Reuters
- Morgan Stanley will pay a $5 million fine to the Securities and Exchange Commission over allegedly misleading some customers and charging hidden trading fees.
- The bank’s Smith Barney unit sold clients a “wrap fee” meant to cover investment advice and brokerage services.
- The SEC alleges that, from October 2012 to June 2017, the brokerage routed some trades to a third-party and charged certain Smith Barney customers the resulting fee.
- The hidden trading costs left clients unable to accurately judge the wrap fee’s value, the SEC said in a statement.
- Watch Morgan Stanley trade live here.
Morgan Stanley has agreed to pay a $5 million fine to the Securities and Exchange Commission after allegedly misleading clients and charging hidden trading fees.
Morgan Stanley’s Smith Barney segment marketed a “wrap fee” to clients meant to cover investment advice and brokerage services. The SEC alleged the unit’s managers directed some clients’ trades to third-party dealers for execution and charged the customers the resulting fees.
The agency’s order found that affected clients weren’t made aware of such additional costs, and were therefore unable to accurately judge the wrap fee’s value.
“Investment advisers are obligated to fully inform their clients about the fees that clients will pay in exchange for services,” Melissa Hodgman, associate director at the SEC’s Division of Enforcement, said in a statement. “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.”
Morgan Stanley neither admitted to nor denied the findings and consented to the order. The $5 million charge will create a fund of the same size to benefit those hit with the hidden fees, the SEC said.
“We are pleased to have resolved this matter and have corrected these historical issues,” a Morgan Stanley spokesperson said in an emailed statement.
Morgan Stanley shares traded as much as 3.7% lower on Tuesday, underperforming the smaller market decline.
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