Edwards reps pan Wachovia cash sweep plan

Brokers annoyed that customers will earn less than money market returns

May 19, 2008 @ 12:01 am

By Dan Jamieson

Wachovia Securities has had to soothe ruffled feathers among its A.G. Edwards brokers over its imposition of tiered interest rates on Edwards' bank deposit sweep program. The new policies, which also eliminate money fund sweeps for many clients, are due to take effect today. Edwards reps, already dealing with management shuffles and other changes at the merged firm, were especially anxious to hear details of the sweep program. Edwards had previously paid rates competitive with money funds. The upcoming changes were announced to the acquired Edwards clients in a letter last month. But the letter, which included four pages of questions and answers and a 16-page booklet with more details, caused considerable consternation among both brokers and customers. Many brokers derided the letter as being written by lawyers. Wachovia Securities LLC of St. Louis, which acquired A.G. Edwards & Sons Inc. last year, is one of several major firms that are being sued in a proposed class action involving deposit sweep programs. Regulators have also warned firms about making adequate disclosures about bank deposit sweep programs. The letter warned that interest rates for the program "may be significantly lower [than those of] money market mutual funds" and that the banks holding the deposits "do not have a duty to provide the highest rates prudently available in the market." A table showed that smaller-fry customers could earn as much as one-half percentage point less than they earn on money market funds. The sweep program will be "significantly more profitable to Edwards, its financial consultants and its affiliated program banks," the letter added. Customers were told that Edwards will receive up to 0.5% a month in fees from the program's banks, and Edwards brokers will receive up to 0.1% a month. Although it isn't clear from the disclosures, those are annualized fees, paid monthly. The letter also explained that regular accounts wouldn't have a money market sweep option. Clients who want a money fund should consider paying $125 a year for the firm's UltraAsset Account, a central asset account that offers a sweep into several tax-free money funds, the letter explained. "The letter said we can screw you," said an A.G. Edwards rep in New England, who asked not to be identified. "The firm seems to forget that clients can, in fact, read." Clients, not surprisingly, sought more information about the letter. "It's generated more phone calls from clients than anything in recent memory," said an Edwards' rep in the Midwest, who asked not to be identified.

Wachovia responded to the turmoil with a conference call for brokers during which Wachovia's retail head, Danny Ludeman, "apologized profusely," according to another A.G. Edwards rep, who is based in the Southwest and asked not to be identified.

Mr. Ludeman said during the call that he hadn't seen the disclosure letter and promised not to let a similar incident happen again, according to brokers who listened in.

"Danny [Ludeman] acknowledged to [brokers] that while the letter was comprehensive and provided full disclosure, it may have been less 'friendly' than many would have preferred," Wachovia spokeswoman Teresa Dougherty said in an e-mail.

But the Midwest rep said his colleagues shouldn't have been surprised about the lower-tiered rate.

"A lot of us knew going in that Wachovia's bank deposit program wasn't all that generous," he said.

Not all reps were upset. Several said they got just a few calls from clients, and for customers who are truly upset, they plan to use some outside money funds.

In an attempt to appease clients, Wachovia created another letter brokers could sign and send to their clients.

But that letter may do even more damage, some reps said, because it is essentially a sales pitch for the bank deposit sweep program.

The form letter, also obtained by InvestmentNews, stated, "Sometimes the complicated letters that get mailed to announce changes like [the sweep program] can be confusing; however, I believe that the A.G. Edwards Bank Deposit Program is an appropriate option for your account ... We anticipate the cash sweep option for your account will have a comparable rate to your existing money market fund."

But under the tiered-rate program, Wachovia will pay less-than-money-market rates to clients who don't have at least $1 million at the firm.


Edwards reps cater to middle-income customers, so many of their clients could end up with less interest on their cash.

Because of the flak over the disclosure letter, the firm will offer several outside money funds, brokers say. But those funds require reps to write orders manually for uninvested cash.

And going through hundreds of accounts to opt out and use outside money funds is a "massive undertaking" for which brokers won't be paid, the Midwest rep said.

In addition, brokers worry that next year, when Edwards reps go on the Wachovia pay plan, those types of orders will incur a ticket charge. Ms. Dougherty said the outside money market fund offerings are not the result of the changes to the deposit sweep program.

Further, "no decision on ticket charges [has] been made," she said in her message.

Meanwhile, adding fuel to the fire of discontent among Edwards reps was recent bad news from parent Wachovia Corp. of Charlotte, N.C., including a $708 million loss and a cut in the dividend, an agreement to pay up to $144 million to settle claims of abusive telemarketing practices, as well as a reported probe into possible money laundering.

That bad news, combined with the new sweep policies, has rekindled concerns about Wachovia among Edwards producers, said the New England-based Edwards rep.

"A lot of [brokers] are looking again" at competing firms, the broker said.

The firm's retention "is strong and in line with expectations," Ms. Dougherty wrote in her e-mail.

E-mail Dan Jamieson at djamieson@investmentnews.com.


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