Baird’s Cash Sweep Program provides you the opportunity to earn income on available cash balances held in your Baird accounts. Following are important disclosures and other important information.
Bank Sweep Feature
Under the Bank Sweep Feature, all clients, other than ERISA plans (see “Exception for ERISA Accounts” below), will have their uninvested cash balances in their Baird Accounts automatically deposited or “swept” into Federal Deposit Insurance Corporation (“FDIC”) insured, interest‐bearing deposit accounts (each, a “Deposit Account”) held at one or more banks (each a “Bank”) participating in the Cash Sweep Program. Each Deposit Account constitutes a direct obligation of the Bank and is not directly or indirectly an obligation of Baird.
The FDIC generally insures up to a maximum of $250,000 (including principal and accrued interest) per depositor, for all deposits held in the same insurable capacity at any one bank. This limit applies to most account types, such as individual accounts and IRAs. For joint accounts, the insurance limit is $250,000 for each owner of the account, so that a joint account with two owners is insured up to $500,000. By having a number of FDIC-insured Banks participating in the Bank Sweep Feature, your cash balances can be spread among several Banks, providing the potential for FDIC coverage greater than that which you would have if your cash deposits were held only in a single Bank. The Bank Sweep Feature currently seeks to make available up to $1,250,000 for most account types (or $2,500,000 for joint accounts with two or more owners) of aggregate FDIC insurance protection (the “Aggregate Deposit Limit”) for the cash balances of eligible clients participating in the Cash Sweep Program. The number of Banks participating in the Bank Sweep Feature may change from time to time. An increase in the number of participating Banks in the future could increase the potential FDIC coverage available to you; however, there can be no assurance that additional Banks will be added.
The participating Banks are organized into a number of priority lists (“Priority Lists”), divided by state or geographic region, in order to manage the distribution of deposit balances among the Banks. Click here to see the Priority Lists. The Priority List that applies to you is based on the state shown on the address for your Account that you provide to Baird. Available cash in each of your participating Baird Accounts will be deposited into a Deposit Account at each of the participating Banks, in the order set forth on the Priority List applicable to your Accounts up to the deposit limit of $247,500 for most account types ($495,000 for joint accounts with two or more owners) (the “Individual Bank Deposit Limit”) in order to permit your funds to be eligible for the greatest possible FDIC insurance coverage. Once cash amounts equal to the Individual Bank Deposit Limit have been deposited in a Bank on the Priority List, additional cash up to the Individual Bank Deposit Limit will be deposited into the next Bank on the Priority List, and so on, until your aggregate cash balance in the Deposit Accounts have been deposited into multiple Banks thus reaching the Aggregate Deposit Limit.
Any cash balances in your Account(s) in excess of the Aggregate Deposit Limit will also be automatically deposited temporarily for one business day into one or more “excess” Banks (“Excess Banks”) without regard to the applicable FDIC insurance limit, until those excess balances are automatically invested or swept into a money market mutual fund that Baird makes available, as described below. See “Money Market Mutual Fund Feature” below. It is therefore possible that for one business day your cash balance in a Deposit Account at an Excess Bank may exceed the applicable FDIC insurance limit, and an Excess Bank may be one of the Banks on the Priority List applicable to you that has already received up to the Individual Bank Deposit Limit. If you have multiple Accounts of the same type registered under the same tax identification number, Baird seeks to combine those Accounts for purposes of determining the Individual Bank Deposit Limit and Aggregate Deposit Limit. Baird has the right to change or increase the number of Banks into which clients’ cash may be deposited (including changing the order of the Banks and replacing Banks on the Priority Lists), to change the Individual Bank Deposit Limit and to change the Aggregate Deposit Limit upon notice to you.
Managing Aggregate Balances and Designating Banks IneligibleAny deposits (including certificates of deposit) that you maintain in the same insurable capacity directly with a Bank or indirectly through Baird or another intermediary, regardless of the number of accounts, are aggregated by the FDIC for purposes of the applicable insurance limits. It is, therefore, important for you to monitor the total amount of deposits that you have with each Bank on the Priority List, including an Excess Bank, in order to determine the extent of FDIC insurance coverage available to you. Baird does not take responsibility for knowing your bank deposit account balances outside of your Baird Account or where they are deposited. You may not change the order of the Banks on the Priority List. However, you may, at any time, designate a Bank as ineligible to receive deposits of your cash by contacting your Baird Financial Advisor. This will result in your cash being deposited into the next Bank on the Priority List. It is possible that if you designate multiple Banks as ineligible to receive your cash, there may not be a sufficient number of Banks remaining on your Priority List in order to provide FDIC insurance of up to the Aggregate Deposit Limit. Please note that, although you may designate one or more Excess Banks as ineligible to receive deposits of your cash to the extent it exceeds the Aggregate Deposit Limit, you may not designate all of the Excess Banks as ineligible.
Money Market Mutual Fund Feature
Cash in Excess of Aggregate Deposit Limit
As described in “Bank Sweep Feature” above, most clients participating in the Cash Sweep Program will have the cash balances in their Accounts automatically swept into Deposit Accounts at one or more Banks until their cash balances reach the Aggregate Deposit Limit ($1,250,000 for individual, entity, IRA and most other accounts, and $2,500,000 for joint accounts). Any cash balances in excess of the Aggregate Deposit Limit will be automatically invested in a money market mutual fund that Baird makes available to those accounts under the Money Market Fund Feature. That money market mutual fund is currently the Dreyfus General Government Securities Money Market Fund – Dreyfus Class, except as noted below. Click here for the fund’s prospectus.
