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UBS cash sweep changes lead to $5.6B in money market fund outflows

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After UBS altered sweep account policies Monday, two money market funds that had been available in the company’s cash program reported net outflows of $5.6 billion.

In changes approved in September by the wirehouse’s Board of Trustees of UBS Series Funds, some clients are no longer eligible to purchase shares of these funds, according to supplements to the funds’ prospectuses. In addition, many clients are no longer able to withdraw balances from their bank deposit sweep accounts to purchase shares.

The sweep account changes at UBS mirror those made at other brokerages, including LPL Financial and Charles Schwab, which have taken steps in recent years to remove money market funds as a sweep account option. Merrill Edge, meanwhile, is facing a lawsuit from a disgruntled client who claims she has missed out on over $20,000 in returns after she was recommended to keep her cash in low-yield account.

“Like a lot of brokerages have been doing, [UBS] is just squeezing the last pockets of money fund assets out,” says Pete Crane, who tracks money market fund and brokerage sweep rates and information at Crane Data.

It is unclear whether this client money was invested in other funds or swept into the wirehouse’s bank account program. Robert Sabatino, managing director of both funds, and a UBS spokesman did not respond to requests for comment on the outflows and changes.

On Monday, UBS RMA Government Money Market Fund experienced net outflows of nearly $4.3 billion, according to data the company publishes on its website. There are $9.9 billion in total portfolio assets in the fund, according to the fund’s investment objective. The UBS Liquid Assets Government Fund had net outflows of over $1.3 billion in assets. That represents over half the assets reported for April 30, according to the fund’s annual report.

The UBS RMA Government Money Market Fund, which has a 1.11% 7-day current yield, is now intended only for clients with corporate cash management accounts, financial institution and certain independently-advised accounts, according to the fund’s prospectus. Other accounts in the UBS bank sweep program may sweep free credit balances to shares of the fund “on an intra-month basis,” although the prospectus does not specify which accounts these are.

For the UBS Liquid Assets Government fund, which has a 1.54% 7-day current yield, phrasing was removed that told clients they could withdraw balances from certain deposit account sweep arrangements to purchase fund shares, according to the fund’s prospectus. Certain UBS accounts are no longer eligible to purchase shares of the fund, including IRAs, simplified employee pension plans, church plans, government plans, welfare plans and self-employed plan accounts. Wording was also removed that made the fund available as a primary option for sweep accounts.

These money market fund policy changes come after rates have fallen for both bank interest rates and money market returns, which Crane attributes to the third Fed rate cut at the end of October.

Firms including Charles Schwab, TD Ameritrade, and Raymond James — which have tiered interest rates based on account value — have cut rates since the Fed’s decision.

Brokerages may continue to pull money market funds out of sweep programs.

“We thought all the sweep money was already out of money funds and into bank deposits, but clearly there are some [billion-dollar] pockets remaining,” Crane says.

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