Regulator Accuses Bank of Setting High-Pressure Contest
There is no lack of bad news for the U.S. banking system these days, and this time the new development affects Morgan Stanley (NYSE:MS).
Massachusetts Secretary of the Commonwealth William Galvin has accused a unit of Morgan Stanley of, “dishonest and unethical conduct” within the state and Rhode Island. The unit allegedly set up a competition to incite financial advisers to cross-sell securities-based loans backed by investment accounts to customers from January 2014 to April 2015 in an effort to generate more sales and gain the market share. (Source: “Morgan Stanley Unit Accused of High-Pressure Sales Tactics,” Bloomberg, October 3, 2016.)
“This complaint lays bare the culture at Morgan Stanley that bred the high-pressure effort to cross-sell banking products to its brokerage customers without regard for the fiduciary duty owed to the investor,” Galvin said in a statement. “This contest was relatively local, but the aggressive push to cross-sell was company-wide.” (Source: Ibid).
This complaint comes after Wells Fargo & Co’s (NYSE:WFC) admission last month that more than 5,300 employees, under pressure to cross-sell products and generate more revenue, created more than two million fake accounts, including issuing fraudulent credit cards, without customers’ knowledge. (Source: “Wells Fargo to Pay $185 Million Fine Over Account Openings,” The Wall Street Journal, September 8, 2016.)
But unlike Wells Fargo, which started an internal investigation and has reported the incident to authorities, Morgan Stanley plans to “vigorously” defend its position, according to Jim Wiggins, a Morgan Stanley spokesperson.
“The securities-based loan accounts were opened only after discussing the product with each client and obtaining their affirmative consent,” Wiggins said. “These accounts are valuable to clients providing access to low-cost liquidity whenever they choose to access it.”