Brokerage firms often offer financial advisers loans, which are payments to lure advisers, and thus their clients, to the firm and keep them there. If the financial adviser meets various performance requirements and does not defect to a rival then the loans are typically forgiven.
The SEC requires firms to hold a significant amount of capital. Specifically, the SEC requires one dollar for each dollar lent to protect against loan losses. Morgan Stanley, on the other hand, holds 8 cents for every dollar lent, which is far less than its rivals like Wells Fargo and Bank of America, by moving those loans outside of the firm. However, some executives, with knowledge of the loan structures, suggested that some firms have not moved the loans outside of the broker-dealer because doing so might draw regulatory scrutiny and would require them to rewrite thousands of client contracts.