Barron's: Brokerages Cutting Payouts
Barron's writes, "Brokerage Firms Are Cutting Payouts on Uninvested Cash. What To Do Now." They tell us, "Cash has been king ever since the Fed began hiking rates two years ago, but it’s getting a little harder lately for investors to earn a nice return off idle dollars. That's not just because interest rates have fallen on certain short-term investing and savings products as the Fed cuts its benchmark rate. Investors and advisors also have to keep close tabs on where brokerage firms are putting uninvested cash that is held in so-called sweep accounts. Case in point: Next year, Fidelity Investments will move client cash held in nonretirement brokerage accounts overseen by independent financial advisors into FCash, Fidelity's in-house sweep account. FCash's interest rate was 2.32% as of Nov. 11. That's about two percentage points less than investors could earn in Fidelity's Government Money Market Fund (SPAXX), which was previously available as a default sweep option for advisors." The article explains, "Fidelity's FCash doesn't yield as much as a money-market fund, but it still pays out more than other brokerage firms on cash held in sweep accounts. It's a common practice at many brokerage firms to pay paltry interest rates on cash held in sweep accounts." Barron's adds, "Following recent Fed rate cuts, Charles Schwab lowered the rate it pays on cash in sweep accounts to just 0.1% from 0.48%. The company pays a higher yield of 4.23% in managed accounts, and advisors and investors can choose to move money from sweep accounts to higher-paying options such as money-market funds and certificates of deposit. But, again, the onus is on the advisor or individual investor. The company has previously said it encourages clients to review their cash needs and allocations.... Meager rates paid on sweep accounts have prompted some investors to sue brokerage firms, such as LPL Financial, Morgan Stanley, and Schwab. The lawsuits filed in federal courts generally accuse the companies of breach of fiduciary duty, arguing that the brokerage firms have an obligation to put clients in higher-paying products. The companies deny the allegations, and the cases are ongoing."
