The Secretary of the Commonwealth of Massachusetts, William Galvin, who oversees securities regulation, issues a press release entitled, "With Rates Rising, Galvin Investigates Whether Investors Are Being Shortchanged," which takes a swipe at low rates paid in brokerage sweep accounts. It says, "Concerned that investors will be facing all of the negative impacts of rising interest rates without seeing any of the positives, Secretary of the Commonwealth William F. Galvin has directed his Securities Division to investigate whether Massachusetts investors are being ill-served by brokers and their in-house and affiliated banks refusing to raise interest rates paid to customers with sweep accounts." (Note: We're still taking registrations for our upcoming Bond Fund Symposium, March 28-29 in Newport Beach, Calif! Tickets are $750.)
The release continues, "The Federal Reserve announced ... that interest rates will be raised 0.25%, and additional increases are expected later in the year. Galvin believes that with these rate hikes, consumers already struggling to cope with rising costs caused by inflation will also be faced with higher mortgage and credit card rates, while banks keep the interest rates on cash deposits low."
Galvin comments, "Consumers are being squeezed right now.... They're being hit with the double-whammy of higher credit card and loan rates on one end and low rates of interest on their bank accounts and other investments. It's simply unfair that consumers are being asked to pay more on credit cards and loans, while the banks are pocketing the interest rate hikes that should be earned on custodial money instead of raising interest rates for people who are trying to keep their savings."
The statement adds, "The inquiry being conducted by Galvin's Securities Division is regarding sweep accounts, which are often used by brokerage firms to hold an investor's money while it is waiting to be invested. The Division sent letters today to six broker-dealers, inquiring about whether the firms intend to increase the rate of interest on the sweep accounts offered to their customers. Letters of inquiry were sent to TD Ameritrade, Merrill Lynch, LPL Financial, Ameriprise, Securities America, and SoFi." (Crane Data's Brokerage Sweep Intelligence publication, which tracks sweep rates paid by all the major brokerage firms, shows all of them yielding 0.01% currently. Ask us if you'd like to see our latest weekly issue.)
Barrons' also writes about the news in their piece, "Massachusetts' Top Securities Cop Wants to Know When Brokerages Will Raise Cash-Account Yields." They comment, "Now that the Federal Reserve has begun to raise interest rates, will brokerage firms raise the rates they pay investors in response? That's a question many investors are likely asking, and now Massachusetts' top securities regulator wants to know, too. Secretary of the Commonwealth William Galvin, who oversees the state's securities regulation division, has sent letters to six brokerages asking how they will respond to the Federal Reserve's quarter-point rate increase announced Wednesday, widely seen as an opening salvo in a series of rate hikes expected to last at least through the end of the year."
They add, "In those letters, Galvin asks the firms if they intend to increase interest rates in sweep accounts, which he defines broadly as cash sweeps, money market mutual funds, bank deposits, or any other vehicle for holding uninvested cash. He asked each firm to provide a spreadsheet detailing the types of sweep accounts available to Massachusetts investors, along with all disclosure materials detailing fees and commissions, interest rates and yields, and risks and conflicts of interest, as well as any related revenue-sharing agreements with third parties."
In other news, the Investment Company Institute's latest "Money Market Fund Assets" report shows assets falling sharply for the second week in a row after a huge jump at the end of February. Year-to-date, MMFs are down by $146 billion, or -3.1%, with Institutional MMFs down $117 billion, or -3.6% and Retail MMFs down $30 billion, or 2.0%. Over the past 52 weeks, money fund assets have increased by $173 billion, or 3.9%, with Retail MMFs falling by $63 billion (-4.2%) and Inst MMFs rising by $236 billion (8.2%).
ICI's weekly release says, "Total money market fund assets decreased by $16.89 billion to $4.56 trillion for the week ended Wednesday, March 16, the Investment Company Institute reported.... Among taxable money market funds, government funds decreased by $13.05 billion and prime funds decreased by $4.51 billion. Tax-exempt money market funds increased by $669 million." ICI's stats show Institutional MMFs increasing $28.5 billion and Retail MMFs decreasing $45.4 billion in the latest week. Total Government MMF assets, including Treasury funds, were $4.052 trillion (88.9% of all money funds), while Total Prime MMFs were $429.1 billion (9.2%). Tax Exempt MMFs totaled $85.9 billion (1.9%). [Editor's note: Crane Data will be asking about these numbers, as the Retail outflow is abnormally large; we assume there must be some kind of reclassification.]
ICI explains, "Assets of retail money market funds decreased by $45.40 billion to $1.44 trillion. Among retail funds, government money market fund assets decreased by $45.34 billion to $1.17 trillion, prime money market fund assets decreased by $469 million to $197.62 billion, and tax-exempt fund assets increased by $404 million to $76.04 billion." Retail assets account for just under a third of total assets, or 31.6%, and Government Retail assets make up 81.0% of all Retail MMFs.
They add, "Assets of institutional money market funds increased by $28.52 billion to $3.12 trillion. Among institutional funds, government money market fund assets increased by $32.29 billion to $2.89 trillion, prime money market fund assets decreased by $4.04 billion to $222.97 billion, and tax-exempt fund assets increased by $265 million to $9.85 billion." Institutional assets accounted for 68.4% of all MMF assets, with Government Institutional assets making up 92.5% of all Institutional MMF totals. (Note that ICI's asset totals don't include a number of funds tracked by the SEC and Crane Data, so they're almost $400 billion lower than Crane's asset series.)
