Morgan Stanley Reaches $10.2 Million Expense Settlement with California Advisors
Morgan Stanley has agreed to pay $10.2 million to California advisors who alleged in a class-action lawsuit that they paid business expenses out of their own pockets.
The suit, filed in May 2018, centered on claims from current and former brokers that the firm’s Alternative Flexible Grid expense program that was inherited from Smith Barney violated California labor law by failing to reimburse their reasonable and necessary business expenses.
The program allows brokers to annually deduct money from pretax earnings to cover certain support staff, marketing and other costs, but the advisors argued they were entitled to direct reimbursement of all their expenses rather than a tax-advantaged payroll deduction.
The proposed settlement, which must be approved by a judge in the Northern District of California, would affect around 2,800 current and former financial advisors and private wealth advisors who worked in the state between April 2013 and the date that the court gives preliminary approval, according to a filing from the plaintiffs’ lawyers last Friday.
The settlement would represent 6.6% of the total liability alleged in the complaint, but “compares favorably” to what California advisors at Merrill Lynch, Wells Fargo Advisors and Citigroup won in earlier cases, the filing said
“The risk in continued litigation is extremely high and the class members and aggrieved employees could ultimately end up with nothing,” the lawyers wrote.
A spokeswoman for Morgan Stanley declined to comment.
Brandon Harvey, the lead plaintiff the case, would receive $10,000 for his role.
Harvey, who has been affiliated with LPL Financial as an independent broker since leaving Morgan Stanley in March 2018, did not return a call for comment. Earlier that year, he had participated in Morgan Stanley’s Pacesetter’s Club for brokers with five or fewer years of experience who demonstrate “the highest professional standards and first-class service.”
In earlier court papers, Morgan Stanley challenged the brokers’ contention that the AFG expenses were “necessary” to their business, and reimbursable under state law. The firm targeted them as luxury expenses that brokers choose for “preference or convenience.”
Lawyers for the class plaintiffs will receive 25% of the settlement amount, with a cap of $2.6 million, according to the proposed plan.
Edward J. Wynne, James F. Clapp and David S. Markun, whose California law firms represented the brokers, did not return calls for comment on the $10.2 million agreement.
Wells Fargo Advisors reached a $9.5 million settlement last May, while Merrill Lynch and Citigroup earlier agreed to pay California brokers $2.5 million and $3.7 million, respectively, in similar business-expense reimbursement cases.
A hearing on the proposed Morgan Stanley settlement is scheduled for June 12.