William Keith Phillips, a financial adviser in Morgan Stanley‘s retail brokerage division, left the firm last month. Once one of the industry’s best-paid brokers, Phillips has cost Morgan Stanley $5 million and UBS $10 million in settlements with pension funds regarding soft dollar compensation and conflicts of interest.
Form U-5, which Morgan Stanley filed with the National Association of Securities Dealers, states that Phillips resigned. John Franklin, spokesman, confirmed Phillips’ departure but could not elaborate. Phillips did not return calls.
Phillips has been was temporarily licensed by Wiley Brothers-Aintree Capital to provide general brokerage services, providing that he and Wiley Brothers can come to a mutually agreeable arrangement, said David Patterson, partner and vice chairman.
The City of Chattanooga, which ceased to use Phillips as its advisor in 2003, filed a claim in arbitration with the NASD against Phillips, Morgan Stanley and UBS PaineWebber. The complaint stated that Phillips “recommended unqualified managers based upon their willingness to pay (commissions), as opposed to their abilities or qualifications.” This year the Chattanooga fund received $5 million from Morgan Stanley and $700,000 from UBS as part of a settlement. All three parties deny all allegations.
“The City of Chattanooga wanted the soft dollar arrangement they ended up with,” said Ron Harris, an attorney at Neal & Harwell PLC, which defended Phillips in the settlement. It was “a full disclosed and fully discussed arrangement. What seems so unfair is that they agreed to the arrangement and then came back and said you shouldn’t do it.”
In 2000, UBS PaineWebber paid $10.3 million to the Nashville & Davidson County (Tenn.) Metropolitan Government Benefit Board to settle a dispute about soft dollar compensation. According to an audit by KPMG in 2000, “Metro’s investment consultant is not independent and has provided the Board with misleading information, resulting in Board decisions that generated higher commissions.” No parties admitted wrongdoing. Celia Yancey, treasurer, said Phillips was serving as the plan’s consultant, advising on asset allocation and manager selection in a fiduciary capacity.