Years ago,
It was 2009, just after the global financial crisis, and the bank where he held his cash was on the brink of failure. Zimmerman realized that the bank's FDIC insurance limit was $250,000 per depositor, per account type per bank meaning he could potentially lose a significant portion of his money.
He then went to his banker, who offered him a cash sweep product that the banker claimed was fully insured.
"That sounded really appealing, but I'm one of those people who always reads the fine print," Zimmerman said. "And I said, 'Send me the documents.' And when I read the fine print on how these cash sweep programs work, I came away quite concerned."
Zimmerman worried that his money would be funneled through the very same bank he was afraid would fail, rendering him unable to access his money. He also worried about what he saw as a conflict of interest.
"The irony here is that those cash sweep programs are marketed to clients as free, but they're not at all free," he said. "The cost of those programs is whatever spread the broker-dealer chooses to keep for themselves, and that's what's really happening here, in the context of Stifel and
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Zimmerman's apprehension about cash sweeps and the returns that clients unknowingly bypass sparked the creation of his company, MaxMyInterest, a fintech firm that he started in 2013.
Instead of having a middleman between banks and clients, MaxMyInterest ensures that clients get the entirety of their interest from the bank. It does so by taking an active management approach to cash. The platform helps clients move their money around to whichever account on the platform gives clients the highest interest yield, while keeping balances below the FDIC insurance limit at each bank.
MaxMyInterest charges a quarterly fee of 0.04% on cash in high yield accounts with a minimum of $20 in fees charged every three months, with the minimum waived for clients of financial advisors. The platform does not charge fees on cash within checking accounts nor does it charge additional service fees.
With the current number of banks supported by the platform, MaxMyInterest offers up to $2 million for individuals and $8 million for couples in FDIC insurance. As the platform grows, the firm aims to boost those limits. The company also offers a MaxForBusiness platform for those with complex trusts or commercial accounts.
"We're able to do this because all we've done is created a fair marketplace where banks are able to compete for client deposits. It's really kind of magical," said Michael Halloran, head of partnerships and business development at MaxMyInterest.
Zimmerman says that the product is popular amongst RIAs who have less restrictions in the products they can offer as opposed to wirehouse advisors.
"The RIAs are fiduciaries, and they know that they want to do what's best for a client, and they need to do by law what's best for the client," he said. "And so we think it's a pretty nifty solution."
Halloran said that fee compression has been an incentive for wirehouses to continue offering cash sweep products that are highly profitable for them, despite their potential harm to clients.
"The way that they're actually earning their money is by keeping a large portion of the interest income that we think really belongs to the client," he said. "There's nothing necessarily wrong with that, as long as it's disclosed and clients really understand that that's how they're paying their fees. But I think the reality is that most clients don't understand."
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With more incentive to advertise cash sweep products but little incentive to warn clients of risks, he said, the products have
"I think people wrongly assume that they don't need to pay attention to their cash," said Halloran. "Either they have taken for granted, they just assume that everyone is looking out for their best interest, or for a long time, because rates were near zero for 10 years, they just assumed that cash was a zero-return asset class, and so it didn't matter, but cash always mattered."
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Halloran said that the current environment of more average interest rates has woken up people to the fact that cash sweeps have caused them to miss out on money.
"The banks are playing games on them. And really, people just want a fair return," he said.
Zimmerman hopes that the series of lawsuits related to cash sweep policies are a wake-up call for clients.
"They might win, they might prevail in these lawsuits, but the larger war is the war for customers," Zimmerman said.
