WSJ on Merrill Changing Sweeps
The Wall Street Journal writes again on brokerage sweeps in "Merrill Lynch Joins Brigade Downplaying Money-Market Mutual Funds." Author Jason Zweig tells us, "Starting Sept. 4, Bank of America Corp.'s Merrill Lynch brokerage unit will no longer sweep its customers' cash into money-market mutual funds, moving it instead into deposits at affiliated banks. In communications distributed to its staff on Monday, the brokerage said money-market funds 'will no longer be available as a sweep choice for most new accounts.' Instead, clients' uninvested cash will be automatically routed to bank deposits. For six months, these so-called bank sweep accounts will earn a 'transitional yield' equal to that on a money-market fund; after May 2019, the yields on those deposits are likely to drop to market rates below that level. The yield on 100 large money-market mutual funds averages 1.77%, according to Crane Data of Westboro, Mass., which tracks returns on cash investments. Bank sweep accounts at brokerage firms tend to pay about 0.25% on average, according to Crane." The piece adds, "Merrill's brokers will still be able to place their customers' cash in higher-yielding money-market funds, but only by purchasing them manually. The giant firm thus joins many other major brokerages, including Morgan Stanley and Charles Schwab Corp., in potentially capturing more of the income on cash balances for themselves, rather than passing most of it through to clients. Such a move has steadily become more lucrative as the Federal Reserve raises interest rates." (See also our August 21 News, "More Insured Brokerage Sweeps Blowback: ignites, BlackRock Comment.")
