ERISA Section 408(b)(2)

About the regulation:

In accordance with Section 408(b)(2) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and its corresponding regulations,1 ERISA plan service providers, such as E*TRADE from Morgan Stanley2 ("E*TRADE"), are required to describe the services they provided to ERISA plans and provide plan sponsors/fiduciaries with certain information about the fees they charge to the plans for such services, as well as any indirect compensation they and/or their affiliates receive in connection with the services provided to retirement plans governed by Title I of ERISA.1 You can access additional information about this disclosure by visiting the Department of Labor's Section 408(b)(2) Fact Sheet. We encourage you to review this with your plan advisor, legal and tax advisors, and/or plan administrator and keep a copy in your plan file.

Please note, however, that although we are providing you with disclosures regarding services available to ERISA retirement plans, actual compensation will be determined by the accounts, services and/or investment utilized by the plan.  This is due to the fact that Section 408(b)(2) requires prospective disclosure when, in many instances, we do not know the specific services and investments that will be selected by you, as plan fiduciary/sponsor, or the underlying plan participants in the future. Your brokerage agreement(s) and/or advisory contract/agreement(s) provide more detail about the specific services/fees that apply to you.  Please review those agreements for more information.

About your account: Services provided and fees charged

Your account is not subject to fees other than those charged to E*TRADE brokerage accounts. E*TRADE brokerage accounts receive standard E*TRADE brokerage account maintenance services.  Fees are negotiable and may depend on such considerations as the following: the aggregate assets contained in your applicable E*TRADE retirement accounts; the amount of time you have had the aforementioned accounts; the total amount of business that you conduct with E*TRADE; and other factors.

Services provided to the plan:

The services1 provided by E*TRADE to the plan may include the following:

  • Brokerage: E*TRADE will execute purchase and sale orders for securities on behalf of your account in accordance with your instructions and offers a variety of educational tools and resources. Please review the Relationship Summary for more information.
  • Custody: These E*TRADE services generally include safekeeping of your assets, processing account transactions (such as receipts, disbursements, and trades), posting income to the account, and issuing periodic account statements.
  • Cash Management: You can earn interest with your uninvested cash at E*TRADE. Depending on your eligibility, available cash is either swept to a bank sweep program or money market fund.
  • Options: E*TRADE will process options orders for your account and exercise options pursuant to your instructions.
  • Prospectus Delivery and Customer Communications: E*TRADE utilize third-party vendors to provide their clients with copies of prospectuses and other shareholder communications relating to their investments in E*TRADE brokerage accounts. These vendors are not parties to any agreements between E*TRADE and its customers.
  • No plan recordkeeping: Our services do not include recordkeeping.3

     

For further information about our services, please review the Morgan Stanley Relationship Summary, the Important Account Information for Self-Directed Accounts, the E*TRADE from Morgan Stanley Client Agreement for Self-Directed Accounts, and the Characteristics and Risks of Standardized Options. All of the latest disclosure documents referenced herein can be found at the Disclosure Library and Agreement Library.

Services provided by outside vendors:

Your plan may also receive services from other service providers, such as a third-party administrator, recordkeeper, investment manager, or investment consultant, none of which are included in this disclosure document. For service fees and other related fees and expenses associated with the services provided by other service providers, please refer to the disclosure documents provided by that service provider or contact them directly.

Fiduciary status:

When E*TRADE provides "investment advice" regarding a plan, it is a "fiduciary" as those terms are defined under ERISA4. When E*TRADE provides investment education, takes orders on an unsolicited basis or otherwise does not provide "investment advice", E*TRADE will not be considered a "fiduciary" under ERISA.

Direct and indirect compensation: 

E*TRADE and/or its affiliates earns compensation in connection with this plan. If the plan covers more than 100 participants and you need the information necessary in order to complete the plan’s annual Form 5500, contact us at 877-921-2434. 

Brokerage accounts only: In many cases, E*TRADE will not charge you a fee to buy or sell US-listed stocks, ETFs, or mutual funds when you use our online platform. There are exceptions, such as over-the-counter (OTC) stock trades, option contracts, foreign stock trades, large block trades requiring special handling, futures trades, fixed income trades, trades placed through a representative, and stock plan account trades. Additionally, E*TRADE charges a fee for online secondary trades of bonds (other than US Treasuries). Additional regulatory and exchange fees also apply depending on the transaction as noted in etrade.com/fees. The amount of commission charged on any particular trade is disclosed on your trade confirmation and account statement.

For brokerage accounts, fees are established based on a number of factors such as trading activity, type of security, transaction size, market conditions, and overall relationship.

The types of compensation received for such services are described in further detail below.

Direct compensation: In addition to the fees described above (except for margin rates, futures commissions, paper statement fees, and alternative investment fees that are not applicable to these types of ERISA plan accounts), E*TRADE may also receive direct compensation in the form of sales loads for the purchase and sale of certain mutual fund shares purchased for the plan. The rates of these sales loads, if applicable, are specified in the mutual fund's prospectus, as well as on the Mutual Funds Snapshot page at etrade.com. A front-end sales load or commission reduces the amount available to purchase fund shares; a majority or the entire sales load listed in the fund's prospectus goes to E*TRADE for selling the shares. Sales loads can be as high as 5.75% of the transaction amount. For more information regarding these fees, please see a fund's current prospectus. 

