My last conversation with my former client, the late Darryll Bolduc, happened nearly two decades ago, but I still remember it as if it were yesterday. Bolduc, a former Charlotte bond trader who became a whistleblower and ultimately a lawyer representing corporate conscientious objectors, was railing about how the big Wall Street firms had become so powerful they could escape accountability for any wrongdoing. Bolduc had just suffered a legal defeat, and he was troubled by what he considered a rigged system.
Bolduc’s claim feels even more true today. A FINRA waiver that Morgan Stanley recently received is a case in point. That the major financial media largely ignored it speaks volumes about the state of financial journalism. A shoutout to Mason Braswell, who covers the wealth management industry for AdvisorHub, for actually doing the work.
Braswell reported on March 26 that the Financial Industry Regulatory Authority (Finra) approved Morgan Stanley’s request to remain an industry member despite its statutory disqualification tied to an earlier enforcement action from the Securities and Exchange Commission.
The disqualification stemmed from Morgan Stanley’s $15 million settlement with the SEC in December 2024 over allegations that it “willfully” violated federal securities laws and failed over a period of seven years to maintain a supervisory system capable of detecting advisors who were stealing customer funds. Such findings can result in firms being barred from continuing to operate unless regulators grant relief, which, as Braswell reported, Finra frequently does.
Some will likely argue that a $15 million settlement is a love tap for a company that reported more than $70 billion in revenues last year. The settlement is indeed financially insignificant, but Morgan Stanley’s clients might consider the lapses detailed in the SEC’s order alarming.
Seven Years of Supervisory Failures
The SEC’s order made clear Morgan Stanley’s supervisory failures weren’t a one-off breakdown. The SEC found that Morgan Stanley failed to “adopt and implement written policies and procedures reasonably designed to prevent and detect” misconduct in its advisory accounts. In at least one instance, the firm implemented a system it believed would flag suspicious disbursements but didn’t test whether it worked for years.
Finra, Wall Street’s “self-regulator,” approved Morgan Stanley’s request for a waiver without even the façade of a hearing. The watchdog said it was satisfied that Morgan Stanley had taken remedial steps and pointed to a two-year plan of heightened supervision requiring ongoing status reports.
“Finra has determined that the Firm’s continued membership is consistent with the public interest and does not create an unreasonable risk of harm to investors or the markets,” Finra wrote.
Morgan Stanley had nothing to say about the waiver when Braswell contacted the firm, but Marc S. Dobin, a lawyer in Washington State who formerly focused on securities industry litigation and arbitration, was happy to say the silent part out loud.
“The only reason that this is routine is that a denial of this application would result in the firm not being able to do business,” Dobin said. “In essence, in my view, this is a situation of ‘too big to fail.’”
Finra granted the waiver even though both it and the SEC had continued to identify supervisory deficiencies at the firm in subsequent examinations. Morgan Stanley has also received similar regulatory relief in prior years, reinforcing the sense that Bolduc’s “rigged system” critique isn’t a relic. It’s a business model.
Meet Andy Saperstein
An executive named Andy Saperstein oversaw Morgan Stanley’s wealth management division during most of the period in which the SEC found the firm had failed to maintain adequate oversight of its brokers.
What consequences do you think Saperstein suffered for that multi-year lapse?
a) He was fired, shunned from Wall Street and is now leveraging his purported people skills as a Walmart greeter
b) Was promoted to co-president of Morgan Stanley
If you guessed “b”, congratulations on your savvy and smarts about the workings of Wall Street.
Braswell, the AdvisorHub reporter who covered the Finra waiver story, also reported that Saperstein received $34 million last year, a 26% increase from the roughly $27 million he earned the prior year. Saperstein’s compensation was more than double Morgan Stanley’s SEC settlement for lapses under his watch.
Morgan Stanley’s compensation committee credited Saperstein for helping deliver record wealth management results, a hefty 29.3% pretax margin, co-leadership of the firm’s artificial intelligence strategy and, ready for this?, “strong” risk management.
Morgan Stanley is essentially on double secret Finra probation for a breakdown in broker oversight under Saperstein’s watch, and the compensation committee cites his risk management skills among the reasons for his windfall.
Embarrassment of Riches
Morgan Stanley wealth management clients should take note of the firm’s 29.3% profit margin. The firm is clearly adept at generating massive returns for itself, its executives, and its shareholders. Yet when it reported record 2025 profits, it focused on its own performance, not the returns generated for clients.
