SEC charges Morgan Stanley with misleading clients, bank to pay $5M to settle

Firm settles without admitting or denying wrongdoing

(Reuters) - A unit of Morgan Stanley agreed to pay a $5 million fine to settle U.S. Securities and Exchange Commission charges it misled retail investing clients about the costs of a "wrap fee" program, the regulator said on Tuesday.

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Wrap fee programs offer accounts in which clients pay asset-based fees meant to cover investment advice and brokerage services, including the execution of trades.

The SEC said that while Morgan Stanley Smith Barney promised wrap fee clients a "transparent" fee structure, some managers sent most or all of their client trades to third party brokers, causing clients to pay extra fees they could not see.

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"Investment advisers are obligated to fully inform their clients about the fees that clients will pay in exchange for services,"  Melissa Hodgman, associate director in the SEC's enforcement division, said in a statement.

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Morgan Stanley oversaw $2.4 trillion of client assets, including $1.13 trillion from fee-based clients, as of March 31, according to a regulatory filing.

PHOTO: KEVIN HAGEN FOR THE WALL STREET JOURNAL (Wall Street Journal / The Wall Street Journal)

The alleged wrongdoing occurred from Oct. 2012 to June 2017, and the $5 million will be distributed to harmed investors.

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Morgan Stanley did not admit or deny wrongdoing. The SEC said the New York-based company now requires wrap managers to disclose more about trades they conduct through third parties, and upgraded client account statements to reflect such trades.

A Morgan Stanley spokeswoman said the company was pleased to have settled and "corrected these historical issues."

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(Reporting by Jonathan Stempel in New York, editing by Louise Heavens and David Gregorio)

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