The July issue of our Money Fund Intelligence newsletter features a discussion of one company's move to "bankerage," or FDIC-insured brokerage sweep accounts, in the article "Case Study in Cash: Janney's Brokerage Sweep." Below, we excerpt from our piece, which features an interview with Eric Edstrom, VP of Wealth Management at Janney Montgomery Scott LLC and Director of Banking Products and the firm's Janney Advantage Sweep Program.
MFI writes, "With the ultra-low rate environment and concerns over safety persisting, a number of brokerage firms have been pushing or expanding FDIC-insured sweep options. The 'bankerage' trend, which began in 1999 with Merrill Lynch's move toward banking, grew to about $400 billion then stalled. But recently it has gained new momentum. (Crane Data now estimates the segment at over $500 billion.)
We first asked Edstrom, "What does Janney use for its cash sweep and money market options?" He tells us, "Janney provides clients with several sweep investment options. We offer clients the Janney Advantage FDIC Insured Sweep as an option, plus a variety of Dreyfus Money Market Funds -- 3 taxable money market funds and 12 tax-free money market funds, including state-specific municipal sweep investment options."
Edstrom adds, "[M]any of our FCs have attracted new clients from the larger wirehouses and banks where the FDIC coverage is not as robust. The Insured Sweep offers significant advantages for clients -- it's fully liquid, has no market risk, is competitively priced, and features greater FDIC coverage than its peer group. Currently, Janney's program offers $2.5MM of FDIC coverage for individual and certain IRA accounts, while joint accounts are offered $5MM in FDIC coverage."
He says of their vendors, "In 2006 and into 2007, Janney interviewed and completed an extensive due diligence of several product providers. We selected Promontory Interfinancial Network. We were seeking a provider that had an expertise from relationship management to operational completeness."
Promontory, best known for its CDARS (certificate of deposit account registry service), introduced its Insured Network Deposits in April 2006. Spokesman Phil Battey says, "The service allows financial institutions to offer access to an FDIC-insured deposit sweep product -- one that can replace or complement traditional money market mutual funds as the primary settlement and cash vehicle in retail brokerage accounts."
Contact Pete to request a copy of the full article or to request our latest weekly Brokerage Sweep Intelligence, which tracks FDIC-insured money market "sweep" options and money funds offered by the largest brokerages.