BNY Pershing’s new cash sweep charge to hit RIAs first

BNY Pershing’s plans to create a new charge on client cash held in accounts of RIAs that custody with Pershing and broker-dealers that use it for clearing are taking shape, with senior industry executives saying the clearing and custody giant is planning to roll out the new charge first to registered investment advisors.

InvestmentNews reported in February that BNY Pershing was evaluating plans to create a new charge, akin to a tax, on cash held by its broker-dealer clients.

BNY Pershing was discussing with broker-dealers that use its platform plans to get first dibs on cash – up to $10,000 – held in their customers’ accounts. 

In all likelihood, BNY Pershing will introduce the new cash sweep plan initially with registered investment advisors that use its platform and then roll out the charge to broker-dealers at some point in the future, said those industry executives, who spoke confidentially to InvestmentNews about the matter.

The plan has no set date as to when it will be introduced, those sources said. 

“The whole cash management process is a fuzzy area for firms,” said one industry executive. “Clients don’t know how it works. It’s an issue that needs to have more visibility to it.”

BNY Pershing’s intention is to sweep the first $10,000 held in a broker-dealer or RIA’s customer’s account into a money market fund or similar cash product that it controls.

The interest rate for the customer’s cash – as currently discussed by Pershing - will be 2.25 percent annually. BNY Pershing, however, would not rebate, meaning share, any additional interest it receives from borrowers when it lends the cash, potentially eating into a broker-dealer’s profitability.

Clearing firms give broker-dealer rebates for cash sweep accounts in the range of 50 basis points to 100 basis points, which is credited back to the broker-dealer.

Toward the end of last year, Fidelity told registered investment advisors it would begin to default all non-retirement cash to an in-house option in 2025.

Brokerage firms in particular have been criticized for having low rates in their sweep options while benefiting from margin loans they make and the spreads they retain from that cash. There have been numerous lawsuits filed over the issue, and companies have responded to the pressure by increasing the rates they pay clients for those cash positions.

A subsidiary of The Bank of New York Mellon Corp., BNY Pershing provides trading and clearing services to and works with some of the largest independent broker-dealers in the industry, including Osaic and Cetera Financial Group.

The profitability of independent broker-dealers typically relies on revenue generated from cash sweep accounts. When interest rates rise, so do independent broker-dealer profits.

A spokesperson for BNY Pershing this week did not comment when asked about the firm’s current cash sweep plans. In February, BNY Pershing said it was “evaluating” changes to its cash sweep offerings for certain clients.