SEC hits Morgan Stanley with $13 million fine

Says wirehouse overbilled investment advisory clients due to coding and other billing system errors

Jan 13, 2017 @ 2:08 pm

By Bruce Kelly

The Securities and Exchange Commission said on Friday that Morgan Stanley agreed to pay a $13 million penalty to settle charges that it overbilled investment advisory clients due to coding and other billing system errors. The firm also violated the custody rule pertaining to annual surprise examinations.

Morgan Stanley overcharged more than 149,000 advisory clients because it failed to adopt and implement compliance policies and procedures reasonably designed to ensure that clients were billed accurately according to the terms of their advisory agreements, according to the SEC's order. Morgan Stanley also failed to validate billing rates contained in the firm's billing system against client contracts, fee billing histories, and other documentation, according to the SEC.

The firm received more than $16 million in excess fees due to the billing errors that occurred from 2002 to 2016, according to the SEC. Morgan Stanley has reimbursed this full amount plus interest to affected clients.

Morgan Stanley failed to comply with the annual surprise custody examination requirements for two consecutive years when it did not provide its independent public accountant with an accurate or complete list of client funds and securities for examination, according to the SEC. Morgan Stanley also failed to maintain and preserve client contracts.

“Morgan Stanley Wealth Management is pleased to settle this matter, which included inadvertent billing errors in certain managed accounts,” wrote spokeswoman Christine Jockle in an email. ”All affected clients have been reimbursed and the firm has enhanced its policies and procedures, including discontinuing the use of certain legacy systems.”

Morgan Stanley consented to the SEC's order and penalty without admitting or denying the SEC's findings.

(More: SEC announces 2017 exam priorities, adds robo-advisers to its list)

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