Morgan Stanley hit with racial discrimination suit

As part of her claim, ex-broker alleges the wirehouse's recent move toward mandatory arbitration is an attempt to prohibit employees from publicly challenging unfair practices.

Morgan Stanley Wealth Management has been hit with a suit from an African-American financial adviser who accuses the company of racial discrimination, including making changes last month to its internal arbitration policy to prohibit employees from publicly challenging unfair practices.

The adviser, Kathy Frazier, currently works with UBS Wealth Management and claims to have been forced out of Morgan Stanley in 2013 on account of her race, according to the complaint, which was filed in federal court in the Northern District of California and seeks class action certification. Ms. Frazier wants her old job back.

The law firm representing Ms. Frazier, Stowell & Friedman, also represented a Bank of America Merrill Lynch adviser in a long-running and highly publicized case that resulted in a $160 million settlement with Merrill Lynch in 2013.

The suit claims the firm’s recent expansion of its internal arbitration program, known as Convenient Access to Resolutions for Employees, marked an effort to “quietly institute mandatory arbitration” and “continue its rampant discrimination in private and without challenge or accountability in the Court of notice by the investing public.”

The issue pertains to an email sent from Morgan Stanley’s human resources department on Sept. 2, advising its 16,000 brokers that settling employment disputes through the CARE program would be mandatory unless they opted out by Oct. 2. In the past, arbitration was optional.

Although the email on the CARE update was sent after Ms. Frazier had left the firm, she is filing the case on behalf of current and former employees and states that it is evidence that the firm is seeking to continue discriminatory practices.

Ms. Frazier claims that the email was “misleading” and an “end-run around the civil rights laws.”
“As designed, the email was unnoticed by most employees and understood by even fewer of those who waded through the firm’s misleading disclosures,” according to the lawsuit. “Nor does the email inform employees they are being forced — without compensation or consideration — to waive and forego forever their right to join with other employees or participate in any class action, in arbitration or court, challenging Morgan Stanley’s policies and practices.”

A spokeswoman for Morgan Stanley, Christine Jockle, defended the program, which has been in place for more than a decade, and the opt-out notice.

“We categorically reject the notion that prompt individual arbitration and resolution of disputes in front of professional, unbiased arbitrators, which is encouraged under federal law, discriminates against employees,” Ms. Jockle said in an emailed statement. “In truth, the only people disadvantaged by this program are the class action lawyers looking to maximize attorneys’ fees through protracted litigation.”
CARE arbitrations are held under a third-party dispute resolution service, JAMS, which says on its website it hears about 12,000 cases a year and has about 300 full-time arbitrators, including retired attorneys and judges.

Ms. Frazier said in the claim that the policy was the latest sign the firm was not genuine about reforming its practices in order to be more welcoming to diverse advisers. The firm has failed to make changes, particularly with regard to allegedly unfair practices around teaming and account distribution, despite agreeing to modify policies in the wake of other multimillion dollar discrimination cases, according to the complaint.

The firm paid $46 million to settle a sex discrimination lawsuit in June 2006 from employees who claimed unequal pay and account distribution. Morgan Stanley also paid $16 million in 2007 to settle another case with a class of 1,331 African-American and Latino employees and agreed to change policies.

But according to the complaint, the firm still follows teaming and politics that assign accounts to advisers who are already successful and that exclude African Americans.

“Morgan Stanley employs account transfer, distribution and re-distribution policies, including its Account Redistribution Policy and Power Rankings, that disproportionately steer lucrative business opportunities to financial advisers and financial adviser trainees who are not African American,” Ms. Frazier said in the complaint.

The firm also encourages teaming, but often African-American advisers are excluded or not invited to join favorable teams because of stereotypes and race-based attitudes among those who form teams, according to the complaint.

“Morgan Stanley maintains strict, centralized control over its wealth business from its company headquarters, where an all-white team of senior executives issue mandatory company policies,” the suit alleges.

“We reject the allegations in this suit,” Ms. Jockle said.