Cash Management

Cash Sweep Program Overview

Clients have options on how they invest cash balances including products like money market mutual funds and certificates of deposit. By default at account opening, BFE accounts are enrolled in BFE’s Cash Sweep Program, which is a program that sweeps cash awaiting investment held within BFE accounts into interest-bearing accounts eligible for FDIC insurance coverage (or into a SIPC-insured money market fund for cash balances that exceed FDIC coverage limits). In the Cash Sweep Program, BFE, Pershing and the Cash Sweep Program Sponsor (“Sponsor”) earn fees based on the amount of money invested in the Cash Sweep Program. Clients are enrolled in the Cash Sweep Program by default at the time of account opening but may withdraw at any time by contacting their financial advisor.

BFE, Pershing, and the Sponsor will earn higher fees when a client’s money is invested in the Cash Sweep Program than in other cash alternative products. This means BFE has a conflict of interest because it has an incentive to recommend clients participate in this Program rather than invest in money market mutual funds or other cash alternative products with the potential for higher returns.

The Sponsor establishes the parameters in which BFE participates in its Cash Sweep Program. BFE earns its compensation by retaining any residual interest after the initial yield that was paid by the participating banks for the client deposits has been reduced by the rate paid to the client and the fees payable to Pershing and the Sponsor.

The fees paid to Pershing and the Sponsor are established at the outset. BFE is given the latitude to determine the final interest rate that will be earned by the client. Because BFE’s compensation is earned from the residual, it effectively determines its own compensation, within the limits of the initial market yields that are paid. BFE has a conflict of interest in establishing that rate because the Firm’s compensation will be greater if the client’s final yield is lower. BFE does not have this type of conflict in connection with other cash alternative products, like money market funds. As a result, clients will earn higher yields if they choose to invest in cash alternative products, like money market funds, over the Cash Sweep Program. The Cash Sweep Program should not be viewed as a long-term strategy for holding cash. Clients who wish to hold cash for longer periods should contact their financial advisor to discuss alternative products with higher yields.

Interest rates earned by clients in connection with the Cash Sweep Program at any given time will vary and are derived from then current market yields paid by the participating banks. The interest rate earned by a given client is also a function of the linked value of all of the assets invested by a client in different accounts at Benjamin F. Edwards. In general, a client with greater linked balances will receive an interest rate at a higher tier than a client with lower linked balances. The aggregate value of a client’s linked balance will determine the interest rate tier in which a client is placed. In connection with the Cash Sweep Program, BFE will determine the amount of invested assets required for each interest rate tier, as well as the interest rate to be paid to clients in each tier. Because BFE’s compensation is earned from the residual, the tiered compensation structure results in BFE receiving less compensation when more of a given client’s assets are invested with Benjamin F. Edwards.

Because BFE establishes the client’s final earned interest rate in the Cash Sweep Program and the threshold values of the Program’s linked account tiers, it directly influences the amount the client will earn and the revenue BFE retains. In addition, advisory clients should be aware that balances in BFE’s Cash Sweep Program are used to calculate annual advisory fees (for more information, please see BFE’s Wrap Fee Program Brochure). Clients should be aware that advisory fees will likely exceed returns earned in the Cash Sweep Program which will cause negative overall returns. It is important for clients to understand these conflicts so informed decisions can be made when evaluating the benefits of participating in the Cash Sweep Program versus investments in other cash alternative products. For more information, please see BFE’s Revenue Sharing Disclosure.