The Contrarian

“In the investment markets, what everyone knows is usually not worth knowing.”

Morgan Stanley Is Sued For “Bad Performance”

We are not friends of Wall Street firms, but here is another example of certain types of attorney’s taking something similar to “ambulance chasing” to another level.

According to, Morgan Stanley’s 401(k) plan was sued in NY this week alleging that it that its fees are too-high and they have “poor track records.” including some mutual funds run by Morgan Stanley itself.

The suit accuses the firm of causing “hundreds of millions of dollars” in losses.

Morgan Stanley declined to comment on the lawsuit.

There are about 60,000 participants. Franklin Templeton’s 401(k) plan was hit with a similar suit just last month.

Each of the defendants in similar lawsuits have a plan with high ratings relative to peers from Brightscope, which analyzes retirement plans.

The news item says:

But Friday’s suit alleges Morgan Stanley treated the plan “as an opportunity to promote Morgan Stanley’s own mutual fund business and maximize profits” at the expense of its participants, by offering its own funds when it could have offered ones from other providers that had better performance.

As an example, the suit cited the Morgan Stanley Institutional Small-Cap Growth fund, which it said performed worse than 99 percent of its peers in 2014. Analysts at Morningstar call that fund an “excellent option,” but also acknowledge that it’s one of the most volatile in its category, “which can make it difficult for investors to stay the course.”

Poor performance is a matter of judgment and the time period used. Of course, it is the attorney bringing the lawsuit who is the judge. Attorneys are apparently the new investment “experts.” Why don’t they try managing money to show their so-called “expertise.”

Actually, the lawyer only knows with hindsight what the money manager should have done. If he lost money in a sector, he will be accused of “fraud” or “gross negligence” because he should have known that the sector would decline. He will be accused of trading excessively “without a strategy”. The proof is that he lost money, and of course the plaintiff’s lawyer opinion.

Unfortunately, such lawyers get away with it because most financial firms can be  pressured into settlements, either because of the bad publicity, or because they don’t want to have to list court verdict on their record, which has to be shown each year. Does this look like “black mail?”