Should You Fear Money Market Fee Waivers?

Advisors and their investor client don't need to worry about the fact that the country's largest asset managers and other firms are waiving fees on money market funds so they can maintain positive yields in a near-zero rate environment.

"All of them are waiving fees … [but] just some of their fees," said Peter Crane, president of Crane Data, which follows money markets and mutual funds.

"Clients should not be concerned," Crane explained, adding that the fee cuts don't threaten the safety of their funds but do mean less income for asset managers.

Vanguard says it has "temporarily limited certain expenses" on some of its money market funds "to maintain a zero or positive yield," said a spokesman. The limits are unrelated to the liquidation of two muni money market funds in November, he notes.

Those funds — the Vanguard Pennsylvania Municipal Money Market Fund and the Vanguard New Jersey Municipal Money Market Fund — were closed due to " the short supply of certain types of municipal securities," which reduced the "the market-depth needed to prudently provide these state-specific products in all market conditions," according to a statement from Vanguard in September.

Fidelity, Schwab News

Fidelity, too, "is currently waiving fees on most" of its money funds "to maintain positive net yields on those funds [and] any decision to recapture waived fees would be assessed when rates begin to normalize," said a spokesman.

The waivers began in the second quarter, and the fund giant is closely monitoring "short-term market activity and the interest rate environment" and will adjust portfolios, as needed, according to a Fidelity.

Bloomberg recently reported that fee waivers on Fidelity's largest money market fund cost the fund giant $247 million for the six months ended October 31, according to the semi-annual report Fidelity filed with the SEC. Schwab noted in a third quarter earnings report that a 4% increase in management and administration fees to $860 million "more than offset elevated levels of money market fund fee waivers."

In its most recent report on the Schwab Government Money Fund Ultra Shares (SGUXX), for example, it acknowledged that its 7-day yield "would have been lower without the effect of all applicable waivers."

Fee waivers on money market funds are nothing new for asset managers during periods of near zero short-term interest rates. Many waived fees between 2009 and 2015 when rates were also "pinned to zero" and "made it through," said Crane.

"Return is risk," said Crane. "If you 're not making any money in money market funds you're safe. … Anything else is too dangerous for any 'cash allocation.' "

Crane doesn't expect to see more fee waivers even as short-term rates remain near zero. "The threat of negative yields has receded and rates have inched higher in recent weeks," he explained.

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