Fidelity Shifts Cash Holdings Policy: What It Means for Clients
In a significant move, Fidelity Investments is overhauling its policy on cash holdings, redirecting more of clients’ uninvested funds into a low-interest sweep account. This change, set to take effect next year, will impact nonretirement brokerage accounts, including those managed by independent financial advisors.
A Shift from Exemption to Inclusion
Previously, grandfathered accounts overseen by independent advisors were exempt from Fidelity’s cash-sweep policy, announced a year ago. However, this exemption will soon be phased out, and these accounts will now be subject to the new policy.
The FCash Product: A Low-Interest Option
Under the revised policy, cash held in nonretirement brokerage accounts will be swept into Fidelity’s FCash product, which offers an interest rate significantly lower than some money-market accounts. While this may not be the most lucrative option for clients, Fidelity notes that advisors have alternative solutions for long-term cash, such as moving it into money-market funds.
Advisor Options for Clients’ Cash
Advisors can still explore other avenues for their clients’ uninvested funds, including transferring them into higher-yielding money-market funds. This allows clients to potentially earn more interest on their cash holdings, rather than settling for the lower rate offered by FCash.
Understanding the Implications
Fidelity’s policy shift may have significant implications for clients with large cash balances in their nonretirement brokerage accounts. As the change takes effect, clients may need to reassess their cash management strategies and explore alternative options to maximize their returns.
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