E*TRADE charges a per-bond fee for online secondary trade with certain minimum and maximum charges. There is no fee for US Treasury auction and secondary trades online. There is separate pricing for trades made with the assistance of the ETS Fixed Income Sales Desk.

Indirect compensation: E*TRADE receives compensation from sources other than directly from your E*TRADE brokerage account in connection with the services provided by E*TRADE. Such sources of indirect compensation include:

Mutual fund investments (including investments in money market mutual funds): E*TRADE has contracted to receive other compensation in connection with the purchase and/or the ongoing maintenance of positions in certain mutual fund shares in your brokerage account. This additional compensation may be paid by the mutual fund, its investment adviser, or one of its affiliates. The types of compensation are as follows:

  • Rule 12(b)-1 Plan fees: A mutual fund may have adopted a Rule 12b-1 Plan. Under the terms of the plan, fees are charged against the assets of the mutual fund on a continuing basis to compensate broker-dealers, such as E*TRADE, for providing certain distribution and shareholder services. These fees, if applicable, are described in the mutual fund's prospectus on the Fee Table under “annual fund operating expenses” and generally range from 0 to 1% per annum of the investment. E*TRADE generally receives 0.25% per annum.
  • Administrative/Shareholder servicing/Networking fees: E*TRADE and/or its affiliates receive compensation from most funds or their affiliated service providers for providing recordkeeping and related services to the funds. For these services, funds pay 0.06% per year ($6 per $10,000) on fund assets held by our clients
  • Revenue Sharing: E*TRADE charges most fund families we offer a mutual fund support fee, also called a revenue-sharing payment, on client account holdings in fund families according to a tiered rate which increases along with the management fee for the fund. The rate ranges from 0.01% per year up to a maximum of 0.10% per year and is paid by the mutual fund's sponsor (not the fund).

Affiliated funds: E*TRADE and/or its affiliates earn more money from purchases of affiliated funds than from purchases of other unaffiliated funds. Those funds may charge the fees mentioned above and an affiliate that manages the fund will also be paid the investment advisory fee charged by the fund.  Those fees are paid to the fund’s affiliates and may be paid to other service providers to the funds, but the remainder is retained by the affiliate to cover its own expenses or as profit. E*TRADE identifies affiliated funds with an icon on its website.

Accounts using Fully Paid Lending: E*TRADE will receive compensation in connection with the use of your borrowed securities, including in connection with lending such securities to other parties for use in connection with settling short sales. E*TRADE may lend your shares to one or more of its affiliates, including Morgan Stanley & Co LLC, and may receive remuneration from, or share profits with, such affiliates, which may create an actual or perceived conflict of interest. E*TRADE is not required to borrow your securities and may borrow from other parties, in its sole discretion.

 

All Accounts (Both Brokerage and Advisory):

Cash management options:

If your account is enrolled in a Morgan Stanley bank sweep program called the Bank Deposit Program (BDP) based on eligibility, E*TRADE receives an annual, per account, flat-fee from the Affiliated Banks as reimbursement for administrative costs. Total revenue is equal to the annual per account servicing fee times the number of brokerage accounts. From July 1, 2022 to June 30, 2023 the annual per account servicing fee was $27. From July 1, 2023 to June 30, 2024 the annual per account servicing fee is $19. The expense to each Affiliated Bank is based on the proportional number of bank subaccounts. Morgan Stanley does not receive any compensation from the MS Banks for BDP deposits held by "retirement" advisory accounts. For information regarding BDP, including terms and conditions, see the BDP Disclosure Statement.

Our affiliate, Morgan Stanley Investment Management ("MSIM"), serves and receives compensation as the investment adviser to the money market funds that are available as an alternative if you are not eligible for BDP. You will bear a proportionate share of the applicable fund's expenses in which your account assets are invested. We receive compensation from these funds at rates that are set by the funds' prospectuses and currently range, depending on the program in which you invest, from 0.10% per year ($10 per $10,000 of assets) to 0.25% per year ($25 per $10,000 of assets) of the total money market sweep fund assets held by our clients. Please review your sweep money market fund's prospectus to learn more about the compensation we receive from such funds.

We have a conflict of interest to only utilize affiliated money market funds as an alternative for clients that are not eligible for BDP, and those affiliated funds and share classes that pay us more compensation than other funds and share classes. You should understand these costs because they decrease the return on your investment. In addition, we receive revenue sharing payments from MSIM in the event a sweep fund waives its fees in a manner that reduces the compensation that we would otherwise receive.

