PROVIDENCE – In a bid to gain new business, Fidelity Investments said it is “challenging conventional industry practices” by automatically directing customers’ cash into higher-yielding options for brokerage and retirement accounts without any minimum requirements.
The Boston-based investments giant, with Rhode Island offices in Smithfield and Providence, said its new approach is contrary to typical industry practices of defaulting customers’ cash into a low-yielding product – often at an affiliated bank – with no other option in what the industry calls a “cash sweep.”
Recent research shows that many investors don’t focus on the rate paid on their cash when they open an account and, too often, they don’t act on it later, the company said.
Fidelity said it makes it easier for customers by automatically giving them the higher-yielding option at account opening, while also providing other investment options if they prefer it.
“Some firms have removed the option of a higher-yielding money market fund as an option for their cash sweep, thereby forcing investors to take additional steps to get a better rate for their cash,” Kathleen Murphy, president of Fidelity’s personal investing business, said in an announcement.
“By offering choice at account opening and directing cash into the higher-yielding options when investors don’t make a choice, we are once again ensuring clients receive more value with Fidelity,” Murphy added. “It is unfortunate that millions of investors lose out on having money in these accounts earn more for them, based on current industry practices.”
Fidelity did not address whether the higher-yielding options are also riskier.
Scott Blake is a PBN staff writer. Email him at Blake@PBN.com.
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