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Sandro Rosell
FC Barcelona President
Wednesday, October 18, 2017

While competition among the employees within a business can be seen as stirring productivity for the business as a whole, there are limits when it comes to banking. Morgan Stanley has come within the crosshairs of a securities regulator for running a sales contest to increase its ledger of securities-based loans which has been deemed inappropriate.  Specifically, the two parties involved are James Gorman’s bank and the securities regulator of the state of Massachusetts. 

Between 2013 and 2015, a Morgan Stanley bank in Massachusetts ran a sales contest organizing financial advisers into separate teams and providing financial incentives for anyone who sold the most securities-based loans to rich clientele, according to an accusation made by Massachusetts Secretary William F. Galvin’s office in a settlement with the bank. Brokers were awarded 35 to 50 basis points of their increase in loans once a certain level was reached, according to statements of fact presented in court.  

The legal problem with such sales contests is that securities regulations forbid them, as they lead to conflicts of interest between bank employees and their clients. While Morgan Stanley has not admitted doing anything wrong, they have, nonetheless, agreed to pay the state of Massachusetts a $1 million fine.  Sales contests of this kind were reported upon exclusively by the New York Post last year. It has been revealed that top executives at Morgan Stanley, at least in the state, were aware of the contest. 

Morgan Stanley clientele were not made aware of the contest, which was given the euphemism of a “Business Development Allowance” pilot program.  It’s been noted that, while such programs violate regulations, they have led to increased productivity for the banks.

9% of clientele in Morgan Stanley’s MetroWest-PI regional complex had loans based in securities in 2013.  By 2015, 12% to 15% had such securities-based loans.  A dog-eat-dog mentality soon began to prevail amongst financial advisers as they all sought to get the most number of client sales and loans taken out.  Each of them sought to take the lead by any means necessary, according to internal emails made public during the settlement in court.  One email had a banker writing in March of 2014, “Have I or my admin won anything[?] We have done tons of [loans].”

The bank itself had this to say, “Morgan Stanley is pleased to resolve this matter with the Massachusetts Securities Division.” This is from Morgan Stanley spokeswoman Christy Jockle released in a statement on April 12th.

By: Anat Ghelber