Custodian's checking overhaul leaves clients with unequal cash protections

RIABiz's reporting details how a Westlake, Texas RIA custodian and brokerage reworked the economics of its investor checking product. The firm is keeping the savings from that reworking rather than passing them to the accounts that produced them. The article calls the move the latest effort to improve profitability of a key revenue line.

Cash handling has long been a quiet profit center for custodians. Sweep programs earn interest on client balances and pay out a spread that narrows as rates move. Re-engineering checking lets this firm keep more of that economics without adding a fee line to the statement; the change shows up in the fine print rather than in a billing notice.

The check-writing side is where the distinction bites. A balance parked in an FDIC-insured bank deposit program carries the FDIC's deposit guarantee. Move that money into a money market fund or another securities position and SIPC coverage applies: it protects against broker failure but not against a drop in the investment's value. RIABiz frames the difference sharply, and investors who assume cash is cash may be wrong.

Custody agreements and account-opening documents disclose sweep mechanics in dense language. The meaning becomes clear in a stress scenario. A client's emergency fund or an upcoming distribution is not exposed the same way across every cash sleeve. Advisors should map which accounts hold which kind of cash and know the guarantee behind each balance.

The custodian's internal economics are its own business. The protection gap is the part that belongs in the advisor-client conversation.