Morgan Stanley Smith Barney has been fined $5m by the Securities and Exchange Commission for allegedly offering misleading data to clients in its retail wrap fee programmes.
The misconduct is said to have occurred between October 2012 and June 2017.
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The regulator alleged that some managers of the business sent their client trades to third party dealers even after promising a “transparent” fee structure to wrap fee clients.
As a result, clients had to pay additional fees.
The firm’s customers were unable to gauge the value of the services received in exchange for the wrap fee, SEC noted.
The firm consented to the settlement without admitting or refuting the allegations.
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By GlobalDataUnder wrap fee programmes, clients pay asset-based fees covering investment advice as well as brokerage services.
Commenting on the decision, SEC Division of Enforcement associate director Melissa Hodgman said: “Investment advisers are obligated to fully inform their clients about the fees that clients will pay in exchange for services.
“The SEC’s order finds that Morgan Stanley Smith Barney failed to provide certain clients in its retail wrap fee programmes accurate information about the costs they incurred for the services they received.”
The SEC order includes the creation of a Fair Fund to benefit affected investors.
