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Morgan Stanley Settles Charges Related to ETF Investments
Morgan Stanley Smith Barney has agreed to pay an $8 million penalty and admit wrongdoing to settle SEC charges that the firm made unsuitable recommendations about single inverse ETF investments to advisory clients.
Morgan Stanley apparently failed to ensure that clients understood the risks involved with purchasing inverse ETFs.
- Morgan Stanley never obtained a signed client disclosure notice from several hundred clients.
- That notice stated that single inverse ETFs were typically unsuitable for investors planning to hold them longer than one trading session unless used as part of a trading or hedging strategy.
- Morgan Stanley solicited clients to purchase single inverse ETFs in retirement and other accounts, where the securities were held long-term – leading to losses for many of the clients.
Morgan Stanley apparently failed to follow through having a supervisor conduct risk reviews to evaluate the suitability of inverse ETFs for each advisory client.
Morgan Stanley did not monitor the single-inverse ETF positions on an ongoing basis.
Finally, Morgan Stanley did not ensure that certain financial advisers completed single inverse ETF training.