Clients with $5,000,000 or More of Cash
Clients with $5,000,000 or more of cash in their accounts in the same household are may elect have all or any portion of their cash balances automatically swept into an institutional money market mutual fund that Baird makes available. That fund is currently the Dreyfus Government Cash Management Fund – Institutional Class. Such clients who do not make an election will have all of their cash automatically swept into Deposit Accounts at the Banks until reaching the Aggregate Deposit Limit, with remaining cash automatically swept into the Dreyfus Government Cash Management Fund – Institutional Class. Click here for the fund’s prospectus.
Exception for ERISA Accounts.
The Bank Sweep Feature is not available for “ERISA Accounts,” which, for purposes of the Cash Sweep Program, are defined to include employee benefit plans, such as retirement plans (both defined contribution and defined benefit plans), employee health and welfare plans, and SEP and SIMPLE IRAs. Uninvested cash balances in ERISA Accounts at Baird will be automatically invested in shares of the Dreyfus General Government Securities Money Market Fund – Dreyfus Class. Click here for the fund’s prospectus.
Reinvestment of Dividends and Interest Income
Your investments in the money market mutual funds, if any, will earn dividends based on the interest and income realized by the funds’ underlying investments. The dividends earned on the shares in the money market mutual funds will not be payable in cash but will be reinvested each month in additional shares of the applicable Fund at the then‐current net asset value. The rates of return on money market mutual funds will differ from, and generally be higher than, the interest rates available in the Bank Sweep Feature.
Baird Compensation from Cash Sweep Program
Baird receives compensation for providing services with respect to the Cash Sweep Program. Such compensation presents a conflict of interest in that it gives Baird a financial incentive to have clients participate in the Cash Sweep Program and to maintain cash balances in the Cash Sweep Program. However, Baird Financial Advisors do not receive any of the compensation that Baird receives and thus have no incentive to recommend that you participate in the Cash Sweep Program. Clients with Baird accounts that are charged an investment advisory fee will pay a fee on all of the assets in those accounts, including cash balances in the Cash Sweep Program, which means that Baird receives both the asset-based advisory fee on such cash balances and compensation under the Cash Sweep Program on such cash balances. As an alternative, advisory account clients may choose to maintain their cash balances in a brokerage account in which there is not an asset-based fee.
Bank Sweep Feature
Baird’s compensation for services provided with respect to the Bank Sweep Feature, as applied to all clients, except for IRA Advisory Accounts, is equal to the excess of the amounts the Banks pay Baird in respect of the aggregate balances in the Deposit Accounts at the Banks over the fees actually paid to a third party administering the program and the interest paid to clients on their cash balances in the Deposit Accounts. Such compensation, which varies based on changes in the Fed Funds Target and Fed Funds Effective Rates, will not exceed 2.00% per annum on the aggregate balances in the Deposit Accounts at the Banks. In a low interest rate environment, such compensation will be significantly less.
Notwithstanding the foregoing, for IRA Advisory Accounts (as defined below), Baird’s compensation for services provided under the Bank Sweep Feature to those accounts will consist entirely of a per account fee each month (“Baird Per Account Fee”) in accordance with the schedule set forth in Cash Sweep Program Disclosures. The term “IRA Advisory Accounts” means Accounts that are both (i) subject to Section 4975 of the Internal Revenue Code, such as traditional, rollover, Roth and inherited IRAs, and Coverdell education savings accounts, and (ii) are managed or advised by Baird in its capacity as an investment adviser pursuant to an advisory agreement with Baird. The Baird Per Account Fee under the Cash Sweep Program for IRA Advisory Accounts is the same for all such accounts and is not affected by the actual balances held for IRA Advisory Accounts in the Deposit Accounts at the Banks or by the value of the IRA Advisory Accounts. As set forth in Cash Sweep Program Disclosures, the Baird Per Account Fee will be indexed to the current Federal Funds Target Rate, but the fee will not exceed $14.50 per month. In a low interest rate environment, the fee will be significantly less. It is expected that the Baird Per Account Fee will generally be paid out of the amount paid by the Banks in respect of the aggregated client balances in the Deposit Accounts, rather than out of your IRA Advisory Account. the third party administering the Cash Sweep Program collects such fees from the Banks and remit such amounts over to Baird for this purpose. However, Baird reserves the right to withdraw the Baird Per Account Fee, or a portion thereof, from the IRA Advisory Accounts in the event or to the extent that the amount paid by the Banks in respect of the aggregate balances in the Deposit Accounts attributable to the IRA Advisory Accounts for a particular month is not sufficient to cover the sum of the interest owed on the Deposit Accounts in respect of the IRA Advisory Accounts for that month and the aggregate amount of the Baird Per Account Fee for that month.
Money Market Mutual Fund Feature
To the extent legally permissible, Baird receives compensation from the money market mutual funds or their advisors/distributors that are available through the Money Market Fund Feature, which compensation varies from fund to fund but may not exceed 0.50%, annualized, of the value of client assets invested in the funds that are available through the Money Market Fund Feature. In a low interest rate environment, such compensation will be significantly less.
An investment in a money market mutual fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, but is protected by SIPC coverage. Although money market mutual funds typically seek to preserve the value of an investment at $1.00 per share, there can be no assurance that will occur, and it is possible to lose money should the fund value per share fall. Most money market mutual funds are required to maintain a stable $1.00 net asset value per share, but some are not.
Other Options For Your Cash Outside the Cash Sweep Program
Other money market mutual funds and other short‐term, cash‐equivalent or cash-alternative investments are available for purchase to you through Baird. These other investments may be more appropriate for clients seeking a cash allocation as part of their investment strategy over longer periods of time. However, these other investments, which may provide for higher rates of return, are not part of Baird’s Cash Sweep Program and will not offer an automatic sweep feature. For more information, please see Important Information About Cash and Cash Equivalents, Money Market Mutual Funds and Cash Alternatives or contact your Baird Financial Advisor.