SEC hits Morgan Stanley with $13M penalty for overbilling clients
Morgan Stanley will pay $13 million to settle SEC charges that it overbilled wealth management clients due to coding and other billing system errors, the regulator said Friday.
The wirehouse overcharged more than 149,000 clients from 2002 to 2016, according to the SEC. The error resulted from Morgan's failure to implement compliance procedures to ensure clients were billed according to the terms of their advisory agreements, the SEC says.
''Investors must be able to trust that their investment advisers have put appropriate safeguards in place to ensure accurate billing. The long-running deficiencies in those safeguards at Morgan Stanley resulted in 36 different types of billing errors that caused overcharges to customers,'' said Andrew Calamari, director of the SEC's New York Regional Office, said in a statement.
Some of the errors date back to Smith Barney, which merged with Morgan Stanley in the wake of the financial crisis. Almost 60% of the fees overbilled originated with Smith Barney, with the remainder resting with Morgan Stanley.
The wirehouse netted more than $16 million in excess fees because of the flaws in its billing system, the commission says. Morgan has reimbursed the full amount, plus interest, to those clients affected, according to the regulator. The SEC says that in some instances, client accounts in one advisory program were transferred between branches, and a feature of the billing system led client advisory fees to default to the highest available charge. That particular bug affected 5,270 client accounts, according to the SEC's formal complaint.
The SEC also charged that Morgan failed to comply with an annual surprise custody examination because it did not provide its independent public accountant with a complete list of client funds and securities for examination.
"The custody rule's surprise examination requirement is designed to provide clients protection against assets being misappropriated or misused," Sanjay Wadhwa, senior associate director of the regulator's New York office, said.
Morgan Stanley did not admit nor deny the SEC's findings, but it agreed to the penalty and to certain changes in its billing and record keeping practices, according to the regulator.
A spokeswoman for the firm could not be reached for immediate comment.