Ex-Morgan Stanley Broker Burned by UITs Now Spurns Commissions
A former Morgan Stanley broker who believes he was fired as part of an internal sweep aimed at active marketers of unit investment trusts says he has learned his lesson about the instruments even though he believes they can help client portfolios.
Charles M. Anderson, who this week received a four-month suspension and $5,000 fine from the Financial Industry Regulatory Authority over unsuitable UIT trading recommendations, was fired by Morgan Stanley in 2016 over the UIT activities and recently gave up his brokerage license after a 31-year career.
“I just don’t do it anymore,” said Anderson, who now works as fee-only registered investment advisor at Insight Advisors, a small firm in Newtown, Pa., near his former Morgan Stanley office in Doylestown.
The hours of Morgan Stanley interviews he endured and the final Finra action just leaves “a very bad taste in my mouth,” he said.
Finra found that in a 29-month period, Anderson recommended that 116 customer accounts buy UITs with sales charges of 1.95% to 3.95% and sell them within a year despite their maturity dates of two years or longer. He also recommended that 26 customers use proceeds from their sales to buy another UIT with identical investment objectives.
Anderson, who accepted Finra’s penalties without admitting or denying the findings, said no client ever complained over a strategy that was part of a broader portfolio strategy, adding that upfront sales charges were often waived on trust exchanges within a fund family.
“I had clients who had participated in the UIT strategy for years, and they were very happy and content with the strategy and portfolio performance, net of fees,” he said.
Customer reaction notwithstanding, Anderson’s accelerated trading recommendations coincided with a regulatory investigation of sales practices over UITs, which are not designed as trading instruments, and spilled over to firm supervisory issues.
Morgan Stanley in September agreed to pay $13 million to settle charges that it failed to properly supervise short-term UIT sales by “hundreds” of brokers.
In August, Finra suspended another former Morgan Stanley broker with a 30-year career over similar UIT trading pattern recommendations in 107 accounts.
Anderson said he believes that dozens of brokers have lost their jobs because of Morgan Stanley’s determination to impress regulators.
A spokeswoman for Morgan Stanley declined to comment.
Finra in 2016 announced that it was gathering data on sales and supervision of UITs and elevated the unit trusts and other investments designed for longer-term holdings to become an exam priority in 2017.
Client assets in UITs declined by 17% to $83.4 billion in September 2017 from a peak of $101 billion December 2014, according to the Investment Company Institute, a trade group for fund companies.