Morgan Stanley has agreed to pay a $1 million fine to settle Finra charges that it failed to supervise a commission-sharing program for retired brokers.
In a settlement dated July 3, the Financial Industry Regulatory Authority said the firm did not fulfill certification requirements designed to make sure its retired brokers were not advising clients.

The case covers the period from June 2009 through December 2011, when  Morgan Stanley’s predecessor firms paid more than $100 million in commissions to about 780 former registered representatives who had retired from Morgan Stanley, Smith Barney, or the combined firm of Morgan Stanley Smith Barney. In January 2010, the programs were merged under a single MSSB system.
Retired brokers got paid a portion of the ongoing commissions from their books of business, usually for three to five years. The program allowed commissions to be paid to the unregistered former brokers under terms of a no-action letter issued by the SEC in 2008.

The SEC required MSSB to obtain annual certifications from the retired brokers affirming that they had not contacted customers for investment purposes. The firm was also required to contact a sample of the retired representatives' former customers to confirm that the reps had not provided investment advice or solicited trades.
But “MSSB failed to create or maintain the required [certifications] for a significant proportion of the retired representatives to whom it paid continuing commissions,” the settlement said.

The firm did not have its certification process documented in written procedures, and instead left the annual certifications up to branch offices.

Finra said MSSB identified the supervisory deficiencies in late 2010 and 2011, and updated the required certifications in early 2012.

Morgan Stanley, as the firm is now known, “identified and self-reported the deficiencies cited in the settlement … and fully cooperated with Finra’s investigation,” said spokeswoman Christine Jockle in a statement.

“Finra did not conclude that investment advice had been improperly provided to clients or that the Firm’s conduct was willful, intentional or fraudulent," Jockle added.