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.
I’m going to venture a guess and say that the management team was requesting he convert based on high turnover and excessive commissions in his clients accounts. He didn’t change the practice and was terminated. This line kind of eludes to that, ““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.” If the broker does not explain that the client would have paid less in a fee based account, then the advisor isn’t doing their job and is breaching their fiduciary duty.
No firm would put “terminated for churning” on a U-5 unless they absolutely had to. That would just invite clients to sue for lack of supervision, excessive commissions and breach of fiduciary duty.
This article is unnecessarily misleading.
Me thinks you are right, Mr. Gates
No doubt there is more to this story than we’re all seeing here. I will say that I have been at MS of 10 years and I have had 10 managers so far and it seems that the management changes directions and priorities daily weekly annually…. When does it stop ?
With all due respect, why are you still there???
I ask myself that every day
Has MS forced you to convert accounts to fee based?
they have not
Well, I have been a client off Michael’s for 20 plus years. There have been plenty of times where I have looked at my portfolio over the past two decades during crashes and peaks. I have never had any reason to doubt his integrity or support of my investment goals. We have had plenty of thorough conversations because my expertise is in telecommunications and public policy and not investment strategy. In short, he always has researched, explained, and clearly communicated all transactions, period. But, I have been around long enough to drop vendors when the BS factor impacts the quality of product and or service delivered. This is why I have stayed with Michael and will continue to do so because he is not full of BS!
Please call me if you want to verify this at any time: 540.494.0644 mobile, Frank Smith. Needless to say, I am not staying with MS.
Frank, were you a fee based or commissioned client?
If you want to be a money manager for god sake be one. Those of us who are in the advisory business have better things to do with the limited time available. We hire money managers!
If you are going to tell the story, tell the whole truth and don’t leave critical informaiton out. ROA through the roof and had witheld clients instructions to transition to advisor platform. Only one who benefited was advisor
Source?
If a firm will not let you into the PM program and you outperform the market, which they have a fiduciary duty to evaluate and report for all advisors, but don’t, how can they “force” you into programs that make less for the client. Not saying he didn’t do anything because we don’t know, but we know what firms do and it’s not all good and not all above board. They want monkeys to push fee based asset allocation for 40k per year. No more individual stocks even though that is often the vehicle that generates alpha and outperformance. Now they don’t terminate for nothing, but forcing into fee based on it’s own merit could be wrong.