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Morgan Stanley to Cut Brokers’ 12b-1 Commissions

April 3, 2018

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.

By Alex Padalka
  • To read the AdvisorHub article cited in this story, click here.