How Do I Choose the Best Cash Management Account?

The "Cash Management Account", or CMA (Cash Management Account), was first developed by Merrill Lynch in cooperation with a local bank in the United States in 1977. As one financial account. This account is also known as (private placement) fund management because it is mainly for small and medium-sized institutions and individual customers who have bank demand deposits. Through clever product design, under the premise of separate operations, it fully combines the advantages of banks' customer resources with the professional financial management advantages of securities firms, allowing various financial institutions to cross the fence and share the meals of others on the neighbor's plate.

Cash management account

The generation of cash management accounts is closely related to the cancellation of the fixed commission system.

In the early stages of the development of the securities market, all countries adopted a fixed commission system. However, since the 1970s, European and American countries have experienced a wave of financial liberalization that continues to this day, mainly based on the prices of financial services (exchange rates, interest rates and brokerage commission rates) and the cross-sectoral operation of financial institutions (banks, securities and insurance) Deregulation is the main content.

On May 1, 1975, the US stock exchange took the lead in breaking the fixed commission system and adopted a competitive agreement commission system, which is determined by the client and the securities company through negotiation. What is even more interesting is that a major change was introduced to the securities industry in 1986 in the United Kingdom 10 years later-the government's control of commission standards was completely eliminated. Clients and securities brokers can respond to market supply and demand conditions, transaction quotas and their respective According to the actual situation, the negotiation decides on what standard to collect commissions or whether to collect commissions. This change has allowed Britain to regain its position as the world's major securities market. Since then, more countries have abandoned the fixed commission system. At present, most of the 27 major stock exchanges in the world charge commissions through free negotiation.

The establishment of the floating commission system has brought about a downward trend in commissions. This is possible because of the new technology that has greatly reduced transaction costs. With the development of electronic trading, the role of brokers in the trading process is becoming less and less practical. The decrease in commissions directly affects the brokerage's income, making it face huge pressures on survival, and thus creating an incentive for innovation. Without developing new products to create new profits, the entire industry will face losses.

As the leader of financial innovation in the U.S. investment banking industry, Merrill Lynch is the first to compete for funds through investment banking to make up for losses in the brokerage business. The tool it uses is a "cash management account"-a package of credit card and check-filling privileges with Merrill Lynch Financial Markets Fund. This is tantamount to building a wealth management supermarket between the securities market and the money market. Within 5 years, it has successfully developed 533,000 asset management customers, enabling Merrill Lynch to successfully meet the challenges of the floating commission system and banking penetration. It quickly caught the attention of the brokers and banks around the world and followed suit.

In the late 1980s, in order to enhance its competitive advantage, Merrill Lynch once again led the tide of financial innovation. Through wealth management strategies, it combined cash management accounts with money market fund accounts to expand the scope of its asset portfolio. The cash management account is upgraded to an unlimited advantage account that integrates trading and wealth management, giving customers greater choice. At the same time, the shift from the brokerage's income model to the expense model has been accelerated again.

It can be said that the cash management account is the best laying hen of Merrill Lynch. It not only brings win-win to Merrill Lynch and Merrill Lynch customers, but also brings global financial product innovation to a new climax.

The cash management account is based on the comprehensiveness of its functions: customers can not only perform securities transactions on this account, but also deposit and withdraw funds in the same manner as ordinary deposit accounts, and can settle with credit card companies, plus various payment functions such as check transfer .

The size of the account's funds is not fixed. Customers can withdraw funds or consume at any time according to their wishes. In this regard, it is also in line with the characteristics of demand deposits and open-end funds.

In terms of investment services, the brokerage firm designs a personalized investment portfolio based on the client's risk appetite and capital scale, and obtains investment income that exceeds the bank deposit interest rate, thereby charging corresponding management fees. In addition to obtaining professional consulting services, clients can also know their asset status regularly (daily, monthly).

1. Finding customers: Through cooperation with banks, brokers seek bank depositors (institutions and wealthy people) with financial needs to understand investment preferences. And fully engage with the customer to understand the nature of the customer, the size, duration, return expectations and risk tolerance of the entrusted assets. Clients also learn about the manager's creditworthiness, performance history and business capabilities.

2. Execution agreement: After recognizing each other's conditions, the two parties jointly sign an asset entrustment management agreement to determine the specific rights and obligations of each party.

3. Funds in place: The brokerage company uses the customer's fund account in the bank to open a corresponding cash management comprehensive account, and according to the agreement, the dynamic fund balance is transferred to the special account as the entrusted asset.

4. Entrusted operation: The trustee submits investment proposals to the client and designs specific investment portfolios to operate the entrusted assets. The trustee will provide customers with a transaction list every month and visits regularly to understand their opinions on financial management operations. After the contract expires or is terminated in advance, the assets on the special account are liquidated, and the operating performance of the trustee is identified by this. When the entrusted financial management contract expires, the broker will transfer the client's principal and the due income to the client's bank account. You can also renew the agreement and restart the new asset management delegation process.