Fidelity highlights its better sweep account yields

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indexfundfan
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Fidelity highlights its better sweep account yields

Post by indexfundfan »

Fidelity highlights its better sweep account yields compared to Schwab, Etrade and TDA

https://www.businesswire.com/news/home/ ... -Investors

Fidelity Investments®, the largest retirement and brokerage firm with nearly $8 trillion in total client assets, today announced it has challenged conventional industry practices by automatically directing investors’ cash into higher yielding options available for brokerage and retirement accounts as well as providing product choice – all without any minimum requirements.

Fidelity’s approach is contrary to typical industry practices of defaulting customers’ cash into a low-yielding product – often at an affiliated bank – with no other option in what the industry calls a “cash sweep.”


Current default sweep account yields

Fidelity 1.91%
Schwab 0.18%
Etrade 0.07%
TDA 0.04%
Vanguard : 2.20% -- conveniently not mentioned in the announcement. LOL.
Last edited by indexfundfan on Thu Aug 08, 2019 7:51 pm, edited 1 time in total.
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Iridium
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Re: Fidelity highlights its sweep account yields

Post by Iridium »

This is a way bigger deal than their zero funds and the combination of the two is mind boggling. How do they possibly hope to profit off or even break even on their index investors?
rws
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Re: Fidelity highlights its sweep account yields

Post by rws »

Also of note, their FDIC insured Cash Management account interest rate seems to have increased from 0.07% to 1.07%.
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Re: Fidelity highlights its sweep account yields

Post by lazyday »

Fidelity also might save more money on order executions, considering they don’t accept payment for order flow (unlike Etrade, Schwab, and TD Ameritrade) and that Fidelity is
the only firm to voluntarily report full price improvement savings using the Financial Information Forum (FIF) standards.
https://www.fidelity.com/trading/execut ... y/overview

I’m skeptical that Fidelity really saves $17.46 on 1000 shares vs only $2.88 for the industry average. But if any other broker had better price improvement, you’d think they would brag about it like Fido does.

https://fif.com/tools/retail-execution- ... statistics
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Re: Fidelity highlights its sweep account yields

Post by indexfundfan »

rws wrote: Wed Aug 07, 2019 3:59 pm Also of note, their FDIC insured Cash Management account interest rate seems to have increased from 0.07% to 1.07%.
Yes! I just checked and indeed the Fidelity's FDIC insured option in their CMA is now 1.08% APY.

It certainly looks like Fidelity is making a push on providing better automatic cash sweep options. They are beating everyone else (Schwab,Etrade,TDA,Merrill Edge,You Invest) with the exception of Vanguard.

Now if only Fidelity would also lower the ER of their MMFs to match Vanguard ...
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Re: Fidelity highlights its sweep account yields

Post by stlutz »

indexfundfan wrote: Wed Aug 07, 2019 7:10 pm Now if only Fidelity would also lower the ER of their MMFs to match Vanguard ...
That has become their main profit center, so probably not going to happen.

If short-term rates go back to zero, then the model no longer works and we have a problem.
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Re: Fidelity highlights its sweep account yields

Post by stlutz »

indexfundfan wrote: Wed Aug 07, 2019 7:10 pm
Yes! I just checked and indeed the Fidelity's FDIC insured option in their CMA is now 1.08% APY.
That's very interesting especially given the fact that Schwab has dropped theirs to .31% (I think they used to be at .40%).
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Re: Fidelity highlights its sweep account yields

Post by indexfundfan »

stlutz wrote: Wed Aug 07, 2019 7:17 pm
indexfundfan wrote: Wed Aug 07, 2019 7:10 pm
Yes! I just checked and indeed the Fidelity's FDIC insured option in their CMA is now 1.08% APY.
That's very interesting especially given the fact that Schwab has dropped theirs to .31% (I think they used to be at .40%).
Wrong move Chuck! Maybe they have to backpedal to respond.
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retiringwhen
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Re: Fidelity highlights its sweep account yields

Post by retiringwhen »

indexfundfan wrote: Wed Aug 07, 2019 7:28 pm Wrong move Chuck! Maybe they have to backpedal to respond.
Vanguard operates at cost, so you generally see a reasonable ER for each of their funds, nothing subsidizes anything much (some folks argue happens around the edges, but that is not material here.)

Schwab makes something like 50% of the revenue from sweep accounts and low interest cash accounts. That cash is subsidizing all their other services.

Fidelity makes the majority of their revenue from high ER active funds. How do you think they pay for those Zero funds?

The sweep / settlement account interest rates paid by these companies completely reflect each company's business model.

