Morgan Stanley to Cut Brokers’ 12b-1 Commissions
Morgan Stanley plans to cut the amount of commissions their clients pay on Class C mutual fund shares by converting shares held for six years or more to load-waived A shares — which pay brokers a quarter of what the C shares do, sources tell AdvisorHub, citing a memo that was due to be sent out to the firm’s roughly 16,000 advisors last week.
The brokers tell the website they won’t take a cut of 75 basis points lying down.
C shares typically pay brokers annually about 1% of the clients’ funds while A shares pay just 0.25%, AdvisorHub writes. Morgan Stanley’s do-over will only affect commission-based brokers, not those who are fee-based -- which brokerage firms have been favoring because they suppose it lessens regulatory scrutiny and criticism for favoring higher-priced products, according to the website.
Some Morgan Stanley brokers plan to fight for their right to collect the higher 12b-1 mutual fund fees.
Others tell AdvisorHub they plan to flip C shares by selling them and getting back into a fund with a similar share class before the six-year conversion deadline. AdvisorHub says one broker, whose team he says stands to lose $120,000 in commissions as a result of the change, expects to “flip till the cows go home” to make up the shortfall.
But the wirehouse tells AdvisorHub its surveillance system can detect such flipping.