Morgan Stanley sales contest raises conflict-of-interest concerns
Morgan Stanley, the Wall Street goliath run by Chief Executive James Gorman, appears to have promoted conflicts of interest in a questionable sales contest that pushed some of their riskiest loans on their richest clients, The Post has learned.
Gorman’s bank, which has expanded its buttoned-up wealth management division since the 2008 financial crisis, created a pilot program that divided financial advisers into “teams” and offered them financial incentives for selling securities-based loans — one of the firm’s biggest money makers, according to a source and emails obtained by The Post.
Those loans are a major profit center for the bank. In 2015, company-wide sales of so-called SBLs jumped by 31 percent, to $25 billion, Gorman said in a January 2016 presentation.
But the contest, which was called the “business development account [BDA] pilot program,” was hush-hush inside the bank. It operated in at least one of Morgan Stanley’s eight regional offices since 2013, the source said.
In 2014, 11 teams of 19 financial advisers in New England increased sales of the loans — also called portfolio loan accounts, or PLAs — by 172 percent from the prior year, according to the email.
“YTD we’ve paid out $15,000 in extra BDA incentive, but will probably end the year at about $23,000 paid out,” Eric Maiuri, a vice president at Morgan Stanley in Boston, wrote in the Dec. 3, 2014, email.
The bank exec also appears to prod the advisers to sell more before the end of that year.
“We offered additional BDA of $1000 for 10 PLAs, $3000 for 20 PLAs and $5000 for 30 PLAs,” Maiuri wrote.
The two highest-ranking employees who received the email were Lynn Sullivan, an executive director, and Jason Frank, the New England regional manager. Sullivan declined to comment, and Frank didn’t return a voicemail message.
Incentivizing employees to sell a specific product is frowned upon by regulators.
‘These are incentive awards for the [financial advisers] to grow their overall business.’
- Christine Jockle, Morgan Stanley spokeswoman
“This kind of practice strikes at the heart of where there may be conflicts,” Nancy Condon, a spokeswoman for the Financial Industry Regulatory Authority, told The Post.
Morgan Stanley, through a spokeswoman, insisted the program was “extremely limited” and didn’t pay out cash — but instead deposited “credits” in a special account that could be used for “qualifying business expenses,” like marketing.
“It would be inaccurate to refer to this as a sales contest,” spokeswoman Christine Jockle told The Post. “These are incentive awards for the [financial advisers] to grow their overall business.”
However, one ex-Morgan Stanley employee who is familiar with the contest said advisers would regularly see those credits converted to dollars that they could access freely from their BDA account.
The loans, which range from about $1 million and up, are a way for wealthy clients to quickly and cheaply borrow money without selling assets.
“These tend to be on-demand loans,” said Claes Bell, an analyst at Bankrate.com. “[Banks] can call the loan at any time. If you don’t have the cash to pay it back right then, they’re going to liquidate some of those securities.”
Banks like selling SBLs because they can make a quick buck, and the loans don’t typically default, according to insiders. And the firm has made no secret of its goal to beef up sales of SBLs.
“There are substantial incentives for brokers to be pushing these,” Bell added.