After UBS earnings, is cash sweep drama over?
UBS Group Wednesday morning became the latest wealth management firm to declare it was increasing yields on clients’ cash held in advisory accounts, joining Wells Fargo & Co., Morgan Stanley and others who also recently raised rates due to competitors paying substantially better yields on cash.
Todd Tuckner, UBS Group’s chief financial officer, said during a conference call with investors to discuss company earnings that by the middle of the fourth quarter the wirehouse and global bank intends to adjust the sweep deposit rates in U.S. advisory accounts, with the company expecting a reduction in pretax profits by around $50 million annually.
Broker-dealers are particularly interest rate sensitive companies; they generate income from spreads on customer cash and margin loans to clients.
Ever since interest rates began rising in 2022 post the Covid-19 pandemic, wealth management firms have faced questions about low interest rates they continued to pay clients on cash deposits, which can typically make up 5% or less of a client’s overall portfolio.
Tuckner did not specify what the new rates would be during the call.
The broader wealth management industry, which for decades has toggled back and forth between charging clients commissions in brokerage accounts and fees in advisory accounts, has been wrestling with rate of interest in pays clients for cash for some time now, most recently for the past month during this recent earnings season.
Wells Fargo & Co., which had been under the scrutiny of the Securities and Exchange Commission over the matter, on July 12 said it increased yields for advisory clients of its 12,000 financial advisors, reducing net interest income this year by $350 million.
That sent off a torrent of
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