BusinessWeek: October 31, 1994

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ALL-IN-ONE ACCOUNTS LOOK EVEN MORE APPETIZING

A year ago, it hardly mattered whether you kept your cash in a bank account, a money-market fund, or under your mattress. But with interest rates on the rise, the income you can earn on money you keep in reserve for emergencies or to invest later is becoming something you should pay attention to again. Asset-management accounts, which combine checking, a credit or debit card, and brokerage services, have become the most efficient way to manage cash holdings. And they offer a host of other features that makes it easier to keep track of your spending, saving, and investing.

Merrill Lynch pioneered these all-in-one accounts, also known as central asset accounts, in 1977. Today, most brokerages, and an increasing number of banks, insurers, and mutual-fund companies, offer their own versions. The core elements have not changed much over the years, but many of the fees have come down, and useful new services have been added.

PERSONAL STYLE. business week found no serious shortcomings with any of the accounts we examined. With all of them, as long as you can meet the minimum balance, often around $10,000, you can review your complete financial picture at a glance on one statement. Beyond that, which one you choose is largely a matter of personal style. Do you want a brokerage account with some banking services or a bank account with brokerage services? Do you prefer a full-service broker or a discount one? Discounters offer streamlined asset-management accounts for free, while brokerages and banks charge around $100 a year to get some extra services and advice from investment

advisers.

With all of the accounts, any available cash from dividends, maturing certificates of deposit, or the sale of securities is swept automatically into a money-market fund, preventing any loss of interest between transactions. Plus, you receive a line of credit--typically margin credit secured by your investments--at a better rate than most bank loans.

FEAST OF FUNDS. These accounts became popular in the early 1980s, when money-market funds yielded 10% and rates on bank savings were capped at 51/2%. Today, the spread between bank accounts and money funds isn't quite so dramatic, but it still is significant: The average bank is paying 2.55% on money-market accounts, according to Bank Rate Monitor, while ibc/Donoghue reports that the average money-market fund is yielding 4.38%. Plus, asset-management accounts usually offer a range of money-market funds to choose from, so people in high tax brackets can elect a tax-free fund, or cautious investors can stick with Treasury-only funds. "Not only are the rates of return better than they used to be but also the cost of managing your money inefficiently is higher. So the efficiencies of the cash management account become of greater importance," says John Galvin, Merrill Lynch's vice-president for cma marketing.

Another argument for asset-management accounts: Effective June, 1995, securities transactions will have to settle in three, not five, business days. No longer will you be able to place a trade, wait for the confirmation statement from your broker to arrive by mail, and then send in the check. "The world is going to be less convenient for most retail investors if they don't have a money-market account or a central asset account," says Richard Grabish, vice-president at A.G. Edwards. Although you can also hold cash at a brokerage firm in a money-market fund, you may be restricted to writing checks of $250 or more. Central asset accounts come with no such restrictions.

They also come with a menu of tools you can choose from to suit your financial needs. Most accounts offer an expense-analysis feature. You write a code on each check, designating that it went to pay medical expenses, insurance premiums, or child care, for example, and your statement will track how much you are spending in these areas. Bill-payment features, which work with a touch-tone phone or personal computer, often are also included.

STREAMLINING. Most people don't need the extra bells and whistles, though. "We charged $60 a year for the package [including check-coding and bill-payment], but a customer needed significant assets and complex transactions to feel like it was worth it," says Donna Morris, a senior vice-president at Fidelity Investments. Three years ago, Fidelity eliminated the fee on its Ultra Service Account and streamlined it to include a consolidated statement, debit card, and check-writing. It saw a tenfold increase in the number of new accounts that year. Customers can still pay $60 a year for an enhanced usa account, which comes with a debit card with a 30-day delay, expense coding, and--for $5 a month extra--automatic bill payment.

Some accounts also allow clients to segregate their holdings to meet different investment goals. "What we found is that clients' needs were more complex than a single account could handle," says Galvin, who keeps separate accounts for retirement, his children's college expenses, and his and his wife's investments. Merrill charges an extra $25 for each subaccount opened.

