The Investment Scientist

Morgan Stanley Wealth Management Makes My Life Easy

Posted on: May 7, 2013

Morgan Stanley Smith Barney

Morgan Stanley Smith Barney

Last weekend, I went to New Jersey to meet a potential client who is an executive at a pharmaceutical company.

He told me that, as part of the executive benefit package, the company refers executives to Morgan Stanley where they get “free” financial advice. I smirked and said: “Well, we will find out how free it is. One thing I know, though, Wall Street firms are not known for charity.”

It turns out that Morgan Stanley advised him to open several, separately managed accounts (SMA), each with a management fee of 1.5%. The reason for the multiple accounts?

Each account manager, according to Morgan Stanley, tries different tactic to beat the market. This makes me wonder why Morgan Stanley doesn’t use these managers, since its stock price lags the market by a huge margin.

I dug a bit deeper into the investment and found that a good chunk of the money is invested in expensive mutual funds, such as LARCX and FTGMX.

The former is a bond fund managed by Lord Abbett with an annual expense ratio of 1.56%. By comparison, Vanguard only charges an expense ratio for 0.10% for its bond funds.

As an exercise, try to find out the expense ratio of FTGMX and post your answer below. (Hint: use Google.)

In total, this pharmaceutical executive is paying about 3% of his assets for Morgan Stanley’s “free” advice. Upon pointing this out to him, he became a client of mine right there. I can’t thank Morgan Stanley enough for making my life easy.

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3 Responses to "Morgan Stanley Wealth Management Makes My Life Easy"

FTGMX expense ratio comes up as 1.46%. I didn’t dig deeper to find any hidden fees or extra tax or broker costs associated with frequent buying and selling.

I had a minute to check Morningstar for the 3 year return of FTGMX, which is 2.88%. Did the investor keep all of that, or do you subtract the 1.46% fees for net 1.42% (less after taxes)? In any event, the total return lagged their category by 2.76%, so not only is MS ripping off the investor, they can’t even make as much return as their average competitor. Oh yeah, these MS brokers are “exceptional” all right. (The fees are noted as “average”, so a lot of people are getting ripped off, and some lose more. Lots of poor people and rich brokers.)

Jerry,

It’s amazing isn’t it?

This does not limit to Morgan Stanley. The wife of the doctor I write about the the previous post (prospective client B whose financial advisor is a good friend) told me she stumbled into buy Vanguard Funds. I told her: “You will do better with your own stumbles than with your financial advisor’s “good” intention.”

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC. He is also a regular contributor to Morningstar Advisor and Physicians Practice. To explore a long-term wealth advisory relationship, schedule a discovery meeting (phone call) with him.



You may also get his monthly newsletter, or join his Facebook page for regular wealth management insights. Michael's email is info[at]mzcap.com.

Twitter: @mzhuang

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