The Securities and Exchange Commission is investigating whether Morgan Stanley brokers have been recommending inappropriate mutual fund share classes for purchase by their clients, The Wall Street Journal reports. Mutual Fund Market News earlier reported on a class action lawsuit against Morgan Stanley concerning B shares.
The SEC is concerned that B shares, which might not be the best choice for investors.
A Morgan Stanley spokesman declined to comment whether the firm's B-share sales were being investigated. The spokesman, however, added that "B shares are an entirely appropriate choice for many investors and we fully disclose all related fees and costs to our clients," which is what Morgan Stanley spokesman Bret Gallaway earlier told MFMN.
B-fund shares, which do not carry an up-front sales charge, may appear to be a more appealing investment choice than so-called A shares, which in the case of Morgan funds impose an up-front sales charge of as much as 5.25% of the money invested. But as MFMN reported, B shares typically impose penalties of 4% to 5% for redemptions earlier that six to eight years, as well as annual 12b-1 fees, leading one to believe that B shares might only be appropriate share classes for investors intending to hold a fund for a long period of time.