Choose the company whose business model best matches your personal investing model.... I have done that and have no worries about relative interest rates.
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Fidelity is automatically sweeping new clients’ cash into a money fund with a higher yield than what is paid by many oth

Post by MFInvestor »

[Thread merged into here, see below. --admin LadyGeek]

Brokers Bank on Your Cash, but Some Are Breaking From the Pack

Fidelity is automatically sweeping new clients’ cash into a money fund with a higher yield than what is paid by many other brokerages

WSJ

https://www.wsj.com/articles/brokers-ba ... low_a_pos1


What this article fails to mention is Vanguard.

The Vanguard sweep account is Federal Money Market with a current 7 day yield of 2.18%


Fidelity Investments said it has sweetened the deal for customers holding cash there, the latest salvo in the price war playing out among brokerages competing for clients’ assets.

The Boston-based firm, which manages about $2.8 trillion in assets, said Wednesday that it is automatically sweeping cash in new brokerage and retirement accounts into a money-market fund yielding 1.91% annually. That compares to the 0.2% national average yield on money funds and 0.09% on savings account balances, according to S&P Global Market Intelligence.

At Charles Schwab Corp., its bank made more than half of the company’s overall revenue of $10.13 billion in 2018, up from 29% of revenue in 2009. In recent years, Schwab began sweeping uninvested client cash into low-yielding brokerage products
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Re: Fidelity is automatically sweeping new clients’ cash into a money fund with a higher yield than what is paid by many

Post by megabad »

Who keeps money in a sweep account? I can see this making a few dollars of difference per year on a seven figure portfolio, much less for a smaller one.
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Re: Fidelity is automatically sweeping new clients’ cash into a money fund with a higher yield than what is paid by many

Post by abyan »

MFInvestor wrote: Wed Aug 07, 2019 10:03 pm That compares to the 0.2% national average yield on money funds and 0.09% on savings account balances, according to S&P Global Market Intelligence.
I can't see the rest of the article, but how could the reporter let that "fact" go by unquestioned? Sure, brick and mortar banks may have lower interest rates on savings accounts, but simply claiming that the national average for savings accounts is 0.09%, and not noting that it's painfully easy to get 1.9% and above at a number of banks online, like Ally, Marcus etc., is just really poor reporting.
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Re: Fidelity is automatically sweeping new clients’ cash into a money fund with a higher yield than what is paid by many

Post by Trader Joe »

MFInvestor wrote: Wed Aug 07, 2019 10:03 pm Brokers Bank on Your Cash, but Some Are Breaking From the Pack

Fidelity is automatically sweeping new clients’ cash into a money fund with a higher yield than what is paid by many other brokerages

WSJ

https://www.wsj.com/articles/brokers-ba ... low_a_pos1


What this article fails to mention is Vanguard.

The Vanguard sweep account is Federal Money Market with a current 7 day yield of 2.18%


Fidelity Investments said it has sweetened the deal for customers holding cash there, the latest salvo in the price war playing out among brokerages competing for clients’ assets.

The Boston-based firm, which manages about $2.8 trillion in assets, said Wednesday that it is automatically sweeping cash in new brokerage and retirement accounts into a money-market fund yielding 1.91% annually. That compares to the 0.2% national average yield on money funds and 0.09% on savings account balances, according to S&P Global Market Intelligence.

At Charles Schwab Corp., its bank made more than half of the company’s overall revenue of $10.13 billion in 2018, up from 29% of revenue in 2009. In recent years, Schwab began sweeping uninvested client cash into low-yielding brokerage products
"Fidelity is automatically sweeping new clients’ cash into a money fund with a higher yield than what is paid by many other brokerages"

I do not invest at Fidelity, but this sounds great!
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Re: Fidelity is automatically sweeping new clients’ cash into a money fund with a higher yield than what is paid by many

Post by Hector »

I wonder when 0.4 ER in Fidelity money market is going to come down.
Most Fidelity funds are cheaper than Vanguard, but not money market funds.
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Re: Fidelity is automatically sweeping new clients’ cash into a money fund with a higher yield than what is paid by many

Post by arf30 »

Is there any actual news here? Logging into Fidelity it looks like the brokerage is still sweeping into the same money market funds it always has.
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Re: Fidelity is automatically sweeping new clients’ cash into a money fund with a higher yield than what is paid by many

Post by indexfundfan »

arf30 wrote: Thu Aug 08, 2019 6:27 pm Is there any actual news here? Logging into Fidelity it looks like the brokerage is still sweeping into the same money market funds it always has.
It's actually nothing new, except that Fidelity came out with an announcement yesterday that highlights the fact that they offer better sweep options compared to other brokerages (with the exception of Vanguard which they conveniently did not mention LOL). So the news media picked it up and broadcast it.

