In August, Morgan Stanley finally introduced its long-awaited version of an investment advisory account that gives clients the option of making their own investment choices. Morgan is the last of the five wirehouses to create a non-discretionary advisory program.

The rollout of the new offering, known as Morgan Stanley Advisory, came nearly five months after a Washington, D.C. federal appeals court ruled that only brokers licensed as Registered Investment Advisers (RIAs) could charge customers annual fees. In addition, the March ruling outlawed brokerage accounts charging annual fees in lieu of trading commissions and gave Wall Street an Oct. 1 deadline to comply.

Morgan claims its new offering had been in the works since 2005. "We had planned to come out with this program well in advance of the [court] ruling," says Lule Demmissie, the program manager for Morgan Stanley Advisory. "When the ruling came, it accelerated things because the non-discretionary account is a very viable option. Our plan was to pilot [the program] to a broad group of financial advisors in the fourth quarter, but the core was built already. There's no way you can build a platform like this in four months," says Demmissie.

Morgan Stanley already had an investment advisory account—the Custom Portfolio. In that program, however, the broker serves as a fiduciary, with discretionary authority to make trading decisions without contacting clients.

In the new non-discretionary account, clients choose to be included before the rep executes investment decisions. As an investment advisory account, the program has to comply with fiduciary provisions of the Investment Advisers Act of 1940.

The new Advisory offering is priced in a negotiated range of between 1% and 2.25% of assets under management. But Demmissie would not disclose how much Morgan Stanley reps would be paid for handling the accounts.

The fee-based advisory account may hold stocks, funds, exchange-traded funds, and bonds. In addition to providing advice, reps would build and supervise customized portfolios based on clients' stated investment objectives. The clients would also retain final authority over investment selections.

Morgan stopped offering new clients a fee-based brokerage account option—known as Choice—in May. At the time, Choice represented nearly 21% of the firm's managed accounts, according to the Boston-based research firm Cerulli Associates.

At the end of 2007's second quarter, Morgan was the third-largest sponsor overall of managed-account programs with nearly $169 billion in total managed-account assets, Cerulli Associates stated.

In 2005, most Wall Street firms were planning to launch a rash of fee-based advisory accounts. That year, however, the NASD hit Raymond James' independent-contracting arm and Morgan Stanley with fines and restitution based on charges that they did not properly supervise brokers' oversight of non-discretionary accounts that charged fees in lieu of brokerage commissions. Wachovia Securities was also hit with similar charges and penalties earlier this year.

Morgan Stanley was ordered to pay $6.1 million, while Raymond James and Wachovia paid nearly $1 million and $2 million, respectively. Raymond James officials subsequently discontinued their old 27,000 fee-based brokerage accounts, and migrated them to commission or fee-based advisory accounts, if clients approved.

Citigroup's Smith Barney saw the handwriting on the wall and launched its non-discretionary advisory program in June 2005. Wachovia Securities' Asset Advisor and UBS Financial Services' Strategic Advisor, followed suit later that year. Raymond James also introduced a version shortly after being hit with the NASD fine and Merrill Lynch launched its Personal Advisor in the fall of 2006.

Danny Sarch, an executive recruiter who runs Leitner Sarch Consultants in White Plains, N.Y., says Merrill officials had not pushed its Personal Advisor until the so-called "Merrill Lynch Rule" disappeared in March. "Now, they've advanced it dramatically. Merrill Lynch's problem is bigger because they were the biggest." The firm had roughly $106 billion in assets in its fee-in-lieu-of-commission accounts in the second quarter, Cerulli Associates said. That was more than 38% of the market share for fee-based brokerage accounts. Runner-up Morgan Stanley had only 12% of the market share.

Tricia Nestfield, a Merrill spokeswoman, confirms that an internal satellite broadcast to its broker sales force in September was intended to re-emphasize various account options available to clients.

Morgan on the other hand, continued to drag its heels. "I tend to think they didn't want to dedicate the resources until they had to," Sarch says. "I believe they just misjudged the situation. It wasn't as simple as changing the title agreement to a fee-for-advice account. For example, certain types of assets cannot be held, such as principal transactions, in retirement accounts."