Broker-dealers and wirehouses have recently come under fire for the money they’re grating off their clients’ short-term cash in overnight sweep accounts at banks. That’s prompted moves at some institutions to change their rate regimes. But at least one broker-dealer is not budging.
Ameriprise Financial executives said on its second quarter earnings call this morning that they currently have no plans to change the percentages on their sweep accounts, which generally pay back about only 0.30% on accounts less than $100,000. Such low rates were de rigueur during the cheap money era, and comparable to what’s charged at competitors like LPL. But when other vehicles such as money market funds are paying almost 4% to 5%, investors have started to balk about making too little back on their parked cash, which broker-dealers can use to make even more money at banks. Regulators and investor attorneys have started paying attention, too, even saying that this rises to the level of a fiduciary concern if broker-dealers are using client money to advance their own pecuniary aims.
Ameriprise’s James Cracchiolo, chairman and CEO of the company, and Walter Berman, the firm’s chief financial officer, speaking on the earnings call, sounded as if the blowback had come as something as a surprise—since to them the fundamental use of cash sweeps hasn’t changed: These are short-term accounts meant to handle money in motion.
“Looking at sweep and transactional assets or cash in motion, [Ameriprise’s activity] is totally appropriate and in line,” said Berman on the call. “I can’t comment on what’s taking place with the wirehouses [that have been forced to make changes]. I can’t understand it. All I know is what we do from that standpoint and all the actions we have taken to ensure that the money in sweep is for transactional purposes.”
Ameriprise said in January that 65% of its cash sweep money was in accounts under $100,000 and that the average account sweep size is only about $6,000, numbers Berman repeated on the call. “Our rates are competitive and we keep the appropriate level of cash that’s necessary to operate,” he said.
The company’s cash sweeps and certificates were $44.5 billion in 2023, according to a January presentation, down from $47.2 billion in the year before. Meanwhile, it said at the time that third-party cash, which includes money market funds and brokered CDs, had skyrocketed to $37 billion, up from only $14.8 billion in 2022. (The move away from parked cash is known as “cash sorting.”)
In the second quarter of this year, “total client cash including third-party money market funds and brokered CDs was $81.9 billion, up $12.2 billion from a year ago, as clients remain heavily concentrated in yield-oriented products,” the company said in its second quarter earnings report today. Cash balances were down slightly, at 3%, to $40.6 billion, for the quarter, it said.
Berman and Cracchiolo said that as clients reposition, they are likely to take from the cash balances to redeploy. The firm’s wrap program has benefited from the shift, as Ameriprise’s wrap net flows for the second quarter were $7.5 billion, up from $5.6 billion for the second quarter of 2023.
Almost all of the analysts on the call asked about the sweep program and the trouble it’s caused for other firms.
Earlier this month, both Wells Fargo and Morgan Stanley said they were raising rates on cash sweep accounts. Wells Fargo said that the move would cost it $350 million in net interest income.
Regulators and attorneys have gotten involved, too. Last year, the Securities and Exchange Commission settled with AssetMark for $18 million after saying it had failed to disclose conflicts of interest on its sweeps program. And last week Michigan resident Daniel Peters filed suit against LPL for breach of fiduciary duty and unjust enrichment in a California federal court, seeking class action status after saying that LPL underpaid him and others what it was making off paltry cash sweep rates.