Morgan Stanley increases cash sweep pricing for advisory clients
Even as the wealth management operations of the wirehouses benefit from a record breaking stock market, a stumbling block in the way of higher profits is emerging: the amount they are paying clients in interest for certain cash advisory accounts.
As interest rates soared over the past couple years, some financial advisors and clients have criticized their firms for short-changing them on yield and interest generated from cash deposits. The Securities and Exchange Commission has been focused on cash sweep account options and hit firms with penalties over the matter.
The return clients are getting on cash appears to be front and center of the industry right now.
“This was a big deal a year or two ago with the Securities and Exchange Commission, but these recent moves look more like a result from competitive pressure,” said a senior industry executive who spoke confidentially to InvestmentNews. “Clients are waking up to fact you can get better yields on money market funds rather than these bank sweep advisory accounts.”
“Remember, in advisory accounts, the financial advisor needs to keep the money invested or the client won’t keep up with the benchmarks,” the executive added.
Wells Fargo & Co. on Friday said it changed the pricing on cash sweep deposits and advisory brokerage accounts, and the increase is expected to cost the wealth management arm of the bank $350 million this year in income.
Morgan Stanley executives Tuesday morning in a conference call with analysts to discuss second quarter earnings said that, like Wells Fargo, it was raising rates on clients’ cash in advisory sweep accounts. But the firm did not say how much net interest income the change could cost the firm’s wealth management business.
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