Disclosures
Auction Rate Securities Brokerage Disclosure Disclosures client Rate Schedule Investor Education Margin Mutual Funds Options Order Routing Information Patriot Act Cash Sweep Program Money Market Funds FDIC InsuranceE.K. Riley Investments offers a variety of cash sweep options through its clearing agent, First Clearing, LLC. Please consult the information below for further information.
How the Cash Sweep Program Works
The available sweep options currently consist of one or more money market mutual funds and an interest-bearing deposit account at Wachovia Bank, N.A (“WBNA”), a bank affiliate of Wells Fargo & Company. Eligibility for each available sweep option is determined by account type.
Available Sweep Options
The Cash Sweep Program allows you to earn a return on the uninvested cash balances in your account by automatically placing (“sweeping”) cash balances into a sweep option until such balances are invested by you or otherwise needed to satisfy obligations arising in connection with your account.
Rate of Return
The rates of return for the sweep options vary over time. Current rates can be obtained from your investment professional, by calling the general inquiries phone number listed on the front of your account statement, or on our website. • The rate of return on the bank deposit sweep option is set by WBNA, which may seek to pay as low a rate as possible consistent with its view of competitive necessities. • Money market mutual funds seek to achieve the highest rate of return (less fees and expenses) consistent with prudence and their investment objectives. • There is no guarantee that the yield on any particular cash sweep option will remain higher than others over any given period. The rate of return on any of the sweep options may be lower than that of similar investments offered outside of the Cash Sweep Program. • The Cash Sweep Option should not be viewed as a long-term investment option. If you desire to maintain cash balances for other than a short-term period and/or are seeking the highest yields currently available in the market, please contact your financial professional to discuss investment options that may be available outside of the Cash Sweep Program to help maximize your return potential consistent with your investment objectives and risk tolerance.
Duty to Monitor
You must monitor and determine the best sweep option for you under this program. You may also elect not to participate in the Cash Sweep Program and instead periodically invest cash balances directly.
Changes to the Sweep Program
You will be notified if our clearing agent modifies the Cash Sweep Program in a way that results in changing the sweep option for your account. Unless you tell us otherwise within the time period specified in the notice, your cash balances will be moved to the new sweep option that First Clearing designates under the program.
Differing Risk and Account Protection
Money market mutual funds and the Bank Deposit Sweep Option are subject to different risks and account protection: • Money market mutual funds invest in high quality, short-term securities and seek to maintain a stable value but are subject to market risks and potential value loss. They are not bank accounts and not subject to FDIC insurance protection. They are instead covered by SIPC, which protects against the custodial risk (and not a decline in market value) when a brokerage firm fails by replacing missing securities and cash up to a limit of $500,000, of which $100,000 may be cash. • The bank deposit sweep option is not subject to market risk and value loss but is subject to the risk of the bank’s failure. In the unlikely event the bank fails, deposits are eligible for FDIC insurance protection up to a limit of $250,000 including principal and interest. This limit includes any other deposits you may have at WBNA outside of this program. You are responsible for monitoring your bank balances in this program and the balances in any of your other bank accounts at the same bank to determine if these, in total, exceed FDIC insurance limits. Monies held in the bank deposit sweep option are not covered by SIPC.
Introduction
Under the Cash Sweep Program (the “Sweep Program”), uninvested cash balances – for which no interest is otherwise earned or paid in your account are automatically swept into your choice of available money market mutual funds (“Money Market Funds”), an interest-bearing deposit account (“Bank Deposit Sweep Option”), or such other sweep arrangements made available to you (collectively “Cash Sweep Options”) until these balances are invested by you or otherwise needed to satisfy obligations arising in connection with your account. This Cash Sweep Program Disclosure Statement supersedes any conflicting terms and conditions contained in your account agreement regarding the cash sweep program.
Available Cash Sweep Options
Eligibility for each available Cash Sweep Option is determined by account type and can be obtained from your investment professional. Each eligible Money Market Fund offered in the Sweep Program is described in a prospectus, which should be read carefully, and may include one or more Money Market Funds that an affiliate of our clearing agent, First Clearing, LLC (“Clearing Agent”), provides investment management or other services to. The Bank Deposit Sweep Option consists of an interest-bearing deposit account at WBNA, an affiliate of Clearing Agent. If you do not select a Cash Sweep Option when you open your account, or you select an ineligible Cash Sweep Option, your Cash Sweep Option will be, and any cash balances transferred to, the Bank Deposit Sweep Option if you are eligible (if not, your Cash Sweep Option will be (and any cash balances transferred to) an available Money Market Fund selected by us). If you wish to specify a different Cash Sweep Option, if available for your account type, you may do so at any time by contacting your financial professional. Existing balances in your prior Cash Sweep Option will be automatically transferred to the new Cash Sweep Option you select.
How the Sweep Program Works
Available cash balances will be automatically swept in the Cash Sweep Option for your account on a periodic basis (consult your investment professional for details on the frequency of this automatic investment/deposit). Shares or cash held in your Cash Sweep Option will be automatically redeemed in order to settle a transaction, serve as collateral for a margin loan or short sale, or satisfy any other obligations.
Timing of Credits
Your Cash Sweep Option will be credited: (i) in the case of available cash balances resulting from the proceeds of securities sales, on the settlement date of the securities sale and (ii) in the case of available cash balances resulting from non trade related credits (i.e., the receipt of dividends, interest payments, or deposits), on the business day after receipt by us of the non trade related credit (unless there is a trade-related debit item pending in your account due to settle in one business day, in which case only that amount exceeding the trade-related debit will be credited to your Cash Sweep Option). Available cash balances will not earn a rate of return until invested or deposited into your Cash Sweep Option.
