Brokers Bank on Your Cash, but Some Are Breaking From the Pack
08 August 2019 - 7:18AM
Dow Jones News
By Lisa Beilfuss
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.
The Boston-based firm, which manages about $2.8 trillion in
assets, 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 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. Investors with relatively small cash balances in their
brokerage accounts aren't always motivated to move the money, but
those dollars add up to billions at big brokerage businesses.
Fidelity said it started automatically sweeping cash in new
accounts into the higher-yielding money-market fund in May.
Existing customers can opt to have their cash swept into the
higher-yielding fund, the company said.
Offering higher yields on cash has become a popular tactic to
attract customers. Automated advisers Betterment and Wealthfront
Inc., for example, are offering more on cash by sweeping it to
partner banks, and some banks including Goldman Sachs Group Inc.'s
Marcus has been paying relatively high interest on savings. But
Fidelity's move is notable given how the biggest brokerage firms
have been treating customers' cash.
"Many of the incumbent brokerages have been going in the other
direction, " said Devin Ryan, brokerage analyst at JMP Securities
LLC. Customers typically have to opt out of low-yielding bank
products by buying money funds or other products. "What Fidelity is
doing is removing that step," he said.
As brokerages try to make up for the revenue they are giving up
on trading fees and financial advice in order to woo customers'
assets, cash has become more crucial to their profitability. At
Charles Schwab Corp., its bank made more than half of the company's
overall revenue of $10.13 billion in 2018, up from 29% of revenue
in 2009. In recent years, Schwab began sweeping uninvested client
cash into low-yielding brokerage products.
Fidelity's move comes as investors, nervous about slowing
economic growth and trade tensions with China, are shifting more
money to havens and cash stockpiles are growing. Money-market fund
assets surged 30% in July to $3.62 trillion, the highest since
March 2009, according to Crane Data.
Everyday investors have been driving that increase into money
funds, said Pete Crane, chief executive at Crane Data, a firm that
tracks money-market and mutual-fund flows. "A big portion of that
[rise] is a quiet revolt against ultralow yields," he said. "It was
just a matter of time before cash became a battleground, too."
Write to Lisa Beilfuss at lisa.beilfuss@wsj.com
(END) Dow Jones Newswires
August 07, 2019 17:03 ET (21:03 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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