Morgan Stanley Broker Resisted Fee Accounts, Gets Fired
The termination of a 17-year Morgan Stanley advisor who was generating around $1.5 million in production could be a wake-up call for brokers who resist following directives to convert customers to fee-based from commission accounts, according to several lawyers.
Michael Kurka left his office in Alexandria, Va., on September 25 amid allegations that he delayed such account conversions, according to a termination form that Morgan Stanley has filed with regulators.
The U-5 filing that has been incorporated into Kurka’s BrokerCheck record specifically referred to “allegations relating to sales practice concerns, including delays in converting accounts to fee based platforms.”
Kurka, whose 23-year career also has included stints with Merrill Lynch and Smith Barney and who has no customer or regulatory complaints on his record, did not return calls for comment made to his listed residential phone number. A Morgan Stanley spokeswoman also did not return a request for comment.
The wording of the termination notice implies that Kurka was bucking orders from management to move transaction-based commission accounts to fee-based advisory accounts, rather than resisting customer requests to do so, said Erwin J. Shustak, a securities lawyer in San Diego at Shustak Reynolds & Partners.
If customers had directly complained about foot-dragging, the U-5 language would likely have connoted that, he said.
Wealth management firms and, at times, regulators have championed advisory accounts as antidotes to churning by brokers tempted to generate commissions through excessive trading. Asset-based fee accounts also provide firms more stable revenue than trading-based commission accounts that tend to thrive when markets go up but stagnate in falling markets.
“The firm probably gave him one or two opportunities, and he didn’t do it and they told him to leave,” said Shustak, who often represents brokers but is not involved in Kurka’s case. “They don’t want anyone who isn’t going along with their program.”
The Department of Labor’s fiduciary rule governing retirement accounts also tends to favor fee-based accounts as less subject to conflicts of interest. Although Morgan Stanley has said that it will continue to give customers and brokers choices in account types, its top executives have been encouraging brokers to adopt fee-based models.
Brian Neville, a New York employment lawyer at Lax & Neville who frequently represents brokers, said he has not seen many dismissals citing failure to convert accounts but thinks the Kurka case may be a portent.
“Who would have thunk that delaying converting to fee-based accounts would get you terminated as a $1.5 million producer,” he said, citing production estimates from some of Kurka’s former colleagues to AdvisorHub. “It must be a new world.”
Brokerage firms also are becoming more sophisticated in helping advisors determine what kind of account are in their customers’ best interest.
“They have activity review programs, which analyze accounts to see if they would have done better under fee-based,” Neville said. “Then they require the broker to explain to the customers the benefits of the fee-based account.”
Morgan Stanley reported a record $19.9 billion in new fee-based account assets in this year’s second quarter and said that 43% of retail customer assets are in those accounts.
—Jed Horowitz contributed to this story.