August 14, 2018
The Department of Labor’s fiduciary rule was struck down earlier this year and the industry faces potential fiduciary standards from the Security and Exchange Commission. In the midst of this turmoil, financial firms continue to abuse their clients.
Roughly one week after the U.S. Fifth Circuit Court of Appeals affirmed the March 15th decision to vacate the DOL rule, Morgan Stanley agreed to pay $3.6 million in fines related to brokers’ misappropriation of client funds.
At the end of June, the SEC announced that Morgan Stanley would pay a $3.6 million fine and implement new policies to prevent “advisors” from misusing client funds.
The investment company’s policies failed to stop an advisor, Barry F. Connell, from misappropriating approximately $7 million in client funds. Of course, as part of the deal, Morgan Stanley did not admit or deny the findings. In this case, at least, fraud charges were brought to the advisor in question, as well as criminal charges.
Obviously, this is a case of a single advisor acting outside the directives of the firm. However, I would argue that as long as brokerage firms continue to promote a culture of sales before fiduciary obligations, issues like this will be commonplace.
When firms operate under a suitability standard, they place the interests of the firm ahead of their clients. Adopting such a culture implicitly tells employees that customers come second to making money.
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