A Finra arbitration panel ruled in favor of a handful of former Morgan Stanley financial advisors, ordering the investment firm to pay them approximately $3 million in a dispute over deferred compensation.
The charges, heard in Chicago, Illinois, were brought by a group of 15 ex-advisors who alleged Morgan Stanley had delayed their compensation for significantly longer periods than allowed under the ERISA Act, resulting in the forfeiture of their earnings upon leaving the firm.
According to a document from Finra dated March 22, the arbitration consolidates a claim brought by a group of 10 ex-brokers led by Alfredo Serrano that was filed September 20, 2022, and another by a five-member group led by Myron Hendrix that was submitted on the same day.
According to Serrano’s BrokerCheck profile, he was employed at Morgan Stanley for seven years before leaving on November 11, 2019. Hendrix, meanwhile, was with the firm for nine years until his departure on September 19, 2018.
The Finra document chronicles a slew of allegations against the firm, including violations of New York labor law; fraud and fraudulent inducement/concealment; breach of implied covenant of good faith and fair dealing; and unjust enrichment, among others. The advisors also alleged that Morgan Stanley breached its fiduciary duty with respect to a compensation incentive plan and an equity incentive plan, which also violated provisions of ERISA.
Seeking redress, the former advisors requested a range of compensation, including payment of the deferred compensation previously canceled upon their departure, earned but unpaid bonuses, and unpaid revenue trailers. They also sought compensatory damages for alleged misrepresentations by Morgan Stanley, violations of various industry rules, state labor laws relating to accrued but unused vacation time, earned commissions, and fees on assets.
Based on testimony and evidence at the hearing, as well as post-hearing submissions, the Finra panel ruled in favor of seven advisors, handing down awards for deferred compensation cancelled, interest, expenses, and attorney’s fees.
The deferred compensation awards ranged widely, from roughly $80,000 granted to Serrano to around $615,000 for Scott Weissman, one of the Serrano claimants.
Counting all the deferred compensation, expenses, interest, and attorney’s fees, the Finra panel ordered Morgan Stanley to pay just over $3 million to the seven advisors.
The firm is challenging the decision, however. Pointing to prior arbitration panel decisions, a spokesperson for the firm argued its deferred comp offering to advisors is not a retirement plan, and therefore shouldn't fall under ERISA rules.
"Morgan Stanley has long offered deferred compensation to financial advisors to reward them for loyalty and good guardianship. ... [W]e think the panel reached the wrong result," the spokesperson said via email. "We will continue to aggressively defend against meritless attacks suggesting otherwise."
While industry statistics pointing to a succession crisis can cause alarm, advisor-owners should be free to consider a middle path between staying solo and catching the surging wave of M&A.
New joint research by T. Rowe Price, MIT, and Stanford University finds more diverse asset allocations among older participants.
With its asset pipeline bursting past $13 billion, Farther is looking to build more momentum with three new managing directors.
A Department of Labor proposal to scrap a regulatory provision under ERISA could create uncertainty for fiduciaries, the trade association argues.
"We continue to feel confident about our ability to capture 90%," LPL CEO Rich Steinmeier told analysts during the firm's 2nd quarter earnings call.
Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.
Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.
