Morgan Stanley Wealth Management has blocked new sales of Vanguard mutual funds by its 15,000 financial advisors.
From May 8 Morgan Stanley advisors will be not be able sell Vanguard mutual funds. Existing investors will be able to add to Vanguard funds they already hold until the end of the first quarter of 2018.
From then on they will not be able to. No investors will be forced to liquidate their holdings.
Vanguard’s exchange-traded funds (ETF) will remain available on Morgan Stanley’s ETF platform.
The news was first reported by AdvisorHub.
The moves comes as Morgan Stanley is rationalizing its platform, reducing the number of funds available to advisors by around 25% or 850 products, as part of preparations for the Department of Labor’s fiduciary rule.
The wirehouse’s plans were first reported in December last year, and in January 2017 it sent a memo to advisors saying the cuts would go ahead despite the uncertain future for the fiduciary rule which is now under review, but slated to take effect in June. The cuts leave around 2,300 fund available on the platform.
A spokeswoman for the firm said the 850 cut funds represented just 5% of assets on the platform and that the move would see the wirehouse’s due diligence team increase its coverage.
‘We are closing funds that have underperformed or haven’t attained scale in our system or where there is a potential for a conflict of interest. This will allow us to enhance our research and due diligence on funds remaining on the platform, helping to further ensure we are providing the highest quality investment options to our clients,’ she said.
‘Vanguard mutual funds, which represented a very small percentage of our mutual fund assets, are being closed for future sales as part of this rationalization.’
Citywire previously reported Morgan Stanley was cutting those funds which it deemed not commercially viable as well as those which had underperformed their peer group.
In terms of commercial viability it has looked at those funds which have $25 million or less in total assets, as well as those which have attracted less than $10 million in assets from Morgan Stanley over four years.
Vanguard’s response to the cut suggests commercial arrangements were a factor behind the move.
A spokeswoman for the asset manager said: ‘Vanguard does not pay for distribution. While we don't discuss the specifics of any client arrangements, it is unfortunate that some advisors are not able to access conventional shares of our mutual funds on behalf of their clients. That said, we are pleased that Vanguard ETFs remain a vibrant, and meaningful, portfolio construction tool for a growing pool of financial advisors.’