Morgan Stanley and Fiduciary: Never the Twain Shall Meet?

The alleged practices are obviously anti-fiduciary. Products are pushed to gain market share and benefit the firm and those broker-advisors and they are pushed absent any disclosures to clients of the incentives and their conflicts. Galvin again: "The complaint lays bare the culture at Morgan Stanley …. the high-pressure effort to cross sell banking products to its brokerage customers without regard to the fiduciary duty owed to the investor."      

A Morgan Stanley spokesperson disagreed and claimed the complaint is without merit and that the "securities-based loan accounts were opened only after discussing the product with each client and obtaining their affirmative consent." 

Selling, of course, is what broker-dealer agents do and cross selling is part of banking's DNA. Consultant Charles Wendel wrote recently in BAI Banking Strategies that the "cross sell" is "the biggest near-term payday available to banks." 

Galvin's complaint illustrates what a strong sales culture can mean and how it can override fiduciary conduct. Most noteworthy are allegations of what broker-advisors did to sell and to overcome client objections and to get clients to open accounts that clients apparently neither requested nor needed.

Also noteworthy is the sales conduct that Morgan Stanley apparently considered proper. The differences between sales and fiduciary are basic, yet are often overlooked in today's discussion. Galvin's complaint puts these alleged sales practices under a microscope to give full meaning to the sales culture at the firm. Like an ALS Ice Bucket Challenge, this meaning is hard to ignore.

The DOL rule adroitly addresses sales conduct, conflicts and the wide gulf between opposing cultures. It goes "live" April 10, 2017. The question is how many firms will be ready. How many firms will have begun to restructure to replace their sales cultures with advice cultures? There is no quick fix. Offering fees in place of commissions, for example, can no doubt be helpful in some cases. But it's no silver bullet. 

Finally, Galvin also illustrates the Gerstner principle of corporate culture. It is policies and priorities that matter, not statements of values or virtues. In the same way that the Institute's Best Practices tell investors what they can expect from an advisor with far greater clarity than can fiduciary principles on their own.