Inv. News on Cash Sweep Accounts
Investment News writes, "Advisers in a pickle over low-yielding cash sweep accounts." Author Jeff Benjamin tells us, "With interest rates edging higher and stock market valuations hitting peak levels, cash management is becoming a center-stage issue for financial advisers, and one that could have fiduciary implications. While cash typically makes up only a small percentage of client portfolios, and a lot of fee-based advisers don't even charge fees on cash balances, the rising yields on some money-market funds are drawing new attention to brokerage and custodian sweep accounts, which typically pay the lowest yields on cash.... Brokerages and custodians usually establish sweep accounts linked to affiliated banks and then make money off the cash just as a bank would, mostly through lending programs. The main downside of the sweep accounts is the average yield, which Bankrate.com puts at about 25 basis points, woefully short of the average money-market fund yield of nearly 1.8%." The piece adds, "Low-yielding sweep accounts have inspired at least one company to target advisers looking for cash-management alternatives. For a fee of 2 basis points per quarter, MaxMyInterest will move any size of cash account into the highest-yielding federally insured savings account. Sweep accounts have always paid lower yields than standard money markets, but until recently most yields were low across the board so the difference was less of an issue. And the rise in interest rates, combined with record-level equity markets, is increasing the appeal of the relative safety of cash and cash-equivalents to investors. There was some recent buzz across the financial services industry when the Wall Street Journal reported that Merrill Lynch will start linking cash to bank-affiliated sweep accounts in September, instead of sweeping the cash into higher-yielding money market funds. But the challenge of navigating low-yielding in-house cash management is not a new headache for financial advisers."
