Earlier this week the Massachusetts SEC filed a complaint against Morgan Stanley alleging their use of sales contests to incentivize product sales were harmful to the public’s best interests. Employees could win valuable prizes by convincing their clients to borrow against their brokerage accounts.
Rather than respond to the needs of their clients, Financial Advisors began to push PLAs in order to win the BDA incentives awarded under the Sales Contest. Financial Advisors used the BDA money awarded to them to wine and dine clients, including the following items: Boston Celtics tickets, client drinks, one client meal in the amount of $653.40, and $1,000.00 in client gifts from one Financial Advisor.
The Morgan Stanley case is the latest in a long line of high-profile cases brought against financial firms. Just weeks ago Wells Fargo was in front of Congress defending its high-pressure sales environment that resulted in low-level employees opening millions of fraudulent accounts without their customers’ approval. In August, Edward Jones was sued by its own employees for conflicts involving the types of retirement investments employees could purchase and in July American Century Companies was sued by its employees for the same exact thing!
As I’ve mentioned before, it is really, really important to understand incentives. Just because somebody is selling something doesn’t necessarily mean they don’t have good intentions. As a consumer, however, it’s important that you understand what motivates the person you are working with. To improve your odds of receiving unbiased and objective advice, demand complete transparency.
There’s a big difference between an advisor and a salesperson. Logically, you’d think Morgan Stanley’s Wealth Management “advisors” would act in their clients’ best interest. But client need was not driving the sale of PLA’s, firm revenue was. It was a sales game:
The excitement generated by the Sales Contest is on full display in internal e- mails. One participating Financial Advisor asked, “Does the bonus stop at 30 PLA’s? What if we do 60?? Does that double the bonus to our team??? You know how we are about BDA money!!!” Another participating Financial Advisor asked, “Have I or my admin won anything. We have done a ton of pla’s [.]” Another participating Financial Advisor went so far as to say, “Game on.”
Financial advice matters a lot to people. Personal finances are complicated and people who rely on the advice of professionals deserve to know they are being served honestly and transparently. It’s not a game. Imagine if your doctor prescribed you medicine and you later found out he was having a contest with other local doctors to see who could write the most prescriptions? You probably wouldn’t feel good about that diagnosis, would you?
I may be beating a dead horse but so much of the financial industry is broken. These aren’t small bucket shops operating out of warehouses on Long Island. This isn’t Boiler Room or Wolf of Wall Street. This stuff is going on at the biggest financial institutions in the country. These are the household names that Americans trust.
Think Advisor recently posted the results from a Fidelity study that polled 500 advisors. Almost 20% of these advisors said they were contemplating a career change or retirement because of the new DoL fiduciary rule. Think about that. They’d rather leave the business than be forced to act in the best interest of their clients. Good. Farewell. Don’t let the door hit you on the way out.
Change is not going to happen on its own. The sales culture and revenue-driven business models have a strong grip on the status quo and evolution will be slow. I’ll continue to highlight these industry issues because I believe education is a cheaper, and ultimately more effective tool than legislation. Some of the industry will adapt and work to improve their offerings and some will not. To those more willing to defend the business of finance than the profession, good luck. Game on.