the bank’s compliance department found out about the program in December of that year, and shut down a similar sales initiative in Pittsburgh, but allowed it to continue in Massachusetts.

The regulator is seeking a fine, as well as relief for clients who signed up for the loans.

“This contest was relatively local, but the aggressive push to cross sell was companywide,” William Galvin, secretary of the commonwealth, said in a statement.

Morgan Stanley reimburses brokers for money they spend courting clients and drumming up new business. A person familiar with the investigation said the payments fell under that category, and weren’t cash bonuses.

This person said the total amount reimbursed to the Massachusetts brokers was about $10,000, and fewer than 200 accounts were opened by those brokers during the time the contest was operating.

Write to Liz Hoffman at