In the wake of the Federal Reserve raising its benchmark interest rate, Massachusetts Secretary of the Commonwealth William Galvin has launched an inquiry into whether brokerages will pass the benefits along to clients.
At issue is sweep accounts, which brokerages use to hold uninvested assets in cash. With the Fed raising interest rates 0.25%, Galvin’s securities division has sent letters to six broker-dealers asking if they intend to also raise the interest customers receive on the cash held in sweep accounts.
Retail investors are already struggling to cope with inflation, and higher interest rates will mean higher mortgage and credit rates, Galvin said. However, banks are keeping interest rates on cash deposits low.
“Consumers are being squeezed right now,” Galvin said in a statement. “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 letters were sent to TD Ameritrade (now owned by Charles Schwab), Merrill Lynch (owned by Bank of America), LPL Financial, Ameriprise, Securities America (which is part of Advisor Group) and SoFi. Galvin’s office did not respond to a request for additional comment.
“We’ve received Secretary Galvin’s letter and are reviewing it now,” said Jen Roche, a spokesperson with Advisor Group. “Securities America has a long history of supporting our advisors’ ability to help individuals, families and business owners fulfill their investment goals, and that will never change.”
A spokesperson for TD Ameritrade said the firm is “in the process of understanding the request from Massachusetts,” but does not comment on communications with regulators.
Merrill Lynch, LPL, Ameriprise and SoFi did not respond to a request for comment.
Cash sweep accounts are increasingly a target for regulators.