Technological advances have given customers numerous ways to access their accounts. Trading now is available through touch-tone and screen phones and pcs. (Both Charles Schwab and Fidelity offer a 10% discount for people who trade on line.) Citibank began offering trading via automatic-teller machines in October. The next frontier, says Mark Thompson, senior vice-president at Schwab, is the advent of the "personal agent." This means that through various means of technology, such as handheld computers, customers will be alerted when a stock is falling, or a portfolio will be re-

allocated automatically, "making the broker obsolete," he says.

The biggest danger of asset-management accounts is also one of their main draws: easy access to credit. Profligate spenders, using their debit card, can zoom right through their cash holdings and into their credit line without even realizing it. People could spend their emergency funds, or--even worse--if their stocks take a tumble, find themselves faced with margin calls. "There can be some danger if you put everything in one bucket and then have trouble keeping your goals apart," says William Gregor, senior vice-president at Gemini Consulting in Morristown, N.J.

If you think an asset-management account fits your needs, your first decision is where to turn. The fees charged at banks and full-service brokerages are only worth the money if you need investment advice and have complicated finances. "The negative is that you start getting pushed into company products, which are almost always inferior," says David Klaskin, president of Oak Ridge Investments, a Chicago money-management firm. Do-it-yourselfers will appreciate the free account, discounted trades, and wide array of investment choices offered by the likes of Schwab and Fidelity.

FEE SAMPLE. Each account has a lengthy set of rules and features to review. How many money funds can you choose from? Merrill has 14, including several state-specific funds that are double tax-free. Does the account offer daily or weekly sweeps of all cash into money funds? Do you get a credit or a debit card? Will cancelled checks be returned to you? Merrill will return 15 checks free a year and provide them all at no charge if you should happen to get audited, even though the Internal Revenue Service will accept its statements. Is there a 24-hour 800-number service? What is the minimum balance required? You need $10,000 to open a Citigold account but, six months later, if you don't have at least $100,000 (or $250,000 if you include your mortgage), a $25 monthly fee will be charged.

Watch the fees and charges carefully. Compare commissions on trades at different firms. Are there fees for using atms? What is the interest rate on loans? It usually hovers just above the broker call rate (the rate banks charge brokers for money) and is better than you could get from a bank. A.G. Edwards offers its Total and Ultra Asset Account-holders a preferred rate, currently 7.5%, vs. 8.75% for its other clients.

Make sure you're not paying for features you won't use. After all, the purpose of asset-management accounts is to manage your money more effectively. It shouldn't cost you more than you gain to do so.



Scanning the Asset Management Accounts
                                                                    MINIMUM
ACCOUNT                 FEATURES*                                  FEES/YEAR
A.G. Edwards'           Members get preferred loan rates.
                        The Ultra account                            $10,000
Total Asset Account     ($20,000 minimum/$100 a year)
                        does monthly cost-basis                          $60
Ultra Asset account     analysis showing purchase prices and current
                        values.
Citicorp's              Customers can make trades through
                        touch-tone and screen                        $10,000
Citigold Account        phones, personal computers, and
                        as of October, ATMs.                            $125
Fidelity's Ultra        The enhanced account costs $60 a year
                        and includes bill                            $10,000
Service Account         payment ($5 a month), check-coding to
                        keep track of expendi-                          free
                        tures, and a debit card with a 30-day
                        float period.
Merrill Lynch's cash-   Cash Management Account pioneer allows clients to
                        segregate                                    $20,000
management account      holdings for different goals (retirement, education).
                                                                        $100

Charles Schwab's        Offers Street Smart software for $59, allowing
                        investors to                                  $5,000
One Account             trade mutual funds and stocks on line for a 10%
                        discount.                                       free
*Many accounts share similar features.  DATA: BUSINESS WEEK, COMPANIES


EDITED BY AMY DUNKIN By Amey Stone
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