Late last week, more publications weighed in on the recent FINRA Risk Monitoring and Examination Priorities letter. (See our Jan. 15 Link of the Day, "Finra Latest to Scrutinize Sweeps.") Mutual fund news source ignites published, "Finra Probing Cash-Sweep Arrangements," which tells us, "Big brokerages have been pushing client assets out of money market funds and into lower-yielding bank sweep accounts -- which also earn brokerages higher rates. And these sweep programs have become even more important to brokerages' business models in recent months, as many have recently eliminated trading commissions." (Note: Crane's Money Fund University starts tomorrow in Providence, R.I., and runs through Friday. Attendees and Crane Data subscribers may access our conference materials at the bottom of our "Content" page or our via our Money Fund University 2020 Download Center. Feel free to drop by the Providence Renaissance!)

The ignites piece explains, "Last week, Finra said its exam staff is looking at whether brokerages are breaking the rules with such programs and related disclosure to clients. Just two months ago, an enforcement division official at the Securities and Exchange Commission said the regulator was investigating conflicts in cash-sweep programs, too. Brokerages' services that sweep customer cash into affiliated banks or money market funds 'have taken on a greater significance' as a result of changing 'commission practices,' according to Finra's recent disclosure." (FINRA stands for the Financial Industry Regulatory Authority.)

They quote Crane Data's Peter Crane, who comments, "It's not just ‘make sure your investors know they're getting a crappy yield on their sweeps'.... There's a lot of other nuance in there, too." He adds, "No matter what regulators are doing, investors keep slowly voting with their feet."

The article also says, "The average bank deposit sweep rate for customers with $100,000 is currently 12 basis points, Crane says, citing his firm's data on the 10 largest brokerages. That compares to an average seven-day yield of 146 bps among the 100 largest money funds."

In related coverage, Financial Planning posted the article, "Why fintech cash accounts are drawing heightened scrutiny." It tells us, "By partnering with chartered banks, Betterment, Wealthfront, Personal Capital, Acorns and dozens of other digital platforms, have added high-yield savings accounts -- in many cases with market-leading yields -- to their robo arsenals. The new partnerships leapfrogged the regulatory burden of obtaining a bank charter and allowed brokerages to effectively offer the same banking products. However, such cash management products are more complicated than traditional savings and checking accounts held at a single institution and require clients to pay extra attention, particularly when opening accounts, experts say. And, regulators are taking notice."

The piece continues, "Kate Wauck, a Wealthfront spokeswoman, responds that, as with all sweep programs, the deposited funds receive FDIC insurance once they reach the partner bank and because broker-dealers who offer sweep programs are not banks, the funds are guaranteed by the SIPC. Wealthfront explains the differences to clients when the account is being opened, she says in an email. Wauck adds that 'we have a pretty arduous process for vetting banks,' and says that the firm works with a cash management intermediary firm, Total Bank Solutions, which deals directly with the banks."

It explains, "The new offerings have certainly proved popular. In April, Wealthfront said it collected $1 billion in its first month after launching its cash product tool.... Not to be outdone, Betterment CEO Jon Stein says his firm tacked on a billion dollars in new assets in just a matter of weeks after launching a savings account called Betterment Everyday in July.... Since most digital platforms partner with a handful of partner banks, the firms advertise FDIC protection of up to $1 million on its website. However, the $1 million claim may prove akin to false advertising, according to experts."

Financial Planning comments, "FINRA says it will monitor how the cash accounts and bank sweeps accounts are being advertised to clients in the coming year, according to its 2020 Risk Monitoring and Examination Priorities letter. For example, the agency will check for compliance specifically including FINRA Rules 1017 and the Exchange Act Rule 15c3-1, which monitor business operations and communications with the public."

The letter explains, "While these bank sweep programs may offer useful features to customers — and in some but not all cases, offer higher-than-average interest rates -- they have also raised several concerns about firms’ compliance with a range of FINRA and SEC rules."

Finally, they add, "In the case of Personal Capital, the robo advisor displays the program bank names along with the amount of deposits held in each account within the platform architecture, according to Dan Stampf, head of the cash management program at Personal Capital [who] partners with UMB Financial Corporation.... [T]here are cases when firms have offered protections when none actually existed. In late 2018, for example, the online discount brokerage Robinhood had to backtrack on promises of a cash account which it said would pay a market-topping 3% interest. In reality, the accounts weren't actually covered by SIPC insurance.... The FDIC has also taken notice. In December, the agency’s chairman Jelena Williams delivered remarks specifically addressing brokered deposits -- a term which broadly describes deposits made into a insured institution by a third party broker."

Rates on money market funds and brokerage sweep accounts remained flat again in the latest week. Our Money Fund Intelligence Daily shows that the flagship Crane 100 MF Index fell a basis point to 1.43% over the past week. The Crane 100 is down from 1.81% on Sept. 30 and down from 2.18% on June 30. The Crane 100 is down 77 bps from the beginning of 2019 (2.23%), but up from its near low of 0.06% ten years ago (12/31/09). The Crane Brokerage Sweep Index, which is currently 0.12%, is up 7 bps from ten years ago (0.05%) and down 16 bps from the end of 2018 (0.28%). Our latest Brokerage Sweep Intelligence, with data as of Friday, Jan. 17, shows every major brokerage keeping rates steady in the past week.

Our broader Crane Money Fund Average, which includes all taxable funds tracked by Crane Data, shows a 7-day yield of 1.31%, down 1 basis point in the week through Friday, Jan. 17. Treasury Inst MFs were unchanged at 1.32%. Government Inst MMFs and Prime Inst MMFs were down 1 bps, finishing the week at 1.39% and 1.53%, respectively. Treasury Retail MFs currently yield 1.06%, (unchanged), Government Retail MFs yield 1.07% (down 0.01%) and Prime Retail MFs yield 1.37% (down 0.01%). Tax-exempt MF 7-day yields plummeted 0.21% to 0.48% in the past week.

Crane's Brokerage Sweep Index remained flat at 0.14% in the week ended January 17 (for balances of $100K). No firms changed rates. E*Trade and TD Ameritrade currently have the lowest rate for balances at the $100K level (0.01%). Meanwhile, Fidelity continues to have the highest sweep rate (0.82%). (Fidelity also have a higher-yielding money fund option for new accounts.) Morgan Stanley is paying 0.03%. UBS, Merrill and Wells Fargo are all paying 0.05%, and Schwab is paying 0.06%. Raymond James and Ameriprise are paying 0.08%. RW Baird is paying 0.33% for balances of $100K.

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