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Tuesday, October 11, 2011

My Problem With Morgan Stanley

Going through old financial statements can be a depressing experience for financial advisors - not so much because of what individuals investors did, but because of what was done to them.

This from a 9/06/2006 presentation by Morgan Stanley reps on a SIMPLE IRA:

What is Asset Allocation?

     i. Avoids The Big Mistake
       From 1984 to 2002, S&P 500 - 12.22% annually ( penciled in by employee "-Market")
       Versus Average Equity Fund Investor - 2.57% ( penciled in by employee "-People")
       Versus Yale Endowment - 17.4% ( penciled in by employee "Professionals")
The presentation was made to young professionals.  The young lady whose statements I was reviewing was 23 years old and had less than $10,000 in her account.  She is very skilled in graphic arts but not so much in investing.  She doesn't know the questions to ask.  She didn't know to raise her hand and ask if the Yale Endowment performance was representative of professional asset allocation in general and Morgan Stanley's funds in particular.  She didn't know the difference between load and no load or the different classes of funds.  She would have looked at you blankly if you mentioned a 12B-1 fee.

You can imagine the thinking so carefully crafted by the Morgan Stanley reps as they went through their presentation.  It was basically proven to her that people do poorly and  professionals as represented by Yale's fund hit the ball in the upper deck.  This of course is a lie.  Professionals, on average, underperform over long periods after costs are included.

It's not clear whether she chose the fund or the Morgan Stanley advisor chose the fund, but she ended up with 100% of her small account going into Evergreen Asset Allocation A.  The fund had a front load of 5.5% and an expense ratio in excess of 1%.

Once again, we have to wonder how Morgan Stanley et al. of their ilk sleeps at night.  I'm sure some reps say "very well, thank you" every time they go to the bank.  Some are probably even looking out their windows right now and wondering about the protests taking place in the streets.


  1. Wow! That is low even for Morgan Stanley!

    I wish everyone who's got a retirement account at least knew who Bogle was!

  2. Where are the customers yachts? Indeed!

    I don't think it is low for Morgan Stanley. I believe it's standard operating procedure - business as usual. And, of course, it's not just Morgan Stanley - it's Merrill and Bank of America, and even Goldman Sachs at the institutional level. Message: beware of brokers!