WSJ on Fidelity: Cash's Sweeping Giant
Yesterday, we mentioned Fidelity Investments' press release on raising its cash "sweep" rates. The Wall Street Journal also covered the news in "Fidelity Increases Rate on Cash Swept." (Fidelity also ran a full-page ad in the Wall Street Journal yesterday with the headline, "Your Cash Never Had It So Good." It directs readers to Fidelity.com/CashValue.) They comment, "Fidelity Investments said it has sweetened the deal for customers holding cash there, the latest salvo in the price war playing out among brokerages competing for clients' assets. [Fidelity] said Wednesday that it is automatically sweeping cash in new brokerage and retirement accounts into a money-market fund yielding 1.91% annually. That compares to the 0.2% national average yield on money funds [sic; they probably meant money market deposit accounts] and 0.09% on savings account balances, according to S&P Global Market Intelligence. Raking uninvested client cash from brokerage accounts into banking products is a common practice in the brokerage and banking world. Cash sweeps, as they are known, are lucrative because firms typically pay clients much less in interest than the firms earn on the cash." The WSJ quotes Devin Ryan, brokerage analyst at JMP Securities LLC, "Many of the incumbent brokerages have been going in the other direction.... What Fidelity is doing is removing that step." The Journal also quotes our Pete Crane, "Everyday investors have been driving that increase into money funds.... A big portion of that [rise] is a quiet revolt against ultralow yields. It was just a matter of time before cash became a battleground, too." Also, see AdvisorHub's "Fidelity Stokes New-Account War, Offering 1.9% on Client Cash," which says, "Fidelity Investments on Wednesday said it will automatically sweep cash in new client brokerage and retirement accounts into a government money market fund yielding 1.91%—far higher than many competitors. The move, when banks have been lowering yields following the Federal Reserve's 25-basis-point cut last week, escalates battles among discount brokerage firms and creates new incentives for self-directed investors to shift their accounts, consultants said." It adds, "Peter Crane, whose Crane Data tracks money-market fund returns, said the cash sweep yield Fidelity is offering is within spitting distance of the average 2.12% in his firm's index of 100 retail money-market funds."
