Morgan Stanley: NASD Eyes Disciplinary Action vs Unit
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WASHINGTON -- Morgan Stanley (MWD) said Friday that the National Association of Securities Dealers is considering disciplinary action against a company unit tied to an investigation of fee-based brokerage accounts.
Morgan Stanley said in its annual report filed with the Securities and Exchange Commission that the NASD's enforcement staff informed the company in mid-November 2004 that it had made a "preliminary determination to recommend that a disciplinary action be brought against" Morgan Stanley DW Inc.
The possible regulatory action - which comes in the wake of an NASD investigation of fee-based brokerage accounts at a number of Wall Street firms - alleges that Morgan Stanley's broker-dealer subsidiary violated NASD rules. In particular, the NASD is focusing on issues involving the firm's "Choice" brokerage accounts. The accounts, which are intended for clients who are active traders, charges clients a percentage of their assets instead of a per-transaction fee.
Morgan Stanley said the potential disciplinary action concerns the "opening and maintenance of certain Choice accounts, the fees charged for certain such accounts and the content of certain Choice marketing materials." Andrea Slattery, a Morgan Stanley spokeswoman, declined to elaborate on the nature of the NASD investigation. "We are cooperating with the NASD to resolve the matter," she said.
The Choice accounts helped fuel a surge in the roughly $4.4 billion in asset management, distribution and administrative fees that Morgan Stanley collected in fiscal 2004, according to the annual report. The company said the fees jumped 26% last year, after a 2% increase during fiscal 2003. The higher fees in 2004 were at least partially due to an increase in asset balances among clients who use fee-based pricing arrangements, such as the Choice accounts, Morgan Stanley said.
As reported, other Morgan Stanley fee arrangements are also under regulatory scrutiny. The SEC, for example, currently is investigating the amount of fees charged by some Morgan Stanley index funds.