SEC Uncovers $16 Million Client Overcharges at Morgan Stanley; Personal Capital Asks, Were They "Snafus" or "Policies"?

SAN CARLOS, Calif., Jan. 17, 2017 /PRNewswire/ -- The Securities and Exchange Commission (SEC) said Friday that Morgan Stanley has agreed to pay a $13 million penalty for overbilling 149,000 of its clients by more than $16 million.  The Attorney General of the State of New York also announced on Thursday that Citigroup has agreed to pay a $1 million fine for overcharging its clients by $22.5 million.

"This is yet more evidence that the large financial institutions care more about making money for themselves than for their clients," said Bill Harris, CEO of Personal Capital.  "They're brokers who sell whatever makes them the most money, rather than true advisors who look out for their clients' money first."

Personal Capital is a fiduciary of its clients' money – meaning that it is required to (and desires to) offer advice in the best interest of its clients, not of the firm itself.  Brokers are not fiduciaries.  Recently approved rules from the Department of Labor are scheduled for implementation in April of this year, and would require even brokers to operate as a fiduciary when selling 401k, 403b and Individual Retirement Accounts.  These new rules have faced fierce opposition from brokers and from the well-financed financial services lobby.  The incoming administration has indicated it may delay or repeal these rules.  Personal Capital believes the repeal of these regulations would be a disservice to all investors attempting to provide for a secure retirement.

Christine Jockle, a spokesperson for Morgan Stanley, explained that these transgressions included "inadvertent billing errors."  Financial Advisor magazine reported that "the SEC investigation uncovered 36 different types of billing errors." 

"It strains credulity that 36 different types of billing errors were just snafus, and not orchestrated policies," said Harris.  "I would ask how many of the 36 were in the client's favor and how many in favor of the firm?  Morgan Stanley 'neither admitted nor denied' the allegations – where have you heard this before?"

"While not rising to the level of Wells Fargo's creation of over two million unauthorized accounts," continued Harris, "overbilling 149,000 clients appears to be a darn good try."

"The SEC's order further finds that Morgan Stanley failed to comply with the annual surprise custody examination requirements for two consecutive years when it did not provide its independent public accountant with an accurate or complete list of client funds and securities for examination," said the SEC in their Friday press release.  "Morgan Stanley also failed to maintain and preserve client contracts."

"The custody rule's surprise examination requirement is designed to provide clients protection against assets being misappropriated or misused," said Sanjay Wadhwa, Senior Associate Director of the SEC's New York office.  "Morgan Stanley failed in consecutive years to do what was required of it to give investment advisory accounts that important protection."

As to Citigroup, on Friday New York Attorney General Eric T. Schneiderman announced an agreement with Citigroup to reimburse more than 47,000 Citi customers who were charged higher advisory fees than they negotiated. The agreement returns $22.5 million to about 47,000 Citigroup customers.

"I wonder," mused Harris, "what happens to the retirement money of American families if the brokers, congresspeople and incoming administration succeed in repealing the Department of Labor rules which protect retirement savings, the Dodd Frank act which protects consumers and the country from broker malfeasance, the Glass Steagall act which prevents big banks from using low-interest federal funding to gamble in investment markets (oops, that was already repealed which led to the great recession of 2008), and the Consumer Financial Protection Board (CFPB) – the only regulatory agency chartered to protect consumers rather than to protect the banks themselves?"

"To toot our own horn for a moment," said Harris, "we started Personal Capital to do the exact opposite.  We've built a true advisory service that combines the best digital technology with dedicated financial advisors, to deliver on our mission statement 'better financial lives through technology and people'.  I hope the rest of the industry moves in this direction soon."

To learn more about Personal Capital, visit www.personalcapital.com.

About Personal Capital
Personal Capital is the smart way to track and manage your financial life. Personal Capital combines award-winning online financial tools that provide unprecedented transparency into your finances with personal attention from licensed financial advisors. The result is a complete transformation in the way you understand, manage and grow your net worth. There are over 1.3 million registered users of Personal Capital's free tools tracking over $270 billion in assets.

Disclaimer: Personal Capital Advisors is an SEC registered investment advisor. Any reference to the advisory services refers to Personal Capital Advisors. SEC registration does not imply a certain level of skill or training. 
Marianne Ahlmann | Personal Capital | [email protected]

SOURCE Personal Capital

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