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Galvin questions on broker interest rates and sweep accounts

Massachusetts Commonwealth Secretary William Galvin is asking six major brokers to provide information about whether they and their in-house or affiliated banks pay interest rates to clients with funds included in sweep accounts in response to the Federal Reserve’s recent rate hike. Failed to raise rates.

Galvin noted that investors in Massachusetts are likely to face rising mortgage and credit card rates due to the Fed’s 0.25% interest rate hike this week, with more hikes likely later this year.

He said consumers are also battling inflationary pressures. Galvin questioned whether banks were shortening customers while maintaining low interest rates for cash deposits in a rising rate environment.

“(Consumers) are being hit with a double whammy of higher credit card and loan rates on the one hand and lower interest rates on their bank accounts and other investments,” Galvin said. “It is simply unfair that consumers are being asked to pay more on credit cards and loans while banks are raising interest rates instead of raising interest rates for those trying to keep their savings. Must be earned on custodial money.”

The investigation is focusing on sweep accounts, which brokerage firms use to hold investor funds before making investments. Firms are able to redeem those deposits and earn more than what they pay to the account holders. The six brokers/dealers questioned include TD Ameritrade (still operating as a specialized broker/dealer after its $26 billion acquisition by Charles Schwab), Merrill Lynch, LPL Financial, Ameriprise, Securities America and SoFi.

The investigation started with these six B/Ds as they have major sweep account offerings. However, the investigation is ongoing and may be expanded to include more B/Ds, according to a spokesperson for Galvin’s office.

In letters sent to six brokers, Galvin’s office asked whether, in response to the Federal Reserve’s hike, B/DS plans to increase interest rates for clients in sweep account programs (known as “any cash sweeps”). “money market mutual funds” are defined as “bank deposit programs, or other financial programs that are used to hold a customer’s uninvested cash”), and also asked whether interest rates should be They have an agreement with the third party responsible for promoting such accounts.

The Securities Division is also asking brokers to identify all sweep account programs available to Massachusetts brokerage clients, including whether they are FDIC insured and what types of accounts are eligible to enroll in them. Galvin’s office also asked brokers to supply all disclosure materials relating to fees and commissions, interest rates, yields and dividends for sweep account clients, and any risks or conflicts related to those sweep accounts. The Securities Division asked b/ds to respond to their requests by the end of March 30.

Earlier this year, Galvin’s office Accused Fidelity Brokerage Services Massachusetts retail brokerages who were allowed to conduct options and margin trading even after exaggerating their experience and employment information for failing to properly screen clients. The Securities Division has also initiated investigations into several B/Ds, Arguing that their use of target-date mutual funds That left some retail investors with surprising tax liabilities in certain funds.

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