Save offers more than 16,000 Schwab-custodied RIAs a cash product that risks only the interest

"And at the end of the day, the maximum loss to clients, whatever happens, is they wouldn't get any interest," said Sean O'Hara, a director at Pacer Financial, which owns a stake in Save's parent company ^[5][6]. The principal stays in bank deposits, and the client can draw on it whenever needed ^[3]. American Banker's report does not say how a year of deposit interest buys enough market exposure to average 7.5%, what advisors charge on the balances, or how much of that fee Schwab keeps ^[4][8].

Schwab earned nearly $3.4 billion in net interest revenue in its latest quarter, much of it on nearly $485.7 billion held in sweep accounts ^[13]. Divide the first figure by the second and you get about 0.7% a quarter, or roughly 2.8% a year ^[1]. Not all of that revenue comes from sweeps, so 2.8% is a ceiling on what Schwab nets per swept dollar ^[1]. On any cash that would otherwise have stayed in sweep, Schwab gives up that spread. More precisely, it trades a spread it keeps whole for a slice of a fee the advisor collects ^[8].

Schwab is not building or running the product. Market Savings is sold through Schwab Marketplace, which places clients in accounts managed by outside firms, and O'Hara said it is not meant to compete with Schwab's own options for client cash ^[7][9].

Tim Welsh, founder of the consulting firm Nexus Strategies, said the benefit for Schwab is that it keeps a relationship with cash that might otherwise go elsewhere ^[16]. The $100,000 minimum confines the product mostly to wealthy clients ^[14]. "This is a sophisticated, complex and niche product," Welsh said. "I don't think it will materially impact their dependence on net interest income." ^[15][18] Suppose each of the 16,000 firms placed one client at the minimum. The total would be $1.6 billion, about 0.3% of Schwab's sweep balances ^[2][3].

The fear behind this week's selloff in Schwab and LPL is software that moves cash without being asked ^[10]. American Banker named one task such an agent could take on: scanning the options for cash and shifting money to whichever pays the most ^[11]. O'Hara is pitching the product to advisors, who manage client cash today without billing for it. "Normally the way it works is they've got to take care of cash, but they don't have any way to sort of get paid on that," he said. "So they're doing a lot of work around cash, but they're not getting any revenue." ^[12]

Welsh's version of events is that the minimum and the complexity keep balances small and sweep income is untouched ^[14][15]. In O'Hara's version, advisors adopt the product widely enough to make Schwab's fee share matter, because it finally lets them bill on cash ^[12]. A third outcome depends on performance. If the linked indexes and gold have a flat or falling year, clients earn nothing on cash that could have been earning a money market yield, and advisors stop recommending the product ^[5][19]. I think Welsh is right as long as the entry point stays at $100,000. A lower minimum, or a decision by Schwab to report Market Savings balances as a separate line, would prove me wrong.