The US’ Securities and Exchange Commission (SEC) has issued a $5m penalty to Morgan Stanley Smith Barney after it providing misleading information to clients in its retail wrap fees programmes.
This misleading information was in regard to trade execution services and transaction costs.
Funds from the penalty will be distributed to harmed investors.
Wrap fee programmes offer accounts where the client pays an asset-based “wrap fee”, which covers investment advice and brokerage services, including trade execution.
The SEC claims the Morgan Stanley marketed its wrap fee accounts as offering clients professional advice, trade execution and other services within a transparent fee structure. Between October 2012 and June 2017, some of the marketing and client communications gave the impression the wrap fee clients would not likely to incur additional trade execution costs.
However, during this time, the SEC claims some of the Morgan Stanley managers routinely directed wrap fee clients’ trades to third-party broker-dealers for execution, some of which, resulted in additional transaction fees that were hidden from them.
Following this, the regulator believes certain clients were not able to assess the value of the services received in exchange for the wrap fee paid, it said.
Morgan Stanley accepted the penalty; however, it did not admit or deny the findings. The financial penalty also includes a censure and a cease-and-desist order.
SEC division of enforcement associate director Melissa Hodgman said, “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.”
Copyright © 2020 FinTech Global
Copyright © 2018 RegTech Analyst