Morgan Stanley sued for mismanaging its employees' 401K

[EastWest Gal]

Is anyone here surprised by this news?

Morgan Stanley accused in lawsuit of mismanaging its 401(k) retirement savings plan

The writer of the article basically got it right.

 

[retirementguy1]

Same thing at fidelity a couple years ago. Not shocked at all.

Fidelity settles lawsuits over its own 401(k) plan - Aug. 18, 2014

 

[Sunset]

I find it a bit of ironic justice to know that the same Financial guys that help folks into 5% front end load mutual funds with high MERs suffered the same fate

 

[ziggy29]

IMO, even having their employees simply eat their own cooking, so to speak, is an act of fiduciary malpractice.

 

[FIREchief]

Education is a powerful thing. It is indeed unfortunate that the courts have to intervene because the masses simply refuse to be educated.

 

[FIREchief]

I find it a bit of ironic justice to know that the same Financial guys that help folks into 5% front end load mutual funds with high MERs suffered the same fate

Well put. Hey, the Kool-Aid tasted great!

 

[bUU]

Education is a powerful thing. It is indeed unfortunate that the courts have to intervene because the masses simply refuse to be educated.

I think a lot of that is because of how little power education has typically provided in this regard, in the past. At my small company we were educated - well, I was, at least - and I produced wonderfully colorful and compelling condemnations of the 401k plan (comparing it to that of another small company down the block, where my spouse worked). I proceeded to embarrass the Merrill Lynch agent every year with my annual exposé until I was told by management that, since no remediation was forthcoming for the concerns I was raising, I was doing nothing more than hurting morale and very effectively dissuading participation in the plan - neither of which was in the best interests of the employees who could still benefit from deferral of taxes to when they'd be in a much lower tax bracket, even in the context of a rapacious 401(k) plan like ours.

Of course, our rapacious 401(k) didn't go over the line into malfeasance - financial services companies probably have the ability to transgress in that regard in a way that regular company 401(k) plans cannot.

 

[Ready]

We are changing our 401K providers and the company was getting ready to go with Morgan Stanley before I got involved. I found the Morgan Stanley rep to be really slimy. The lawsuit doesn't surprise me at all.

 

[Texas Proud]

I think a lot of that is because of how little power education has typically provided in this regard, in the past. At my small company we were educated - well, I was, at least - and I produced wonderfully colorful and compelling condemnations of the 401k plan (comparing it to that of another small company down the block, where my spouse worked). I proceeded to embarrass the Merrill Lynch agent every year with my annual exposé until I was told by management that, since no remediation was forthcoming for the concerns I was raising, I was doing nothing more than hurting morale and very effectively dissuading participation in the plan - neither of which was in the best interests of the employees who could still benefit from deferral of taxes to when they'd be in a much lower tax bracket, even in the context of a rapacious 401(k) plan like ours.

Of course, our rapacious 401(k) didn't go over the line into malfeasance - financial services companies probably have the ability to transgress in that regard in a way that regular company 401(k) plans cannot.

Well, that was just wrong in what they told you... they COULD have actually done some work and changed providers!!! But hey, why should mgmt do anything to fix a problem

 

[Texas Proud]

I think some of this is just bad press...

As the Fidelity article says, there were funds in their plan with expense rations as low as .05%... Sure, there probably were funds that were close to or above 1%, but if you do not like it just do not choose those funds...

The thing that I think is bad was one of my sisters plans.... you could actually choose from different providers, but ALL providers charged 1.25% on ALL funds... even MM funds... it was a 403(b) and they had a provision that they could not charge more than that... so, fees were invented to get them up to that level by every provider...


Not sure if the ML plan had any good funds or not.... but I think that the writing on the wall is that most plans are going to be changing over time and expenses are coming down... which is a good thing IMO.....

 

[bUU]

Well, that was just wrong in what they told you... they COULD have actually done some work and changed providers!!!

They never said they "couldn't". They said that no remediation was forthcoming. Big difference.

But hey, why should mgmt do anything to fix a problem

And let's be clear - they didn't need to do any real work. I found great options for them to switch to. All they had to do is a quick vetting which would have been simple given the available references.

But that wasn't the point... The company's purpose of the 401(k) plan was to be able to include "401(k)" in the job ads - that's all. Just like "health insurance", the objective was firmly to accomplish the goal most efficiently (read: costing the least money). Whatever legitimate cost sharing they could get away with was the undeniable expectation. Our German HQ made that abundantly clear, and abundantly clear that we Americans should be happy that they don't just move our jobs to Germany.

