Morgan Stanley Beats Lawsuit Over Annuity Distribution Advice

Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...

By Carmen Castro-Pagan

Morgan Stanley & Co. and a financial adviser defeated a lawsuit accusing them of providing bad advice to three annuity beneficiaries about their options for disbursements.

The beneficiaries said the advice led them to cash out their annuities in a lump-sum payout that caused them to incur nearly $300,000 in tax liabilities.

Judge Paula Xinis of the U.S. District Court for the District of Maryland said the financial adviser, who was a Morgan Stanley employee, breached his duty because he didn’t research the beneficiaries’ disbursement options and advise them accordingly. But Morgan Stanley and the adviser ultimately weren’t liable because the beneficiaries themselves were negligent in failing to read the annuity forms or obtain independent tax advice before opting to get their benefits in a lump-sum distribution, Xinis said in her Jan. 4 decision.

The decision underscores the importance of obtaining appropriate financial advice before making decisions on annuity distributions.

In her ruling, Xinis noted that under Maryland law an individual’s failure to observe ordinary care for his or her own safety acts as a complete bar to recovery.

The beneficiaries had years of prior experience with annuities and access to documents and contracts, which expressly described distribution options in addition to the lump sum distribution. One of them even admitted that had he contacted the annuity companies or consulted his other financial and tax advisers, he would have learned of the other disbursement options, and that failing to do so was imprudent, Xinis said.

David E. Fink represented the beneficiaries. Kutak Rock LLP represented Morgan Stanley and the adviser.

The case is Berkenfeld v. Lenet , 2018 BL 2622, D. Md., No. 1:16-cv-01227-PX, order granting defendant’s motion for summary judgment 1/4/18 .

To contact the reporter on this story: Carmen Castro-Pagan in Washington at ccastro-pagan@bloomberglaw.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com

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