When you show up to work it wouldn’t be out of the question to expect hot coffee, a safe work environment and an opportunity to grow professionally. And for Morgan Stanley employees, (knowing that they’re working at one of the largest financial institutions on planet earth) it would also be fair to assume they would have a stellar, top-notch Morgan Stanley 401k plan governed by financial thought leaders in the industry…right?
Wrong. Looks like Morgan Stanley employees got screwed.
Morgan Stanley was hit with a class action Friday. The suit claims that the company mismanaged its own employees’ retirement plans by offering poorly performing funds and charging excessive fees.
For example, in their fund line-up, employees would find the Morgan Stanley Institutional Small Cap Growth Fund IS Class. Here’s the kicker though: the fund performed worse than 99% of small cap growth funds in 2014, and worse than 95% of them in 2015. And here comes the slap in the face: that same fund carried a fee of .98%, which the suit compared to a similar fund from Vanguard that charges .07%. In short, it looks like the company used the Morgan Stanley 401k plan as an opportunity to promote its own business and maximize profits at the expense of its employees.
If true, this is akin to a parent sneaking into their kid’s room at night and stealing from their piggy bank.
“Oh, hey Mom, what’cha doin’? Collecting fees. Go back to bed.”
Situations like this are always sad but it really unlocks a bigger question: If this can happen at a financial institution with 60,000 employees (of which 15,000+ are financial advisors), what can happen to the rest of us?
It just goes to show you that companies are often not watching the “401k-shop”….or worse yet, they are watching the shop and don’t want to make any changes that could cost them money. And to that sad end, it means, yet again that it’s up to you to look out for yourself.
So where do you go from here?
Well, many employees of Morgan Stanley have already hired blooom to manage their Morgan Stanley 401k for them. Our service built them a well-diversified portfolio that have an average internal expense ratio of .17% (a far cry from the .98% in hidden expenses in the Morgan Stanley Institutional Small Cap Growth Fund IS Class). As a general rule, we are saving our clients an average of 37% in fees.
60,000 employees at Morgan Stanley were counting on a handful of 401k trustees to make the right decision. And it didn’t happen. It’s become abundantly clear that we can only rely on our companies for hot coffee and occasionally some professional growth but not retirement. Your 401k is up to you. You need to manage it and make sure you aren’t being taken advantage of…or find someone to do it for you.
Are you wondering what you are losing in hidden fees? Try blooom’s free fee analyzer and in 5 minutes, see the health of your 401k account and the hidden fees you may be losing. Get started!
Published on August 24, 2016