Morgan Stanley ‘Shortchanged’ Broker in Retirement Program—Arbitrators
A Finra arbitration panel said Morgan Stanley breached its agreement to credit a retired broker with revenue earned under its Former Advisor Program (FAP), but the South Carolina retiree must now decide whether to take a small award and stay in the program or accept $132,000 and call it a day.
Deborah Ann Debow alleged that Morgan Stanley’s calculation of fees and commissions her former clients were generating under inheriting brokers was “significantly smaller” than what she had produced as a full-time broker, according to the report of three arbitrators posted Thursday on Finra’s dispute resolution website.
Debow, who retired in December 2017 after a 35-year career, proposed in her complaint filed last year that she would drop out of the five-year retirement payment program in exchange for $707,427, plus lawyer’s fees and interest. The amount represented her estimate that she would lose $236,000 by leaving the program, with a triple multiplier of punitive damages related to her claims of age and gender discrimination.
The three-person arbitration panel denied her discrimination claims but ruled that Morgan Stanley breached her FAP agreement. A Morgan Stanley witness testified in hearings that her former clients’ accounts threw off less money because of “market conditions and differing FA investment styles” on the part of the inheriting brokers, but the three arbitrators didn’t buy the explanation.
“There is no indication that Claimant’s book changed significantly,” they wrote in the award document. “The record is devoid of evidence that would allow us to determine, in any detail, what any changes might have been. It appears to us that a two-thirds shortfall in revenue is more than any expected changes could account for.”
Debow had also also argued that some accounts were diverted from the retired advisor program “based on several occurrences prior to and after her retirement,” the arbitrators wrote.
In an unusual determination, they gave her ten days from the March 7 decision date to decide how much of an award to accept from Morgan Stanley. She can remain in the retired advisor program and accept $17,600, the arbitrators’ estimate of how much she had been “shortchanged” in the program to date, or she can accept a lump-sum payment of $131,820 and drop out of the FAP. The higher payment is “our calculation of the unrealized amount she is due for the remaining agreement term over and above the amount she has already received,” the arbitrators wrote.
Neither Debow, who worked at A.G. Edwards and several other regional firms before joining Morgan Stanley in 1995, nor her lawyer, Ann Fitz of West Palm Beach, Fla., responded to requests for comment.
The unusual arbitration decision comes as Morgan Stanley and other large firms have been enhancing so-called sunsetting programs to encourage retiring advisers to sell their clients’ accounts to younger brokers in order to keep the accounts in-house. Wells Fargo Advisors introduced a plan this week that will finance younger brokers’ book purchases while Morgan Stanley earlier this year sweetened bonuses for top producers who enter its FAP.
A Morgan Stanley spokeswoman declined to comment on the Debow decision but earlier said that participation in the enhanced FAP appears to be robust.