Float income: In general, under ERISA, a service provider may retain the benefit of the use of any funds on hand that are incidental to the normal operation of the plan and that constitute earnings on funds that are (i) awaiting investment or (ii) transferred to a disbursement account for distribution from the plan. E*TRADE may derive benefit from float in connection with providing services to your plan under certain circumstances. Float may be earned by E*TRADE until investment or disbursement instructions have been received and the transactions have been executed and settled against your account. In the case of amounts transferred to a disbursement account, float may be earned until the time a check is presented for payment. In general, the amount of float earned is equivalent to the effective Federal Funds rate on the date earned.

Payment for order flow: E*TRADE receives compensation in connection with routing orders to the marketplace for execution, subject to its obligations to seek best execution. Such compensation may be received from unaffiliated broker-dealers or from securities exchanges. In all cases, E*TRADE seeks best execution in routing orders. For a description of the compensation earned by E*TRADE in connection with routing orders, and E*TRADE's procedures in routing orders, please refer to “Order-Routing Practices” available in the Agreement Library found at us.etrade.com/l/f/agreement-library.

Gifts, gratuities, and non-monetary compensation: From time to time, employees of E*TRADE acting as either a representative of the broker-dealer, may receive compensation such as gifts, sponsorships, subsidized conference costs, and entertainment from vendors with whom they may engage in business dealings on behalf of clients, including ERISA plans. However, given the nature of E*TRADE businesses, E*TRADE reasonably believes that any such gifts, sponsorships, and entertainment received by its (“or its affiliates”) employees are received in the context of a general business relationship and should not be viewed as attributable or allocable to any transactions engaged in on behalf of their clients, including ERISA plans. E*TRADE has policies and procedures relating to gifts and entertainment activities in response to numerous laws and regulations.

Client educational events: E*TRADE is also compensated by unaffiliated third parties to host informational sessions, webinars, and other events for customers and/or Financial Consultants to educate them about market trends and the products they buy and sell. These may include webinars, events at E*TRADE branches, booths at conferences, and video recordings made available on etrade.com. These fund companies typically pay E*TRADE an administrative sponsorship fee to assist with the production of these educational events and resources. None of the materials or statements associated with such events are to be construed as investment offers or recommendations. The fees paid to E*TRADE can be up to $20,000 per event but can also be waived. Financial consultants are not compensated for these events.

Retirement account related fees and other account related fees: There are no retirement account related fees. However, there are certain account activity fees which are detailed under “Other Fees” at etrade.com/pricing.

Note: The payments and level of vendor support are not dependent on, or related to, the level of assets invested by any ERISA plan in or with the products or services of the particular vendor.  Certain compensation formulas and other information (e.g., mutual fund 12b-1 distribution payments) in this report were obtained from third-party sources that are believed to be reliable.  There is no guarantee as to the accuracy or completeness of this information.  Further, as the information is provided as a of a specific date it may not reflect the compensation throughout the entirety of the investment in the product.

If applicable, mutual fund and/or ETF investments are subject to the underlying expenses (reflected in the Total Annual Fund Operating Expenses (expense ratio) of these funds as described in the Fee Table within the fund’s prospectus).

1. E*TRADE and its affiliates do not provide tax or legal advice and are not “fiduciaries” (under ERISA, the Internal Revenue Code or otherwise) with respect to the services or activities described herein except as otherwise provided in writing by E*TRADE.  Individuals are encouraged to consult their tax and legal advisors (a) before establishing a retirement plan or account, and (b) regarding any potential tax, ERISA and related consequences of any investments made under such plan or account.

Please note that if your plan is not subject to Title I of ERISA, these disclosure requirements do not apply. ERISA, in general, applies only to qualified plans that cover one or more "common law" employees in addition to the owners of the business sponsoring the plan (or their spouses). If a retirement plan covers only owners of the business (where the owners and/or their spouses are the only participants in the plan), the plan is NOT generally subject to Title I of ERISA. This also includes a partner in a partnership and his or her spouse.

2. E*TRADE from Morgan Stanley is a business of Morgan Stanley and its services are provided by Morgan Stanley Smith Barney LLC and its affiliates, all wholly owned subsidiaries of Morgan Stanley.

3. Recordkeeping is referred to herein as the records for the individual participant accounts within a plan, such as contribution, investment, distribution activity, beneficiary information, and vested status.

4. Section 3(21) of ERISA and the regulations thereunder. The disclosures herein describe services and products that E*TRADE may make available to your account. The products and services referenced herein may not be suitable for all clients or plans and may be subject to certain restrictions. This 408(b)(2) disclosure document is not intended as, and shall not be deemed to be, an offer, solicitation, or recommendation of any product, service, security, account type, or investment strategy. Moreover, the disclosures contained herein are intended to comply with the regulations under Section 408(b)(2) of ERISA and the guidance and interpretations thereof as of the date of this disclosure document. Nevertheless, certain services or transactions referenced or discussed herein or otherwise provided with respect to your account may not require an exemption or be covered by an exemption other than Section 408(b)(2) of ERISA. E*TRADE reserve the right to modify this disclosure document at any time, including conforming the disclosures herein to any subsequent related guidance or interpretation of the applicable regulations.