We wrote earlier this year about the $1.0 trillion brokerage sweep cash sector and discussed how rates were finally inching higher after almost a decade stuck at virtually zero. As money fund yields, on average, approach 1.0%, the much lower-yielding brokerage sweep rates also continue to grind higher. The latest to bump rates up is Wells Fargo Advisors. Wells also announced an expansion of its available FDIC insurance, moving the total coverage limit from $1 million to $1.25 million. We review Wells changes, and the overall brokerage sweep market, below. (See our July 27 News, "WSJ on Corporate Deposits; Brokerages Raise Rates; TBS Deal on Sweeps," our July 6 News, "More Money Fund Symposium: European Reforms and Brokerage Sweeps," and our May 9 News, "Signs of Life in FDIC Brokerage Sweeps; StoneCastle on Sweep Platforms.")
Crane Data's Brokerage Sweep Intelligence product shows that the average rate on FDIC-insured sweep vehicles has steadily risen in 2017, climbing from 0.01% at the start of the year to 0.07% currently (for balances of $100K). But several brokerages, including Schwab, Raymond James, and Fidelity, have increased rates on selected sweep tiers recently, and we expect more to follow in the coming weeks as the last of retail money funds lift off from zero. (Let us know if you'd like to see a copy of our most recent Brokerage Sweep Intelligence, which tracks the FDIC insured sweep market.)
Among the latest moves upwards, Wells Fargo Advisors this week raised rates across most of its tiers from 0.05% to 0.10%. (This is for all household balances from $1 to just under $1 million.) For balances of $1 million to just under $5 million, rates were increased from 0.05% to 0.12%; for balances of $5 million or greater, rates were increased from 0.10% to 0.25%; and for balances of $10 million and above, rates were increased from 0.20% to 0.30%. A number of brokerages raised their rates over the spring and summer, but Wells' levels now rank them among the highest-paying brokerages. (Fidelity and Merrill Lynch show the highest rates for a $100K balance, 0.14%, followed by Wells and Schwab at 0.10%.)
Wells Fargo's updated Cash Sweep Program Disclosure Statement, includes a "Notice of Important Changes to the Wells Fargo Advisors Bank Deposit Sweep Program." They write, "Wells Fargo advisors is introducing an expanded bank deposit sweep with increased FDIC coverage up to $1,250,000. This expanded bank deposit sweep will include up to five banks, including affiliated banks. On or around November 13, 2017, the primary cash sweep will be the expanded bank deposit sweep for eligible new accounts. The number of affiliated banks in the existing "standard" bank deposit sweep program will be reduced from four to two banks."
The disclosure explains, "If you have uninvested cash in excess of $500,000, your deposits in excess of that amount in the standard bank deposit sweep will not be FDIC insured. We will sweep up to $248,000 to each bank in the expanded and standard bank deposit sweeps. This deposit limit is set below the FDIC insurance limit to allow for the accumulation of accrued interest. Retirement accounts in certain discretionary advisory programs and resource accounts will not be eligible for the expanded bank deposit sweep."
Wells tell clients, "Existing eligible account owners must contact us to consent to being in the expanded bank deposit sweep. If your account is not eligible or you do nothing, you will remain in the standard bank deposit sweep.... The Expanded Bank Deposit Sweep will include unaffiliated and affiliated banks (each a "Program Bank"). The Expanded Bank Deposit Sweep will provide up to $1.25 million in FDIC insurance ($2.5 million for joint accounts with two or more owners). You will not be charged a fee in connection with the Expanded Bank Deposit Sweep but for your eligible accounts opened before November 13, 2017, you must contact us to consent to having your cash swept to the Expanded Bank Deposit Sweep."
The update continues, "On or about the same date, the number of affiliated banks in the existing Bank Deposit Sweep will be reduced from four to two. Wells Fargo Bank Northwest, N.A. will no longer be available in the program and the overall amount of sweep deposits will be limited at Wells Fargo Financial National Bank and Wells Fargo Bank South Central, N.A. The current Bank Deposit Sweep program will be renamed the "Standard Bank Deposit Sweep" at this time."
Wells says, "If you have uninvested cash in excess of $500,000, your deposits in excess of that amount in the Standard Bank Deposit Sweep will not be FDIC insured. If your deposits in the Standard Bank Deposit Sweep, when aggregated with any other deposits that you hold at the Affiliated Banks, do not exceed $500,000 ($1 million for joint accounts with two or more owners), you will not be affected by the change in Affiliated Banks in the Standard Bank Deposit Sweep. Each of the Affiliated Banks and Wells Fargo Advisors are affiliates of Wells Fargo & Company, one of the largest bank holding companies in the United States based on assets."
They tell us, "Program Banks The list of Program Banks will be available on our website at `wellsfargoadvisors.com/cashsweep on or about October 16, 2017, or by contacting your Financial Advisor or the number on your account statement. See the enclosed revised Cash Sweep Program Disclosure Statement for more information about the Bank Deposit Sweep programs."
The disclosure adds, "The available sweep options are as follows: 1) interest-bearing deposit accounts at affiliated and unaffiliated banks (together, the "Program Banks") in our Expanded Bank Deposit Sweep program, 2) interest-bearing deposit accounts at two affiliated banks in our Standard Bank Deposit Sweep program, and 3) one or more affiliated and non-affiliated Money Market Mutual Funds. Eligibility for each available sweep vehicle is determined by account type. Through our Cash Sweep Program you may earn a rate of return on the uninvested cash balances in your account by automatically placing ("sweeping") cash balances into a sweep vehicle until such balances are invested by you or otherwise needed to satisfy obligations arising in connection with your account."
Wells says in a disclaimer, "The rates of return for the sweep options vary over time. Current rates can be obtained from your investment professional, by calling the general inquiries phone number listed on the front of your account statement, or found on our website at www.wellsfargoadvisors.com. The rate of return on the Standard Bank Deposit Sweep and Expanded Bank Deposit Sweep is set by us, working with the Program Banks. We and the Program Banks may seek to pay as low a rate as possible consistent with our views of competitive necessities. We and the Program Banks can, at our and the Program Banks' sole discretion, change the rate at any time. With certain exceptions, the rate will be tiered based upon account type and the overall household value of your account(s) with Wells Fargo Advisors. Money Market Mutual Funds seek to achieve the highest rate of return (less fees and expenses) consistent with prudence and their investment objectives."
Finally, they comment, "There is no guarantee that the yield on any particular cash sweep will remain higher than others over any given period. The rate of return on any of our sweep vehicles may be lower than that of similar investments offered outside of the Cash Sweep Program. The Cash Sweep should not be viewed as a long-term investment option. If you desire to maintain cash balances for other than a short-term period and/or are seeking the highest yields currently available in the market, please contact your investment professional at the number on your account statement to discuss investment options that may be available outside of the Cash Sweep Program to help maximize your return potential consistent with your investment objectives and risk tolerance."
