Fidelity made a big splash early Wednesday, offering new do-it-yourself investors an automatic 1.91% on their cash (and blasting the news out via a one-page ad in the Wall Street Journal). But Fidelity-affiliated advisors will have to request the move of their clients’ cash into higher-yielding investments, rather than it being automatic, which industry observers say is a headache for some advisors.
“Seems RIA custodians aren’t ready for disruption to their RIA cash cow yet. :/” said popular blogger and financial planner Michael Kitces on Twitter.
“You’ve got to think advisors would be in an uproar” if they didn’t get this automatic cash-sweep program for their clients, according to Tim Welsh, head of the consulting group Nexus Strategy and a former Schwab executive, in an interview. “It will definitely create channel conflict, and a challenging messaging point.”
Retail vs. RIAs
It’s an interesting juxtaposition for Fidelity — which is clearly trying to jump ahead of rivals such as Charles Schwab, TD Ameritrade and E-Trade on the retail or DIY side of the business. Yields on some rival sweep programs are roughly 0.20% or less for accounts with balances under $1 million; Vanguard, though, offers brokerage clients 2.18%.
“Some firms have removed the option of a higher yielding money market fund as an option for their cash sweep, thereby forcing investors to take additional steps to get a better rate for their cash,” said Kathleen Murphy, president of Fidelity Investments’ personal investing business, in a statement.
But when asked why Fidelity isn’t extending the automatic high-yield cash-sweep program to advisors, a spokesperson said: “The offering differs for advisors because they’ve told us that they want the ability to choose the cash option that is right for their customers, so they have multiple cash options available for their customers, including money market funds and our FDIC-insured Bank Deposit Sweep Program.”