Given that Morgan Stanley makes its money managing other people’s wealth, you’d think that would be the first thing they would highlight.
Here’s how Morgan Stanley generates its embarrassment of riches on the backs of its clients.
I recently posted a commentary on Morgan Stanley’s North Haven Private Income Fund (PIF), which was marketed as offering a sweet 8–10% yield that felt almost guaranteed. The fund, which makes riskier corporate loans than regulators allow traditional banks to hold, was sold as “semi-liquid,” giving investors the false comfort that they could get their money back on a regular schedule without meaningful friction.
What I didn’t initially appreciate was just how much Morgan Stanley could profit from its private income fund.
Making Money on Borrowed Money
PIF is an $8 billion fund, but a large portion of that capital isn’t investor money. The fund uses billions in borrowing to expand its investment base, allowing Morgan Stanley to collect fees on a much larger pool of assets. Because the 1.25% management fee is charged on gross assets, the firm is effectively collecting fees on money it borrowed, not just money clients invested. That fee sits on top of roughly 1% in advisory fees and about 0.85% in shareholder servicing fees that many retail investors pay just to be in the fund.
Morgan Stanley also helps itself to an “incentive fee” for delivering the kind of performance those fees should already demand. After clearing a roughly 5% annual hurdle, a catch-up provision allows the firm to take up to 12.5% of the profits.
None of this is unusual in private credit, which is why private equity is so drawn to the business. What is unusual is how little many investors understand what they’re signing up for.
The value of loans in private credit funds like PIF has come under increasing scrutiny amid questions about how these assets are priced. Investors are now heading for the exits, only to run into a less-advertised feature of the fund: withdrawals are capped at 5% of total assets per quarter.
Demand is already exceeding that limit, meaning it could take months, possibly longer, for investors to fully exit, depending on how many others are trying to do the same. Meanwhile, Morgan Stanley continues to collect its fees on assets that its clients cannot readily access.
$20 Billion for Stock Buybacks
Morgan Stanley clearly has the financial firepower to support liquidity in funds like PIF. Instead, it’s prioritizing its share price, which plays a central role in executive compensation. The firm has a $20 billion stock buyback program underway, and in the first quarter alone spent $1.8 billion repurchasing its shares.
By contrast, Blackstone’s senior management reached into their own pockets to help meet redemption requests in Blackstone’s private credit fund. Different firms, different instincts. One protects the structure. The other protects the client relationship.
Reading up on PIF’s fees, I was reminded of “Master of the House” from Les Misérables, where an innkeeper gleefully catalogs the ways he fleeces his guests. In Morgan Stanley’s version, the house always wins, and the guests are left paying for the lice.
AI and the Value Question
New York Post columnist Charlie Gasparino reported that Morgan Stanley’s recent decision to lay off three percent of its global workforce was in part driven by its push into AI, with back-office roles increasingly being automated. According to Gasparino, the cuts spanned the firm’s investment banking and trading, wealth management and investment management divisions.
Morgan Stanley CEO Ted Pick, who received $45 million in 2025 compensation, and his bean counters believe that for an increasing number of roles, chatbots are more efficient. As Gasparino noted, bots don’t demand year-end bonuses, 401(k) matches or good health care.
Yet with all the savings AI may generate for Morgan Stanley, the firm has made no indication that those savings will be passed on to its wealth management clients, such as through a reduction in the roughly 1% advisory fee it charges to manage their money.
With a network of 15,000 brokers, I’m sure there are some who deliver real value to their clients that justifies the hefty Morgan Stanley advisory fee. One Morgan Stanley employee posted on my LinkedIn page that the firm’s brokers are independent and aren’t required to steer clients to proprietary products. They use what’s known as “open architecture,” meaning they can place clients into investments managed by competitors.
That’s true, but it raises a more basic question: what material value Morgan Stanley provides to its brokers, and for that matter, its clients. The SEC’s order found that protecting client money from wayward brokers has not always been among Morgan Stanley’s priorities.
AI could prove a double-edged sword for Morgan Stanley. Savvy clients may soon start running their monthly statements through AI and gain a clearer understanding of Morgan Stanley’s business model.
I suspect many of them would be in for a rude awakening.