Morgan Stanley: NASD Eyes Disciplinary Action vs Unit


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.

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