A new technology glitch is impacting Morgan Stanley Wealth Management’s ability to re-balance its clients’ brokerage accounts. According to an anonymous source at the firm, the glitch was so significant that the firm’s wealth management division called a “crisis management” meeting late last week.
Morgan Stanley began rolling out its new “3D” technology platform in the spring of 2012. Since its debut, the system was widely criticized by brokers as being plagued by bugs, design flaws and technical glitches. According to some of the firm’s advisors, the system since has had a multitude of serious problems, including frequent system outages, incorrect client account balances, changes to account numbers, margin issues, slow processing of trades and other problems and delays.
Morgan Stanley Wealth Management (formerly Morgan Stanley Smith Barney) is the product of a 2009 joint venture between Morgan Stanley’s wealth management division and Citigroup’s Smith Barney division. For more than two years after the joint venture, legacy Smith Barney advisors used Smith Barney’s technology platforms, while legacy Morgan Stanley advisors used Morgan Stanley’s platform. The disappointing “3D”#8221; system was a new from the ground up system intended to seamlessly integrate both technology platforms. Problems with the system in past months have caused some of Morgan Stanley’s highest-producing advisors to leave the firm and bring claims for damages.
In April 2012, Congress enacted the “Jumpstart Our Business Startups Act”-or JOBS Act-as part of the federal government’s ongoing efforts to stimulate the economy. The Act was intended to spur small business growth by loosening decades-old rules prohibiting the solicitation and sale of private placement investments to the general public. Through the new “crowdfunding exemption” to the registration requirements of the Securities Act of 1933, Title III of the JOBS Act gives startup companies the go ahead to raise up to $1 million in investment capital per 12 month period from everyday (e.g., non-accredited) investors.
While there is no question crowdfunding will allow businesses easier access to startup capital, crowdfunding investors will not have the benefit of reviewing all the financial and other company information they otherwise would have in a traditional investment scenario. And given the fact securities crowdfunding-which the SEC considers amongst the riskiest investments available-will take place almost exclusively through the internet, investors may be more vulnerable to fraud or other misconduct.
The regulation of crowdfunding under the JOBS Act is a new and fluid area of the law. In fact, the Securities and Exchange Commission (SEC) only released its proposed crowdfunding regulations in late October of this year. Until those regulations are formally adopted-which is expected to take place shortly after the SEC’s comment period expires in January 2014-crowdfunding in the securities context will remain illegal. When crowdfunding becomes legal, however, investors should have a clear understanding of the rules and limitations governing crowdfunding before considering these inherently risky investments.
