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Insured Cash Account FAQs
Q: What is the Insured Cash Account Program?
The program is a core account investment vehicle, specific to advisory IRAs, used to settle transactions and hold cash balances awaiting reinvestment. The cash balance in an eligible brokerage account is automatically deposited or “swept” into the FDIC-insured program.
Q: What is the FDIC coverage for the program?
Cash in the program is FDIC insured for $1.5 million. This is identical to the FDIC insurance available to advisory IRAs in the current Bank Deposit Sweep Program.
Q: Does the Insured Cash Account Program replace the Bank Deposit Sweep Program?
The Insured Cash Account Program replaces the Bank Deposit Sweep Program for only advisory IRAs.
Q: Why is the Insured Cash Account Program being initiated?
Similar to industry peer firms, the copmany has initiated the Insured Cash Account Program to address specific requirements of the Internal Revenue Code and fiduciary obligations associated with the Department of Labor.
Q: How is the Insured Cash Account Program different from the Bank Deposit Sweep Program?
Under the current Bank Deposit Sweep Program, aggregate interest generated by program banks is used to pay clients the declared interest rate and cover fees of third-party vendors. Any interest left over after these payments are made is typically retained by the company for its administration of the program.
In the Insured Cash Account Program, a level account fee will be applied to every advisory IRA for administrative services performed in operating the program. The level account fee is predetermined by formula, and the company can never earn income in excess of the stated level account fee. The aggregate interest generated by program banks will be used to pay the level account fee for each individual client and any third-party vendor fees. All interest left over after these payments will then be credited to the client.
In summary, in the Insured Cash Account Program, any variability in interest after level account fee and vendor payments are made must be credited to the client. In the Bank Deposit Sweep Program, any variability in interest after client and vendor payments are made may be retained by the company.
Q: If the program results in a level fee for each account, will my client see the fee?
Because the program is designed so that aggregate interest earned from banks participating in the program is used to offset each client’s level account fee, we anticipate the client will never see or directly pay the level account fee.
Q: What if my client’s cash balance does not produce sufficient interest to cover the level account fee?
The program is designed so that the aggregate interest earned from all program banks on all cash balances in the program may be used to offset the level account fee for all accounts in the program. Because it is the aggregate interest that offsets the account fee, and not the interest earned by an individual account, and because the program is designed to always produce sufficient aggregate interest to offset the level account fee, we do not anticipate clients will ever be directly assessed the level account fee, regardless of their individual cash balance.
Q: How is the level account fee determined?
The broker-dealer’s level account fee is determined the prior month using a formula. This formula is outlined in the Insured Cash Account Program disclosure document.
Monthly fee = $1.00 + ($0.065 X (FFT Rate in bps)
The formula will always express the FFT rate in basis point (bps). For example, an FFT rate of 1.25% equates to 125 bps in the formula. When the Federal Reserve expresses the FFT rate in ranges, as it historically has done, the formula will use the midpoint of the range and round up to the nearest basis point. For example, an FFT rate range of 100 bps to 125 bps would identify a midpoint of 112.5 bps and round up to 113 bps for purpose of the formula.
The formula results in the below monthly level account fee for interest rates ranging from 100 bps to 225 bps.
|FFT Range||100 to 125||125 to 150||150 to 175||175 to 200||200 to 225|
Q: How is the client interest rate determined?
The program client interest rate will be set monthly. The current rate will be published on the Investors section of Securities America’s public website.
The set rate will be a combination of the projected rate to be paid by the program banks during the upcoming period and any necessary adjustments due to actual interest received in the prior period. In cases where actual interest received during the prior period exceeds the previously declared rate, the following month’s rate will be adjusted to pay the overage to the client.
Q: Will the pay rate be identical in the Insured Cash Account Program and the Bank Deposit Sweep Program?
No. The Insured Cash Account Program rate will change more frequently and produce a rate that is different from the Bank Deposit Sweep Program. We anticipate the rates between the Insured Cash Account Program and the Bank Deposit Sweep Program will be competitive with each other and with sweep programs offered by other broker-dealers.
Q: How will Securities America communicate this change to my clients?
Securities America will mail a notification of this change and the new Insured Cash Account Program Disclosure Document to only clients with advisory IRAs on or around Oct. 30, 2017, for National Financial Services and Nov. 10, 2017, for Pershing. The Insured Cash Account Program and new disclosure will apply to all advisory IRAs currently in the Bank Deposit Sweep Program, and, similar to the current disclosure, will direct clients to view the most up-to-date list of participating banks and interest rates on the Investors section of www.securitiesamerica.com.
Q: How should I handle accounts I open before the conversion to Insured Cash Account Program?
Beginning Jan. 4, 2018, for National Financial Service, and Jan. 15, 2018, for Pershing, new advisory IRAs will be opened with the Insured Cash Account Program as the default sweep vehicle. Existing clients must receive the notification before conversion. Accounts opened between the fall 2017 mailings and the new account implementation in January 2018 will receive a later mailing after which those accounts will also be converted to the new program.
Q: What changes will we see in the New Business Solution system related to the Insured Cash Account Program conversion?
When you open a new National Financial Services account, you will see a new CUSIP and ticker symbol: FDIC11149 and QLSAQ, respectively. The new product identifier for new Pershing accounts has not yet been determined. At both clearing firms, eligible account registrations will now show Insured Cash Account Program as the default sweep vehicle.
Q: Will the program conversion show as activity in the account?
Yes, on the conversion date, the account will show a simultaneous “sell” of the old CUSIP and a “buy” of the new CUSIP. This will not generate any ticket charges or confirmations.
Q: How will client statements be affected?
There will be minimal change. The location of deposits and deposit amounts will show on the statement, similar to how they appear with the current program. The previous program was domiciled under the ticker symbol QTSAQ for National Financial Services, and the description Bank Deposit Sweep Program for Pershing.
Q: What if a client does not want to participate in the Insured Cash Account Program?
For eligible accounts, the program is the required core investment vehicle. If the client declines participation in the Insured Cash Account Program for an eligible account, the account opening cannot be processed or accepted.
Q: If a client has opted out of a specific bank, will this opt out election carry over after the conversion is completed?
Yes. Opt-outs requested at the client and book level are maintained based on the account number. Existing opt-outs will carry over to the Insured Cash Account Program.
Q: Will the interest rate vary based on the account balance?
No. All clients will receive the same rate, which will be published for each month in advance. The rate will not be tiered based on the individual client account balance.