Merrill to Shift Client Cash Into BofA Bank Accounts, Not Money Funds
Merrill Lynch as of September 4 will stop sweeping cash from brokerage accounts into money-market funds and instead funnel the money into deposit accounts at a unit of its parent company Bank of America.
The change means that brokers who want to assuage rate-sensitive customers will have to manually purchase money-market funds for them. The removal of the sweep option will apply to “most new accounts,” and by December all existing money-market sweep balances will convert to bank deposits, Merrill told its brokers earlier this week.
The shift comes at a time when Merrill Lynch has been priming its advisors to open new brokerage accounts through growth bonuses, short-term incentive awards and penalties for failing to develop new customer relationships. Removing the automatic sweep feature into money-market funds could make the sell a little harder.
To ease the transition, Merrill will offer a “transitional yield” incentive on deposits for six months that are equivalent to the rate than would be earned with a money-market fund.
Matt Card, a Merrill Lynch spokesman, confirmed the change, which was reported earlier by “The Wall Street Journal.” He said it will not dramatically affect most customers since only about 4% of accounts eligible for money-market fund sweep options use them.
“We’re simplifying our offering, drawing clearer distinctions between cash and investment products, and introducing an expanded set of money-market funds,” Card said.
The new fund options will include institutional share classes that have lower management fees and thus will be higher-yielding than the fund options offered today for sweeps, he said.
Merrill joins Morgan Stanley and other brokerage firm competitors in shifting sweeps of client cash to low-yielding deposit accounts at their own or outside banks, where the firms or their parents can earn more than from selling money-market accounts.
The yield on 100 large money-market mutual funds today averages 1.77%, the “Journal” noted, citing statistics from Crane Data of Westboro, Mass. Bank sweep accounts at brokerage firms tend to pay about 0.25% on average.