Morgan Stanley’s Gorman on DOL: Choice for Clients ‘Is Critical’

When asked about the potential legal liability of keeping a commission-based retirement option, Gorman said, "I don't think that giving clients choice heightens one's legal exposure. In fact … that just seems a little counterintuitive."

Such a strategy does mean that the firm has to "run a large complicated business, and we do it in full compliance with the regulatory rules," Gorman explained. "And we try and optimize what's always in the best interest of our clients, so that's the basic principle."

CFO Jonathan Pruzan indicated that Morgan Stanley had considered the legal and regulatory costs of using the BIC exemption and giving clients a commission-based option in its financial projections.

"Obviously, there were drafts of the DOL rule out last year, so we were informed when we gave you the 23% to 25% margin target," for the wealth-management unit, Pruzan explained during the call.

The wirehouse thinks this approach to DOL "is going to be manageable both from our clients' perspective and from a results perspective," the CFO says. "And we're going to work with our clients to make sure that we are providing compliant solutions."

Last week, UBS equity analyst Brennan Hawken wrote in a not that while BofA-Merrill's approach "might reduce legal liability, it may also create an opportunity for competitors to attract [advisors] … who would rather use the BIC to allow for greater flexibility in their business."