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BOOM. Fidelity steps up in cash wars, will start defaulting investors into its 1.91% government money market fund. Immediately highlights yield is 47X TD Ameritrade's cash, 10X Schwab, 27% E-Trade.
My only question - for @Fidelity4BD_RIA advisors too???
kitc.es/2YLbGNz
My only question - for @Fidelity4BD_RIA advisors too???
kitc.es/2YLbGNz
@Fidelity4BD_RIA While not the highest yielding cash option out there (Fidelity is still earning some expense ratio here), the significance of this cannot be overstated. It is a shot at competing discount brokers, on level with Fidelity's zero-fee wars with Vanguard.
Schwab makes more than 50% of its revenue for the entire organization from its net interest margin on cash and similar yield spreads. Fidelity defaulting investors to more reasonable cash options would be incredibly difficult for TD & especially Schwab to match.
Unfortunately, Fidelity's cash yield still isn't as high as other high-yield online bank alternatives, or solutions like @maxmyinterest, so I don't realistically think this is something advisors can aggressively use to attract clients and business.
The real news here isn't that Fidelity is trying-but-not-quite competing with platforms like @Wealthfront & @Betterment & @PersonalCapital ATTRACTING investor assets w/ high-yield cash. Though it may slow the outflows.
The real news is a new era of RIA custodian price wars...
The real news is a new era of RIA custodian price wars...
As ultimately, Fidelity destabilizing the cash cow of client cash may eventually force the entire RIA custodial business model to shift towards a bps custody fee instead. (Have to make revenue somehow but a bps custody fee is FAR more fiduciary-aligned.) kitces.com/blog/ria-custo…
Unfortunate addition to this thread - per @BenjiWriter at - apparently Fidelity is ONLY doing this for retail accounts, NOT defaulting into better cash option for advisors. :(
Seems RIA custodians aren't ready for disruption to their RIA cash cow yet. :/
Seems RIA custodians aren't ready for disruption to their RIA cash cow yet. :/
@BenjiWriter Hearing a lot of advisors point out that we can already CHOOSE to invest into higher-yielding cash or cash-alternative options on RIA custodians.
True, but not as a default. It REQUIRES extra work.
True, but not as a default. It REQUIRES extra work.
Why would RIA custodians require advisors to proactively trade into higher-yielding cash options instead of defaulting their clients into it?
B/c they know not all advisors will do so. Fact that the model persists means they've already validated that not all advisors do so.
B/c they know not all advisors will do so. Fact that the model persists means they've already validated that not all advisors do so.
Which effectively means RIA custodians are trying to default advisors' clients into something less beneficial to them, while creating hurdles they knowingly hope and expect not all RIAs to clear. Is this really what we should expect as fiduciaries from our service providers?
From a practical perspective, the practice of RIA custodians forcing manual switches to better cash for clients means advisory firms with more staff & scale, better systems & tech, can more easily take advantage, while smaller firms less likely to be able to do so?
Hard to see how "we've created a system that deliberately forces advisors to do extra work or their clients suffer" can be considered a healthy alignment between fiduciary advisor and their RIA custody platform.
Instead, it's a pitched battle, our clients vs their margins. :/
Instead, it's a pitched battle, our clients vs their margins. :/
