Morgan Stanley Charged With Providing Misleading Information to Clients Regarding Trade Execution Fees

Morgan Stanley Smith Barney LLC (MSSB) was alleged to have provided misleading information to retail clients regarding its retail wrap fee program, trade execution services, and transactional costs. The Securities and Exchange Commission brought charges against MSSB, and on May 12, 2020 announced that MSSB agreed to settle charges. MSSB will pay a $5 million penalty, which will be distributed among investors who were harmed by its alleged misconduct.

Wrap fee programs allow an investor to pay a “wrap fee” based on assets, which covers investment advice and brokerage services. According to the SEC’s charges, MSSB marketed the wrap fee program without properly disclosing additional trade execution costs. 

It was discovered that during the course of October 2012 to June 2017, several MSSB managers did charge wrap fee customers with additional trade execution costs that were not visible to those customers. The MSSB managers allegedly would transfer trades to third-party broker-dealers, and then charge investors with additional fees, despite having previously communicated that those costs were unlikely to occur due to their wrap fee status.

Due to MSSB’s conduct, some customers were unable to properly assess the value of services provided to them under their wrap fee status. The SEC’s order finds that MSSB had violated the Investment Advisers Act of 1940 and therefore imposed a $5 million penalty and a cease-and-desist order.

According to Melissa R. Hodgman, Associate Director in the SEC’s Division of Enforcement:

“Investment advisers are obligated to fully inform their clients about the fees that clients will pay in exchange for services. 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.”

MSSB has not confirmed or denied the SEC’s findings, but has agreed to pay the penalty, which will be distributed to harmed investors.

If you have suffered loss due to your financial advisor’s misrepresentation or omission, please contact Levin Law managing partner, Brian Levin, at (305) 402-9050, brian@levinlawpa.com, or visit Levin Law’s website, www.levinlawpa.com for a free case evaluation. Levin Law accepts most cases on a contingency-fee basis, meaning that clients are not obligated to pay Levin Law’s attorney fees unless money is recovered for the investor.

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