Morgan Stanley fires 10 reps over account takeovers from retired advisers

Morgan Stanley last week fired 10 reps after reviewing a program designed for advisers who retire from the firm and hand over their books of business to a younger colleague, according to an industry source who asked not to be identified.

The intent of such an inherited client account program is for the firm to continue to hang onto the clients and for the retired adviser to gain a portion of the revenue for the first few years after leaving the advice business. All major firms have such programs; at Morgan Stanley, the transition is called the former advisor program, or FAP.

It's not clear what potential abuses that Morgan Stanley discovered in its review of the program, which in large part is intended to tie older advisers to the firm as they consider retirement. Advisers who sign up to the FAP split the fees and commissions with the firm and younger advisers instead of jumping to a new firm before retirement and essentially selling their clients.

According to an attorney representing one of the fired Morgan Stanley advisers, the firm could be operating under the assumption that certain trades in the so-called FAP accounts were made without the appropriate authority.

"This was not a mistake," said Marc S. Dobin, an attorney representing one of the fired advisers, John P. Miller. "We’re not disputing that [the trade] happened. What we’re disputing is that Morgan Stanley knew. And in John’s case, we believe Morgan Stanley knew everything that was going on."

"We expect advisers who enter into partnership agreements to abide by those agreements and we are committed to ensuring that retiring advisors receive what they are entitled to," wrote a company spokesperson in an email.

The industry news website AdvisorHub earlier this week reported the terminations of the advisers in the FAP program.