EXCLUSIVE: Morgan Stanley Caps Stock and ETF Commissions
(Eliminates reference to Morgan Stanley abolishing its $125 minimum ticket charge requirement. The requirement remains.)
In another sign of the far-reaching effects of the Department of Labor’s fiduciary rule on pricing, Morgan Stanley on Monday imposed new caps on the amount of commissions that customers pay for stock trades, annuities and unit investment trusts.
Going forward, the firm’s almost 15,800 brokers cannot charge commissions on stocks or exchange-traded funds that would exceed 2.5% of a transaction.
In what may be an even more significant change given Morgan Stanley’s size as the biggest seller of packaged investments, the firm is restricting charges on often high-priced products such as unit investment trusts and annuities.
“Beginning in May, we have introduced new commission structures for Equities/ETFs, Annuities and UITs in brokerage accounts that will better align client costs with the value of the service provided,” a Morgan Stanley spokeswoman wrote in an email. “Overall, these changes will lower client costs, in some cases substantially.”
Few brokers have dared to charge clients as much as 2.5% of a trade in commission accounts previously, so that new restriction is not as startling as it first sounds, said several brokers. But caps on UITs and annuities will affect a wide range of clients, they said, since many brokers gravitate to high-commission products.
The DOL fiduciary rule, passed in the Obama administration to ensure that brokers put clients’ pecuniary interests ahead of their own in administering retirement accounts, is being reviewed by the Trump administration but many firms have put in pricing and disclosure requirements ahead of the planned June 9 implementation date. Morgan Stanley is among the first to apply changes beyond retirement accounts to almost all brokerage account transactions.
“Regardless of what the administration does, this is a good thing for us,” said a veteran Morgan Stanley broker in the Southwest. “It takes away a lot of the pricing uncertainty that clients are asking about.”
The new policies also enhance Morgan Stanley’s strategic push to convert customers and their brokers to so-called advisory accounts that charge a fixed asset-based fee instead of per-trade commissions that plummet when customers pull back from trading. Although 42% of retail clients’ $2.18 trillion are now in fee-based accounts at Morgan Stanley, that leaves a significant amount still subject to commission policies.
Morgan Stanley also has told advisory customers that it will disclose more to them about fees they pay in light of recent regulatory actions against the firm.
The overall effect of the changes will help smaller customers who are most likely to benefit from caps such as the 2.5% limit.
“It’s certainly a significant decrease [for the advisor],” said one broker in the South who saw a commission charge on Monday fall by about 10% from what it would have been. “It’s a much fairer situation for the client.”
Morgan Stanley is not alone, to be sure, in bowing to the winds of pricing and disclosure change in the wake of fiduciary rule publicity.
Merrill Lynch this year began breaking out advisory fees on monthly client statements. LPL Financial said on Thursday during its quarterly earnings call that it is likely to do the same as it proceeds with a client-statement redesign scheduled for the third quarter.
The moves also comes amid renewed pricing pressures from Charles Schwab Corp, Fidelity Investments, and other discount brokerages that this year have lowered transaction costs to below $5 a trade.