Morgan Stanley Smith Barney - PLAN DISTRIBUTION ISSUE

[Guest hellerpension]

Hi All,

I often work with small plans that use brokerage accounts at wire house, such as Morgan Stanley Smith Barney ("MSSB"), as custodian of the plan assets. It has come to my attention that, upon any qualified plan distribution, MSSB now requires the plan trustees to sign an agreement to hold MSSB harmless and to indemnify MSSB for any issues that arise from any such distribution. While unnecessary, I don't have a major issue with the hold harmless language. However, I think it's egregious for MSSB to require indemnities to process plan distributions. Both in the account application and the letter that the trustees must now sign upon a plan distribution, the trustees have already agreed to hold MSSB harmless for any issues (including tax issues) related to the plan distribution. For MSSB to force their clients (who pay them handily to custodian their plan assets) to indemnify them for any costs, including attorneys fees, in order to process plan distributions from their own accounts, which were established without prior notice of such indemnities, is absurd, if not unethical. For example, if MSSB settles with any party (e.g., IRS, DOL, participant, beneficiary, etc.), the plan trustees will be forced to be bound by that settlement by virtue of the indemnification clause.

I'm sure that many of the independent (non-producing) TPAs on this board who deal with smaller plans have clients who use MSSB to custodian their plan assets. I'm in the process of trying to work with MSSB's compliance and legal departments to have them remove the indemnity provision from their plan distribution agreement. However, from past dealing with MSSB and other large financial institutions, I anticipate that I will not receive the desired resolution. If, after I hear back from MSSB, they continue to insist on including the indemnity provision in their required plan distribution agreements, does anyone have any suggestions in relation to starting a "grassroots effort" to show solidarity regarding this issue to try to force MSSB to change its ways?

Thank you for your time and response to this matter.

Best,

Todd Heller, Esq., CPC

Heller Pension Associates, Inc.

theller@hellerpension.com

[four01kman]

Rather than trying to deal with monolithic firms like MSSB who are reluctant to embrace change, look for another custodian. I have been working with T. D. Ameritrade for many years, and although they have their quirks, they seem to be more willing to do the right thing for their advisors and clients.

[Guest hellerpension]

Thanks for the response. However, we are completely independent and do not have any control over our clients' plan assets. Moreover, even if we did have such control, MSSB would require the indemnities when the clients changed custodians, so the issue would still apply.

Thanks anyway!

Any other suggestions from people on this board?

[Bill Presson]

Thanks for the response. However, we are completely independent and do not have any control over our clients' plan assets. Moreover, even if we did have such control, MSSB would require the indemnities when the clients changed custodians, so the issue would still apply.

Thanks anyway!

Any other suggestions from people on this board?

The two possibilites are stay or go. You've now ruled both of them out, so I'm not sure what else you want.

[Jim Norman]

As others suggest, you're not going to move the mountain, so either the client lives with it or leaves MSSB.

Should I stay or should I go now?

Should I stay or should I go now?

If I go there will be trouble

And if I stay it will be double

So come on and let me know

-The Clash

[Jim Chad]

It sounds to me like a much smaller problem to leave now. Closing all of the accounts at once is one advantage and doing it when there is no divorce going on is another.

I would explain this to the employer and let him decide. After that, it really is a "SEP" (Someone Else's Problem).

FWIW if I were the employer I would move the assets now, even if the Morgan Stanly Rep was my best friend.

[masteff]

I can't help wondering how much money did they settle the lawsuit for that resulted in their excessive focus on being indemnified. And if it truly was a result of some legal action, then don't hold your breath on getting them to change their ways any time soon. It'd take senior management getting involved to override the legal department.

Edit: changed "And it" to "And if it"... makes a moderate difference in meaning.

[Guest Kevin1]

I recently had the same issue with MS. It had to do with income tax withholding. Previously the plan had a checking account. Client made a request for an amount and payee. The check was sent. Clean transaction. Now any tax withholding amounts will only be issued in the name of the trustee. No exectronic transfers are available either. I recommended they transfer to a firm that was more user friendly.

Good observation-must been a large settlement to make 'em run like this.