Morgan Stanley has been accused of creating a high-pressure sales culture that led some employees to push financial products on customers who didn’t want or need them.
In a filing against Morgan Stanley on Monday, the office of William Galvin, the Massachusetts secretary of the commonwealth, accused the bank of pushing unwanted financial products onto customers.
“Morgan Stanley’s firm-wide culture emphasizes the aggressive cross-selling of banking and lending products to wealth management clients,” the complaint said. “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. Galvin’s office claims that by signing clients up to these loans, known as portfolio loan accounts, Morgan Stanley advisers broke their fiduciary duty act in the best interest of their clients.
“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,'” the complaint said. “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,” the complaint said. “Internal e-mails demonstrate this constant pressure.”
Additionally, to push these PLAs, the complaint said, the firm held sales contests at its subsidiary MetroWest that are not allowed under Massachusetts law. Galvin’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,” the filing said.
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 advisers 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.
In response to the complaint, Morgan Stanley offered the following statement to Business Insider:
“We object strongly to these allegations. The securities-based loan accounts were opened only after discussing the product with each client and obtaining their affirmative consent. These accounts are valuable to clients, providing access to low-cost liquidity whenever they choose to access it. Importantly, clients pay no fee to open a securities-based loan account. They are charged only if they choose to borrow money. The complaint is without merit, and Morgan Stanley intends to defend itself vigorously.”