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Brokerage Firms are still Behaving Very Badly



 By Ryan Payne, President


I came across a very interesting article last week while reading the investment news section. Apparently the state of Massachusetts is charging wire house Morgan Stanley with conducting unethical, high-pressure sales contests among its financial advisors to encourage clients to borrow against their brokerage accounts.

Three Keys:

A prominent wire house was recently charged with conducting an unethical sales contest

This contest clearly put the interests of the firm ahead of its own clients

Fiduciaries on the other hand are legally bound to put the interests of clients first

According to the article, Morgan Stanley ran two different contests between January 2014 and April 2015 that involved 30 different advisors in their Massachusetts and Rhode Island branches. The goal was to persuade clients to take out loans in which they borrowed against the value of their portfolio, with securities serving as collateral.

A former Morgan Stanley employee said advisors were told big money could be made by having clients take out credit since the variable interest rate was profitable to the firm. This scenario emphasizes why investors should want to work with a fiduciary, and comes on the heels of Wells Fargo making headlines for allegedly opening millions of false accounts.

As the days of fiduciary responsibility come down the pike, it makes sense to reevaluate who you’re working with. Ask yourself this question: Could your advisor be giving you so-called advice based on a sales contest? The Morgan Stanley situation is a perfect example of a prominent firm still staging competitions to provide products that are actually in the best interest of the company, rather than you the client.

Unfortunately with a lot of big banks and wire houses, the company’s stock price still comes first. As a result, they view their clients as “customers” first and foremost. But in today’s era of fiduciary advisory, the client is really the winner, and it’s up to clients to make sure they find a fiduciary to represent them. In essence, don’t just be a customer, be a client.



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