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Key paragraph (from the original FT article): > The issue has arisen from idle cash sitting in customer accounts at brokerage firms and large banks, which “swe

Key paragraph (from the original FT article): > The issue has arisen from idle cash sitting in customer accounts at brokerage firms and large banks, which “sweep” otherwise uninvested funds into interest-bearing alternatives in order to generate income. The SEC is looking into whether the firms steered those clients into sweep accounts that paid little or no interest, and whether the financial advisers at those groups had a fiduciary duty to advise clients they could make higher returns if they moved their cash into other accounts.

Animats 2y ago
Yes. Before brokerages were part of banks, cash in a brokerage account was usually stored in a money-market fund, with whatever interest money market funds were paying. Once merging with a bank, cash was swept into an in-house bank account. This didn't matter much when money market funds were paying near zero interest. But the zero interest rate era is over. Except for demand deposits in banks, which pay well below money market rates. Often near zero. That's what's going on here. It's a conflict of interest created by the end of Glass-Stegall, which kept brokerages and banks apart.
- reaperducer 2y ago
  My parents instilled in me a mild distrust of banks. It's for this reason that I get my statements mailed to me each month, and each month I reconcile what's on the paper with what's in my spreadsheet. Guess what? Every year I find a mistake in at least one bank statement. And it's always in the bank's favor. Sometimes it's a few cents, but once it was a few hundred dollars across multiple errors. When I've told people this in the past, I've been dismissed with "Oh, I use Venmo instead of a bank, so it's always right," or "Oh, it's too hard to figure so that out." I simply don't understand people who blindly accept what an app or web site tells them about something as important as their own money. I know they don't teach balancing a checking account in high school anymore, but you should be able to add and subtract to get through life. No, the computer is not always right.
  - educasean 2y ago
    I see it less as an issue of blind trust and more of an opportunity cost I guess. While it does raise my blood pressure that banks can slip in these little mistakes that almost always favor them, I don't see myself ever investing as much time and effort as you did to verify the numbers every month. Maybe once these AI agents get reliable enough, it might be a fun side project to automate the verification process.
  - beaglesss 2y ago
    Unless you hold a lot of money, you're at the mercy of someone actually caring to fix it, and if not an annoying and possibly expensive lawsuit It's not I trust the bank, its just the times they've stolen under $500 from me they've more or less said 'fuck you deal with it' and after that I can just work to make the cash back a lot easier than I can sue for it. So I just closed my accounts and did that. Fighting the banks over chump change sounds nice in theory or if you can start a class action but if not it's kind of like suing the cops, basically a wild goose errand for anyone but someone with a lot of time and a pro bono lawyer.
    - mrmetanoia 2y ago
      Yeah, it's a bit of a war of attrition.
    - ryandrake 2y ago
      Most of the mistakes I see are things like restaurants charging more than what was on the bill, and if you paid with a credit card, these are usually very easy to dispute. From actual banks, I haven't seen any problems, and yes I check whether the interest and dividend payouts are correct--they always are. The article here is about banks defaulting customers to low-yield sweep accounts, but it doesn't look like they are actually under-paying interest. The accounts just don't pay a lot of interest. Honestly, the customer should know how much interest their sweep account pays and move that money to higher interest accounts if that's important to them. Whenever I put cash in a brokerage that I'm not going to use for a while, I always take the time to move it from the cash sweep account to an interest-bearing account. Buyer beware!
    - 2y ago

Animats 2y ago

Yes. Before brokerages were part of banks, cash in a brokerage account was usually stored in a money-market fund, with whatever interest money market funds were paying. Once merging with a bank, cash was swept into an in-house bank account. This didn't matter much when money market funds were paying near zero interest. But the zero interest rate era is over. Except for demand deposits in banks, which pay well below money market rates. Often near zero. That's what's going on here. It's a conflict of interest created by the end of Glass-Stegall, which kept brokerages and banks apart.

reaperducer 2y ago
My parents instilled in me a mild distrust of banks. It's for this reason that I get my statements mailed to me each month, and each month I reconcile what's on the paper with what's in my spreadsheet. Guess what? Every year I find a mistake in at least one bank statement. And it's always in the bank's favor. Sometimes it's a few cents, but once it was a few hundred dollars across multiple errors. When I've told people this in the past, I've been dismissed with "Oh, I use Venmo instead of a bank, so it's always right," or "Oh, it's too hard to figure so that out." I simply don't understand people who blindly accept what an app or web site tells them about something as important as their own money. I know they don't teach balancing a checking account in high school anymore, but you should be able to add and subtract to get through life. No, the computer is not always right.
- educasean 2y ago
  I see it less as an issue of blind trust and more of an opportunity cost I guess. While it does raise my blood pressure that banks can slip in these little mistakes that almost always favor them, I don't see myself ever investing as much time and effort as you did to verify the numbers every month. Maybe once these AI agents get reliable enough, it might be a fun side project to automate the verification process.
- beaglesss 2y ago
  Unless you hold a lot of money, you're at the mercy of someone actually caring to fix it, and if not an annoying and possibly expensive lawsuit It's not I trust the bank, its just the times they've stolen under $500 from me they've more or less said 'fuck you deal with it' and after that I can just work to make the cash back a lot easier than I can sue for it. So I just closed my accounts and did that. Fighting the banks over chump change sounds nice in theory or if you can start a class action but if not it's kind of like suing the cops, basically a wild goose errand for anyone but someone with a lot of time and a pro bono lawyer.
  - mrmetanoia 2y ago
    Yeah, it's a bit of a war of attrition.
  - ryandrake 2y ago
    Most of the mistakes I see are things like restaurants charging more than what was on the bill, and if you paid with a credit card, these are usually very easy to dispute. From actual banks, I haven't seen any problems, and yes I check whether the interest and dividend payouts are correct--they always are. The article here is about banks defaulting customers to low-yield sweep accounts, but it doesn't look like they are actually under-paying interest. The accounts just don't pay a lot of interest. Honestly, the customer should know how much interest their sweep account pays and move that money to higher interest accounts if that's important to them. Whenever I put cash in a brokerage that I'm not going to use for a while, I always take the time to move it from the cash sweep account to an interest-bearing account. Buyer beware!
  - 2y ago