Massachusetts is going after Morgan Stanley for sales tactics eerily similar to Wells Fargo
In a filing against Morgan Stanley on Monday, the Office of Secretary of the Commonwealth William Gavin accused the bank of pushing unwanted financial products onto customers and emphasizing selling products to customers even when they may not have needed them.
"Morgan Stanley's firm-wide culture emphasizes the aggressive cross-selling of banking and lending products to wealth management clients," said the complaint. "In 2014 and 2015, this culture inspired at least two sales contests in Massachusetts, which ran undeterred for sixteen months because of Morgan Stanley's lack of adequate compliance and supervisory oversight."
According to the complaint, Morgan Stanley encouraged wealth management clients to take out loans using their investments as collateral, called Portfolio Loans Accounts (PLAs). By signing clients up to these PLAs, Gavin's office claims Morgan Stanley advisors broke their fiduciary duty to do what is in the best interest of the client.
"In addition, Morgan Stanley's internal-use materials also offered suggestions on how to overcome client objections to borrowing against their portfolios, including one particularly alarming objection to overcome: 'I don't borrow.'," said the complaint. "For clients to whom Morgan Stanley Financial Advisors owe a fiduciary duty, this is not an objection that should be overcome."
In addition to these incentives, the Complex Manager and MetroWest Private Bankers utilized incessant monitoring and tracking to pressure Financial Advisors to push PLAs on clients," said the complaint. "Internal e-mails demonstrate this constant pressure."
Additionally, to push these PLAs, the firm held sales contests at their subsidiary MetroWest that are not allowed under Massachusetts law. Gavin's office claims that Morgan Stanley knew about the sales contests and did nothing about them.
"Despite knowledge of the prohibited sales contest running in MetroWest, Morgan Stanley has repeatedly denied the existence of the Sales Contest in statements to the public," said the filing.
The focus on cross-selling and a high-pressure sales atmosphere mirrors that of another bank that has come under fire: Wells Fargo. While it does not appear that Morgan Stanley advisors opened PLAs without a client's knowledge, the high-pressure sales environment and emphasis on cross-selling was also present when Wells employees opened 2 million accounts without customers knowledge.
We've reached out to Morgan Stanley for comment, and will update this post when we hear back.