Open architecture for clients—but what about employees?
Morgan Stanley and its board were accused of mismanaging the firm’s 401(k) retirement plan and costing 60,000 employees hundreds of millions of dollars by picking inappropriate and high-priced investments, some of which were managed for the firm’s own profit, according to Bloomberg.
The lawsuit, filed Friday in Manhattan federal court, highlights the conundrum financial services firms and money managers face when instituting a 401(k) plan. While their products might not necessarily be the “best,” it’s something that might be awkward to admit to participants, who also happen to be company employees.
The suit cited several Morgan Stanley mutual funds included in the 401(k) that fared worse than offerings from rivals. For instance, a small-cap growth fund underperformed 99 percent of similar funds in 2014 and 94 percent in 2015, according to news service.
“Morgan Stanley sought a financial benefit for itself while causing the plan’s participants ‘to suffer staggering losses of hundreds of millions of dollars,’” lead plaintiff Robert Patterson alleged in the breach-of-duty lawsuit. “The firm ‘treated the plan as an opportunity to promote Morgan Stanley’s own mutual fund business and maximize profits.’”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
