Morgan Stanley Settles ETF Investment Case

By Anne Steele 

Morgan Stanley's wealth-management division agreed to pay $8 million and admit wrongdoing to settle allegations related to single-inverse ETF investments it recommended to clients, according to the Securities and Exchange Commission.

The SEC said Morgan Stanley didn't make clear to clients the risks involved with purchasing inverse exchange-traded funds. The brokerage failed to obtain a signed disclosure notice -- stating that single-inverse ETFs were typically unsuitable for investors planning to hold them longer than one trading session unless used as part of a trading or hedging strategy -- from several hundred clients from mid-2010 to mid-2015.

Morgan Stanley allegedly solicited clients to purchase single-inverse ETFs in retirement and other accounts and many of the clients experienced losses after holding the securities long-term.

The SEC's order also found Morgan Stanley failed to have a supervisor conduct risk reviews to evaluate the suitability of inverse ETFs for each advisory client. The SEC said the brokerage didn't monitor the positions on an ongoing basis and didn't ensure that certain financial advisers completed single-inverse ETF training.

A Morgan Stanley spokeswoman said the bank is "pleased to have resolved this matter."

Write to Anne Steele at [e-mail]

(END) Dow Jones Newswires

February 14, 2017 13:47 ET (18:47 GMT)

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