Morgan Stanley Fights Back Against 'Clawback' Ruling

The individual amounts to be paid range from about $70,000 to more than $600,000, plus substantial attorneys fees and interest payments. Morgan Stanley was also ordered to pay certain hearing fees, member fees and related administrative expenses.

A Morgan Stanley spokesperson offered the following statement after the arbitration ruling: “Morgan Stanley has long offered deferred compensation to financial advisors to reward them for loyalty and good guardianship.

“This is not a retirement plan, as prior arbitration panels have rightly decided, and we think the panel reached the wrong result. We will continue to aggressively defend against meritless attacks suggesting otherwise,” the firm’s represenatative added.

Breakaway Advisors’ Views

Discussing the matter with ThinkAdvisor, attorney Alan Rosca said the issues at hand may sound potentially arcane to those who don’t work routinely with ERISA law, but he stressed their importance to the entire advisory industry. Rosca represents close to 150 clients involved in over 25 group arbitration cases against Morgan Stanley.

“This is quite an interesting time when it comes to advisor compensation issues,” Rosca said. “I see our effort as part of a broader trend, which is the secular movement and transition from the longstanding wirehouse model towards the independent RIA model.

“The big wirehouses have been losing advisors fast, and they aren’t going to the other wirehouses. Advisors are breaking away and switching to a fee-based, hourly or asset-based model,” he noted.

According to Rosca, wirehouses have responded to this secular movement toward fiduciary advice by more aggressively defending their position through the creation and enforcement of “golden handcuffs.”

So far, Rosca’s firm has been focused only on Morgan Stanley’s comp strategy, he noted, but he and other attorneys are “studying the compensation structure of some of the other wirehouses.”

Rosca said he views the court’s November ruling as a mixed bag. On the one hand, a federal judge declaring that ERISA remedies should be available to participants in Morgan Stanley’s deferred compensation arrangement is useful for his clients’ arguments.

On the other hand, he had hoped that the judge would open a pathway for clients to file unified class action lawsuits against the wirehouse. Instead, they will have to arbitrate their claims on an individual basis.

“This will obviously be more a more burdensome process for my clients, but I think the more important outcome is that, when a matter moves to FINRA arbitration, it’s not a fully public process,” Rosca said.

“Reporters, for example, can’t get all the documents and information they would want. You can’t see all the specifics of the accusations, and you don’t see any of the arguments going back and forth,” he explained.

Credit: Bloomberg