I posted the announcement here:

viewtopic.php?f=10&t=287600&newpost=468 ... ead#unread

PS. Actually, there's maybe one change -- the FDIC option in Fidelity's CMA is now a more respectable 1.08% APY. Previously it was sub-1%.
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Re: Fidelity highlights its sweep account yields

Post by vtMaps »

indexfundfan wrote: Wed Aug 07, 2019 7:10 pm Now if only Fidelity would also lower the ER of their MMFs to match Vanguard ...
Why does the ER matter in a MMF? --vtMaps
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Re: Fidelity highlights its sweep account yields

Post by indexfundfan »

vtMaps wrote: Thu Aug 08, 2019 6:51 pm
indexfundfan wrote: Wed Aug 07, 2019 7:10 pm Now if only Fidelity would also lower the ER of their MMFs to match Vanguard ...
Why does the ER matter in a MMF? --vtMaps
Lower ER => higher yield.
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Re: Fidelity is automatically sweeping new clients’ cash into a money fund with a higher yield than what is paid by many

Post by arf30 »

indexfundfan wrote: Thu Aug 08, 2019 6:40 pm Actually, there's maybe one change -- the FDIC option in Fidelity's CMA is now a more respectable 1.08% APY. Previously it was sub-1%.
Ah, now that is an interesting change.
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Re: Fidelity highlights its sweep account yields

Post by informal guide »

Bravo to Fidelity for highlighting this. They are clearly taking smaller margins than people like Schwab, TD, etc.

The math on this is interesting. Vanguard's default sweep is Federal Money Market - -VMFXX - -$129 Billion at 0.11% expense ratio and a yield of 2.17%.

Fidelity's default sweep fund is SPAXX - -$129 Billion at a 0.42% expense ratio and a yield of 1.85%. The difference between Vanguard and Fidelity expense ratios is 0.31%. The difference is expense ratios is 0.32% (numbers pulled this evening from respective web sites)

The annual financial revenue that Fidelity gets from the higher expense ratio is 0.31% X $129 Billion, or $400 Million. Now that's not peanuts and pays for a lot of Fidelity waived ATM and free bill payment expenses and Fidelity profit margins. And just think of the magnitude of Schwab's profits from its sweep accounts!
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Re: Fidelity is automatically sweeping new clients’ cash into a money fund with a higher yield than what is paid by many

Post by MotoTrojan »

arf30 wrote: Thu Aug 08, 2019 7:29 pm
indexfundfan wrote: Thu Aug 08, 2019 6:40 pm Actually, there's maybe one change -- the FDIC option in Fidelity's CMA is now a more respectable 1.08% APY. Previously it was sub-1%.
Ah, now that is an interesting change.
Why? You can setup a brokerage to be tied to your CMA (as I do) via Cash Manager. My CMA never has anything but $0 in it, my direct deposits (or other deposits) go straight into SPAXX via my brokerage, and I can spend, bill pay, ATM withdraw, etc... as I please. I also manually swap SPAXX for the higher yielding SPRXX but that is a marginal bump up.
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Re: Fidelity highlights its sweep account yields

Post by indexfundfan »

informal guide wrote: Thu Aug 08, 2019 7:33 pmAnd just think of the magnitude of Schwab's profits from its sweep accounts!
You are exactly right. WSJ's article highlighted the following:

At Charles Schwab Corp., its bank made more than half of the company’s overall revenue of $10.13 billion in 2018, up from 29% of revenue in 2009. In recent years, Schwab began sweeping uninvested client cash into low-yielding brokerage products.

Schwab profited from the low-yielding sweep options forced onto investors by eliminating the money market options.
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Re: Fidelity highlights its better sweep account yields

Post by Wakefield1 »

indexfundfan wrote: Wed Aug 07, 2019 2:24 pm Fidelity highlights its better sweep account yields compared to Schwab, Etrade and TDA

https://www.businesswire.com/news/home/ ... -Investors

Fidelity Investments®, the largest retirement and brokerage firm with nearly $8 trillion in total client assets, today announced it has challenged conventional industry practices by automatically directing investors’ cash into higher yielding options available for brokerage and retirement accounts as well as providing product choice – all without any minimum requirements.

Fidelity’s approach is contrary to typical industry practices of defaulting customers’ cash into a low-yielding product – often at an affiliated bank – with no other option in what the industry calls a “cash sweep.”


