Dear Friends and Family,

A money market fund change. Historically, brokerage firms paid interest on the balances in their client’s accounts. The banks objected, and regulators banned those interest payments. Not paying interest turned out to be helpful during the great depression (1929 till 1938). Many brokers survived on the interest they earned by lending interest free client balances to other clients who borrowed on their margin accounts.

This restriction was eventually removed, and Fidelity continues to pay interest on non-retirement client balances.

An innovation by a company called Reserve Fund occurred. They developed a mutual fund of very short- term debt securities that paid more than brokerage firms. The fund also maintained a $1.00 price and had no fees to buy and sell. This started a major industry of corporate, U.S. Government and tax-free money market funds. Some funds set up systems with some brokers so that cash balances were automatically deposited in the fund and cash needs were automatically withdrawn. The rest of the fund/ brokerage relations require buy and sell orders from the clients.

With the failure of brokerage firms and the Reserve Fund, regulators now insist that the money market funds in RETIREMENT accounts consist of U.S. Government securities. This occurred several years ago and was an almost invisible change. The default in your retirement account is FDRXX Fidelity Government Cash Reserves. No buy and sell orders are required.

At that time the default change for Non-Retirement accounts was FCASH which is a loan to Fidelity and is not covered by the Securities Investor Protection Corporation [SIPC] because it is not a security. It was not practical to change the default because alterative funds required buy and sell orders for every transaction and interest rates were very low. Recently Fidelity updated the system so that their alternative money market funds can also be used without buy and sell tickets.

To improve both the safety and the return of the cash portion of non-retirement accounts, we plan by the end of June, to convert all FCASH funds to FDRXX funds. With this change all accounts will have the higher level of security that is required for retirement accounts. No action by you is required and there are no fees and your checkbooks will not change. If you have any questions please give us a call.

Katz Family Financial