Timing of Debits
Your Cash Sweep Option is automatically debited to satisfy obligations arising in connection with your brokerage account, including administrative and other fees, and charges in connection with a margin account. Cash Sweep Option balances will also be debited as necessary in connection with certain account activity and services, including securities transactions, preauthorized electronic transfers, automated payments, checks, or debits from using the linked credit cards. Your brokerage account will be scanned automatically for debit items each day. Debit balances will be satisfied automatically from: (i) available cash balances; (ii) funds in any Money Market Fund no longer serving as your Cash Sweep Option, (iii) through the withdrawal of funds from your Cash Sweep Option; and, where applicable, (iv) from margin loans.
Access to Funds
You may only access the balances held in your Cash Sweep Option through your brokerage account. You cannot withdraw funds by contacting WBNA or the Money Market Funds directly. As required, by federal banking regulations, WBNA reserves the right to require seven days prior notice before permitting a transfer out of the Bank Deposit Sweep Option. WBNA has no intention of exercising this right at the present time. In addition, the Money Market Funds may reserve the right to require one or more days prior notice before permitting withdrawals. Please review the prospectus for the Money Market Fund for further information.
Statements and Confirmations
Your account statement will indicate your balance, detail transactions, and reflect interest or dividends relating to your Cash Sweep Option. These account statements are provided in lieu of separate confirmations of sweep transactions.
Interest/Dividends Payable
Interest on cash in the Bank Deposit Sweep Option is accrued daily, compounded monthly and credited to your account on the last business day of each monthly statement period. Dividends on the shares in the Money Market Funds will not be payable in cash but will be reinvested each month in additional shares of the applicable Money Market Fund at the current net asset value. Dividends are not guaranteed and are subject to change or elimination.
Rate of Return
The rate of return for each available Cash Sweep Option can be obtained from your investment professional, by calling the general inquiries phone number listed on the front of your account statement or, for clients with online account access, on our website. These rates will vary over time and may be lower than rates available to clients taking deposits directly with WBNA, or at other banks, or available by investing directly in other money market mutual funds not offered through the Sweep Program. The rate of interest paid on the Bank Deposit Sweep Option will be established periodically by WBNA, based upon prevailing business and economic conditions. The rate may vary by account type and/or tiered based upon account value. WBNA does not have a duty to provide the highest rates prudently available and may instead seek to pay as low a rate as possible consistent with its view of competitive necessities. Lower rates may be more beneficial to us, WBNA and its affiliates, and their respective personnel. There is no necessary linkage between bank rates of interest and the highest rates available in the market, including any money market mutual fund rates. By comparison, a Money Market Fund generally seeks to achieve the highest rate of return (less fees and expenses) consistent with the fund’s investment objective, which can be found in the fund’s prospectus. (Money Market Fund rates may, however, be impacted by the fees imposed by the particular class of shares selected by our clearing agent for the Sweep Program.) As a result, the current rate of return on each Cash Sweep Option will vary over time and there is no guarantee that the return on any particular Cash Sweep Option will remain higher than the others over any given period. The Cash Sweep Option should not be viewed as a long-term investment option. If you desire, as part of an investment strategy or otherwise, to maintain cash balances for other than a short period of time and/or are seeking the highest yields currently available in the market for your cash balances, please contact your financial professional to discuss investment options that may be available outside of the Cash Sweep Program to help maximize your return potential consistent with your investment objectives and risk tolerance. Please note, however, that available cash accumulating in your account will not be automatically swept into any investment you purchase outside of the Sweep Program.
Your Responsibility To Monitor Your Cash Sweep Option
As returns on the Cash Sweep Options, your personal financial circumstances and other factors change, it may be in your financial interest to change your Cash Sweep Option (if another option is available for your account type) or invest cash in other investment vehicles outside of the Sweep Program consistent with your investment objectives and risk tolerance. We do not have any duty to monitor the Cash Sweep Option for your account or make recommendations about, or changes to, the Sweep Program that might be beneficial to you.
Alternatives To The Sweep Program
You may elect not to participate in the Sweep Program and/or periodically invest cash balances directly in available money market mutual funds offered as direct investments outside of the Sweep Program by providing instructions to your investment professional. Please note if you elect not to participate in the Sweep Program, accruing cash balances will not earn a rate of return prior to direct investment. In addition, available cash will not be automatically swept into any money market mutual fund or other investment that you purchase outside of the Sweep Program. Your investment professional can provide further details and additional information, including a prospectus, for any of the money market mutual funds available for direct investment outside of the Sweep Program. Please read the prospectus carefully before investing. Investments in money market mutual funds are not guaranteed or insured by the FDIC or any other government agency and are not deposits of a bank or bank affiliate, including WBNA. Although money market mutual funds seek to preserve their net asset value at one dollar per share, it is possible to lose money by investing in money market mutual funds.
Changes To Cash Sweep Options
From time to time, the Clearing Agent may modify the Sweep Program, which may result in changing the Cash Sweep Option for your account. If the Clearing Agent makes any change, there is no guarantee that such change will provide a greater rate of return to you during any given period and the rate of return may be lower. You will receive advance notice of any change in the Sweep Program that results in changing the Cash Sweep Option for your account. Unless you object within the time period specified, the balances from your prior Cash Sweep Option will be transferred into any new Cash Sweep Option. If you decide to enroll in a new product or service that doesn’t offer your current Cash Sweep Option, your new Cash Sweep Option will become the Bank Deposit Sweep Option if you are eligible (if not, your Cash Sweep Option will be an available Money Market Fund selected by us) unless you select a different available Cash Sweep Option.