Skip navigation
William Galvin
William Galvin

Galvin Pushes Brokers on Interest Rates and Sweep Accounts

The Massachusetts secretary of the commonwealth is asking TD Ameritrade, Merrill Lynch, LPL Financial, Ameriprise, Securities America and SoFi if they will raise rates in response to the Federal Reserve’s hike.

Massachusetts Commonwealth Secretary William Galvin is asking six prominent brokers to offer information on whether they and their in-house or affiliated banks are failing to raise interest rates for customers with funds included in sweep accounts in response to the Federal Reserve’s recent rate hike.

Galvin noted that Massachusetts investors 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 to follow later this year.

Consumers are also struggling from the strain of inflation, he said. Galvin questioned whether banks are shortchanging clients by maintaining low interest rates for cash deposits in a rising rate environment. 

“(Consumers are) being hit with the double-whammy of higher credit card and loan rates on one end and low rates of interest on their bank accounts and other investments,” Galvin said. “It’s simply unfair that consumers are being asked to pay more on credit cards and loans, while the banks are pocketing the interest rate hikes that should be earned on custodial money instead of raising interest rates for people who are trying to keep their savings.”

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

The investigation began with these six b/ds because they have prominent sweep account offerings. However, the investigation is ongoing and could be expanded to include more b/ds, according to a spokesperson with Galvin’s office.

In the letters sent to the six brokers, Galvin’s office asked whether, in response to the Federal Reserve’s hike, the b/ds plan to increase interest rates for customers in sweep account programs (defined as “any cash sweep, money market mutual fund, bank deposit program, or other financial program used to hold a customer’s uninvested cash”) and also asked whether they have agreements with third parties responsible for such accounts to boost interest rates.

The Securities Division is also asking the brokers to identify all the sweep account programs available for Massachusetts brokerage customers, 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 for sweep account customers concerning fees and commissions, interests rates, yields and dividends related to those sweep accounts, and any risks or conflicts associated with them. The Securities Division asked the b/ds to respond to their requests by the end of March 30. 

Earlier this year, Galvin’s office accused Fidelity Brokerage Services of failing to properly vet Massachusetts retail brokerage customers who were approved to conduct options and margin trading even after overstating their experience and employment information. The Securities Division also opened an inquiry into several b/ds, arguing that their use of target-date mutual funds left some retail investors placed in certain funds with surprising tax liabilities.

TAGS: Industry
Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.