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The SEC Charges Morgan Stanley with Misleading Retail Clients In its Retail Wrap Fee Program

On March 12, 2020, the Securities and Exchange Commission (“SEC”) charged Morgan Stanley with providing misleading information to customers regarding the costs of “wrap fee” programs. Wrap fee programs offer accounts in which customers pay asset-based fees meant to cover investment advice and brokerage services, including the execution of trades. The SEC alleged that nowhere in Morgan Stanley’s retail wrap fee programs was it disclosed to customers that additional fees were charged for certain wrap fee trades that were directed to third-party broker-dealers for execution.

The SEC alleged that Morgan Stanley’s wrap fee practices involved extra costs that were not visible to customers, limiting the customers’ ability to assess the true costs and value of the services for which they were paying.  Morgan Stanley, without admitting or denying the wrongdoing, agreed to pay $5 million to settle the SEC charges. Morgan Stanley’s alleged wrongdoing occurred from October 2012 to June 2017, and the $5 million will be distributed to harmed investors.

Customers of brokerage firms or registered investment advisors are often unaware of all the fees they are charged for the investment advice and services they are receiving. As Melissa Hodgman, associate director in the SEC’s enforcement division, noted, “[i]nvestment advisers are obligated to fully inform their clients about the fees that clients will pay in exchange for services.” If an investment advisor fails to disclose all the fees to his or her customer or charges excessive fees to the customer, the customer may have a claim against the investment advisor, the advisory firm or the brokerage firm where the customer held his or her investments and accounts.

The attorneys at Lax & Neville LLP have extensive experience in successfully prosecuting claims on behalf of customers who have suffered losses as a result of investment and securities fraud.  If you think you were improperly charged fees on your investments, or if you think you may be a victim of investment fraud, please contact Lax & Neville LLP today at (212) 696-1999 to schedule a consultation.

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