When Your Broker Should Not Be Your Investment Advisor

Cheri Franklin |

Morgan Stanley, the largest U.S. brokerage by salesforce, recently announced that it was dropping mutual funds from Vanguard Group, the largest U.S. mutual fund family. To clarify, this directive only applies to the establishment of new positions but it does place a one-year time limit for clients to add to their existing Vanguard mutual fund positions. Morgan Stanley has chosen to send a clear signal that low-cost funds that don’t participate in “pay-to-play” are about as welcome as a turd in a swimming pool.

Ironically, this move was attributed by a company spokesman to the now-postponed DOL fiduciary rule that requires “consistent economic arrangements” with its asset management providers. In other words, if all fund families are paying to play, then Morgan Stanley brokers aren’t inherently biased against the ones that aren’t paying because they will simply not be available. One could call this an elegant solution to the inherent conflicts of interest of financial product companies paying brokerages, but we prefer to call it for what it is, yet another way for brokers to transfer wealth from their customers’ pockets to their own.

Some defenders of Morgan Stanley have said that since Vanguard’s exchange-traded funds are still available to clients, the ban on the mutual funds is irrelevant. This argument, however, ignores the difficulties in trading large ETF positions, and many of Morgan’s high net worth clients would have these types of positions.

If you are a client of Morgan Stanley (or any other broker whose loyalty to you is questionable) and would like to learn about the advantages of working with a low-cost fiduciary advisor, please call us at 800-345-4635.