Current default sweep account yields

Fidelity 1.91%
Schwab 0.18%
Etrade 0.07%
TDA 0.04%
Vanguard : 2.20% -- conveniently not mentioned in the announcement. LOL.
I think I'll stay with Vanguard.
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Re: Fidelity highlights its sweep account yields

Post by retiringwhen »

informal guide wrote: Thu Aug 08, 2019 7:33 pm And just think of the magnitude of Schwab's profits from its sweep accounts!
Someone did a review of Schwab financial reports and they estimated their sweep accounts generated 50% of the entire company's revenue (not profit). IOW, they'd be bankrupt if they raised interest rates on their sweep accounts without curtailing costs significantly or finding a new source of revenue. BTW, they unlike Fidelity have lowered their costs to almost nil for robo-advisor services.

See this article, data is old from 2018, but it show interest earned plus securities lending revenue, so not a clean break, but the two together are well over 50%. https://www.nasdaq.com/article/what-are ... b-cm921582

BTW, this shows that Fidelity and Vanguard are both much better positioned to weather another long-term reduction in interest rates. It will hurt Schwab very very badly unless they change their cost model.

I've noted before, there is a circular firing-squad going on right now with Vanguard, Fidelity, Blackrock, Schwab and the second tier discount brokerages with each company is firing salvos at the other companies profit centers... It is a good time to be an educated cost-conscious investor.....

ETF commissions going to zero.
Index fund ERs going to zero.
Sweep funds ER under pressure.
Active Funds ER under pressure.
AUM Advisor fees going to zero.
ETF tax-efficiency constantly improving.

It is very good indeed.
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Re: Fidelity highlights its better sweep account yields

Post by LadyGeek »

I merged MFInvestor's thread into the on-going discussion.
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Re: Fidelity highlights its sweep account yields

Post by indexfundfan »

retiringwhen wrote: Thu Aug 08, 2019 8:01 pm I've noted before, there is a circular firing-squad going on right now with Vanguard, Fidelity, Blackrock, Schwab and the second tier discount brokerages with each company is firing salvos at the other companies profit centers... It is a good time to be an educated cost-conscious investor.....

ETF commissions going to zero.
Index fund ERs going to zero.
Sweep funds ER under pressure.
Active Funds ER under pressure.
AUM Advisor fees going to zero.
ETF tax-efficiency constantly improving.

It is very good indeed.
Yeah, the race to the bottom ...
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Re: Fidelity is automatically sweeping new clients’ cash into a money fund with a higher yield than what is paid by many

Post by MikeG62 »

indexfundfan wrote: Thu Aug 08, 2019 6:40 pm
arf30 wrote: Thu Aug 08, 2019 6:27 pm Is there any actual news here? Logging into Fidelity it looks like the brokerage is still sweeping into the same money market funds it always has.
It's actually nothing new, except that Fidelity came out with an announcement yesterday that highlights the fact that they offer better sweep options compared to other brokerages (with the exception of Vanguard which they conveniently did not mention LOL). So the news media picked it up and broadcast it.
Not defending Fidelity, but this seems common practice among banks too. They typically only compare to others who have lower rates than they do (conveniently leaving off those banks with higher yields). It's a case where one needs to be an informed consumer otherwise it's easy to be misled. :x
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Re: Fidelity highlights its better sweep account yields

Post by indexfundfan »

A somewhat related piece of news : Investor Sues Merrill Lynch Over ‘Paltry’ Cash Yields

https://www.barrons.com/articles/invest ... 1567113968

As Barron’s noted in a recent story, most brokerage firms have eliminated money-market funds for cash sweep purposes. Fidelity, Interactive Brokers (IBKR), and Vanguard continue to offer money-markets for sweep uses, but they are now outliers. Merrill, Charles Schwab (SCHW), TD Ameritrade (AMTD), E*trade Financial (ETFC), and Morgan Stanley (MS) , have all eliminated money markets for sweep purposes.

... It’s far more lucrative for a broker-dealer or bank to earn interest income on cash held by customers (invested by the firm in higher-yielding securities like Treasuries) than to pocket a management fee on a money-market fund. Firms like Schwab make a bundle off that interest income, which accounts for more than half the firm’s revenue.
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Re: Fidelity highlights its better sweep account yields

Post by cheesepep »

I used to never pay attention to these silly things. After all, it is less than a percent most times!

However, the last 1.5 months I have paid attention and moved some to MMA and other things and have been pleasantly pleased with the small amounts of money I have been getting from my accounts. It is actually quite substantial. A good few cups of a coffee/tea a month for better sweep management.
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