According to the SEC, the bank misled clients about the money managers that were being recommended to them and failed to inform customers of conflicts of interest.
The crimes are alleged to have taken place at Morgan Stanley's office in Nashville, Tennessee, where the bank is said to have advised clients to use money managers that had not passed a due dilligence review or been approved to become part of its advisory programs.
Employee William Keith Philips is alleged to have encouraged three clients to use unapproved funds managers, with both himself and the bank receiving commission as a result.
"Phillips repeatedly disregarded Morgan Stanley's policies and procedures and reaped undisclosed financial benefits from these unapproved managers," associate director of the SEC's division of enforcement Scott Friestad stated.
The bank has agreed to pay a $500,000 penalty in order to settle the charges.
Earlier this month the SEC charged 11 individuals - including a former Goldman Sachs employee - with insider trading.