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While regulatory scrutiny around cash sweeps seems to have subsided, news of AI tools to facilitate optimized cash-sorting for end clients may be the next headwind facing broker-dealers in their ability to reap the revenue and margin from idle cash sitting in low-yield sweep accounts.
Imagine a world where clients set a minimum threshold for cash in their brokerage account and allow AI to search for the highest yield for excess cash. That might change how clients think about their cash pools and the trade-off between things like FDIC coverage and money movement capabilities. It would also almost certainly force firms to rethink the way they price their cash sweeps products.
One such use case would be the delta between traditional cash sweeps yields and yields on money market mutual funds. In the rising-rate and flat-rate environments of 2022 to 2024, outflows from sweeps to money funds were substantial. Yet, the economics were so rich for the low-yield sweep accounts that firms held rates 300+ bps below money funds. In the falling-rate environment since, rate convergence has been the result of money fund yields decreasing while betas for sweeps yields were far less substantial, resulting in fewer sweeps balances flowing to money funds.
Sweeps – MMMF Yield Delta vs Indexed Growth
Source(s): Curinos Standard Rate Data, Crane Data, S&P Global SNL, FRED | Note(s): MMMF shown is Crane Index Retail | Sweep rates based on posted rate for $100,000 in cash, excludes products introduced after Dec ‘23