I wonder what went through their minds when their company was bought by a Texas-based division of a large corporation.

I think some of this is just bad press... As the Fidelity article says, there were funds in their plan with expense rations as low as .05%... Sure, there probably were funds that were close to or above 1%, but if you do not like it just do not choose those funds...

By comparison, as I shared here on the forum years ago, we had one choice with an ER < 1%, a S&P500 index fund at 0.86%.

I think the main issue with Fidelity and Morgan Stanley is that they used their (lower-level) employee 401(k)s as a dumping ground for the funds they couldn't "sell" to anyone else. Like I said, as a financial services company, they had the ability to commit wrongs that non-financial services companies like mine couldn't. If all Fidelity and Morgan Stanley was doing was cost-reducing an employee benefit, then they'd be free and clear. But they were also burying some losers.

 

[Texas Proud]

By comparison, as I shared here on the forum years ago, we had one choice with an ER < 1%, a S&P500 index fund at 0.86%.

That was pretty common years ago... I think that only Vanguard was cheaper... but hey, I could be wrong...

Now, smart people know it is high.... but still, there are many funds that charge that much even for S&P 500....

I think the main issue with Fidelity and Morgan Stanley is that they used their (lower-level) employee 401(k)s as a dumping ground for the funds they couldn't "sell" to anyone else. Like I said, as a financial services company, they had the ability to commit wrongs that non-financial services companies like mine couldn't. If all Fidelity and Morgan Stanley was doing was cost-reducing an employee benefit, then they'd be free and clear. But they were also burying some losers.

But you miss my point... just because they offer that fund in their 401 does not mean any employee has to buy it... why are they being sued for just making it available....

I can understand someone complaining if all options are expensive like in my example of my sister... there was nothing that was cheap... but, like the plan that I set up at my old small company.... there were 60+ funds to choose from... some with high expense ratios and some with the 5 BP mentioned.... nobody was forcing any of the employees to buy the expensive fund...

 

[bUU]

why are they being sued for just making it available....

Intent.

 

[Lakewood90712]

The problem , as my tiny brain can see is the employer/plan being the same joint. It would be ok of if everyone at MS was a broker, and got back a large chunk of the load as a commission .

Many of the financial firms have been sued over the same issues as MS. In this unique situation, the plans need to be at a 3rd party picked by vote of the plan members, not by a board packed management cronies . No other way I see for objective decisions in the best interest of MS employees.

My 457 plan is with an obscure firm that does a lot of gov. 403 and 457 plans, has ok fund choices, and a carve out where we can use Schwab to buy, stocks, bonds , options, and any funds offered by Schwab.

 

[Texas Proud]

The problem , as my tiny brain can see is the employer/plan being the same joint. It would be ok of if everyone at MS was a broker, and got back a large chunk of the load as a commission .

Many of the financial firms have been sued over the same issues as MS. In this unique situation, the plans need to be at a 3rd party picked by vote of the plan members, not by a board packed management cronies . No other way I see for objective decisions in the best interest of MS employees.

My 457 plan is with an obscure firm that does a lot of gov. 403 and 457 plans, has ok fund choices, and a carve out where we can use Schwab to buy, stocks, bonds , options, and any funds offered by Schwab.

I disagree...

How does it look to people on the outside when a big financial firm outsources their 401(k)

IOW, MS, Citi, BofA, Fidelity, Vanguard etc. etc. want to show the world that they are the best at management... so picking one of their main competitors would tell the world that they are not capable of managing such a plan...


Since I used to work at one of the giant firms, I just checked... there is one fund at 62BP, then a few in the 30s, but most are less the 20BP... and a few at zero... so, none out of whack IMO...

 

[Lakewood90712]

I disagree...

How does it look to people on the outside when a big financial firm outsources their 401(k)

IOW, MS, Citi, BofA, Fidelity, Vanguard etc. etc. want to show the world that they are the best at management... so picking one of their main competitors would tell the world that they are not capable of managing such a plan...


Since I used to work at one of the giant firms, I just checked... there is one fund at 62BP, then a few in the 30s, but most are less the 20BP... and a few at zero... so, none out of whack IMO...

It's the employees money, not the firms. If the consensus of the employees was to chose a direct competitor, that says a lot.

My mom had accounts at MS and they really put the firm's interest before the client. I found things that were FINRA violations, and they only complied after I raised a stink. She has a choice to move , people stuck with the employers def. comp. plan don't have that choice. They should have the major say, IMO.

 

[growing_older]

My company changed 401k providers. They went from one pretty terrible insurance company plan to another just about equally bad insurance company plan. They used the same broker to "choose" both plans and the two plans are almost identical except they are provided by a different company. The broker's only incentive was to keep the plan with a company he represents. No one seemed to care that there were much better plans available.

 

[bUU]

How does it look to people on the outside when a big financial firm outsources their 401(k)

Free of conflicts of interest.

 

[John Galt III]

At my last employer, they changed 401K to Wells Fargo from whatever they had before. I noticed WF had a Stable Value fund. I got into the SV fund which was offered at at 2.5 %. I started conscientiously tracking my funds as soon as I could. About 2 weeks later I noticed the daily increase (annualized) in the SV fund wasn't quite 2.5% (it had been 2.5% at first) but was now down to 2.0 %. I also noticed the name of the fund had changed slightly. Had a suffix tacked onto it. Same ER of .74 % for both versions of the SV fund, I think. Hmmm. I called the 800 number at WF and inquired. They unashamedly told me they had mistakenly offered the "wrong" stable value fund at first, but had corrected the problem, nothing to see here, all is well, you're fine, no worries. And they confirmed that the original SV fund they offered was indeed a half percent higher than the one we ended up with. Makes you wonder what happened to the half percent. They do have a .04 ER Vanguard Stock Market Index fund, though, so they're not completely evil.

 

[Texas Proud]

It's the employees money, not the firms. If the consensus of the employees was to chose a direct competitor, that says a lot.

My mom had accounts at MS and they really put the firm's interest before the client. I found things that were FINRA violations, and they only complied after I raised a stink. She has a choice to move , people stuck with the employers def. comp. plan don't have that choice. They should have the major say, IMO.

Since the company is setting up the plan... and the company is responsible for the plan... it really does not matter what the consensus of employees is....


I was with a firm who had a 401(k) plan with a total of 5 investment options... not great options.... but I got a huge match... I had the choice of investing or not knowing my choices were limited...

 

[LOL!]

These lawsuits would not have been politically feasible a few years ago.

 

[Texas Proud]

Meant to write this earlier, but cat was bothering me too much...

I saw an interview with one of the attorneys who is suing MS.... seems the crux of his complaint was that there was one (maybe more, he did not say) fund that performed worse than 87% of its peers... never mentioned anything about costs... now, they did lose his feed, so maybe he would have said more if he had stayed on longer...

Looking at some articles, they do mention high fees... so I guess that is in there...

Also, seems like everybody is piling on.... there was a link to an article of 12 lawsuits against universities filed in the last 10 days... but it was behind a paywall so I did not read it...

 

[samclem]

But you miss my point... just because they offer that fund in their 401 does not mean any employee has to buy it... why are they being sued for just making it available....

That's a good point. The company doesn't have to even offer a 401(K) at all. So, they are offering some crummy funds (that they also sell to their clients), some better funds, and they are giving employees a match. I would complain a lot if I were an employee, and the whole thing gives MS a black eye that can't be worth the money they get from selling these crummy funds to their employees, but I don't see why the courts are involved. It would be like suing because food in the company cafeteria is not tasty.

 

[LOL!]

Also, seems like everybody is piling on....

It is not so much "everybody", but one law firm in particular that won a case setting a precedent before the US Supreme Court.

In addition to that, the climate is better now that the DOL has updated the fiduciary rules [I think] by executive order.

It is also helpful that John Oliver had a piece on the whole 401(k) high-fee rip-off:

 

[UpAnchor]

I can understand someone complaining if all options are expensive like in my example of my sister... there was nothing that was cheap... but, like the plan that I set up at my old small company.... there were 60+ funds to choose from... some with high expense ratios and some with the 5 BP mentioned.... nobody was forcing any of the employees to buy the expensive fund...

The problem is some plans - like my DW's (administered by Fidelity btw) - offer a token few low e.r. funds, but they are nothing one can build a diversified portfolio around, especially if you're a bit older and looking for a middle of the road AA across the major asset classes. In her case, she would have been limited to one of Fido's active mgmt target date funds with an e.r. of around 60 bps if memory serves. Fortunately, we were able to grab two of the lower e.r. offerings and then structure my retirement plans to balance them out. Some, especially singles, might not have that option.

I was with a firm who had a 401(k) plan with a total of 5 investment options... not great options.... but I got a huge match... I had the choice of investing or not knowing my choices were limited...

Good point. And that was probably the best part of DW's plan. Not that the match was huge, but it was enough to make us willing to work around the plan's shortcomings.