Many stock brokers offer money management accounts
(under various names such as asset management account,
cash management account, etc.) which provide a whole
package of services at a low annual fee. At a minimum
these including a money market fund, checking and
margin loan access. A margin loan is a loan secured by
securities. It can be used to buy other securities,
but it can actually be used for any purpose. Interest
rates on margin loans are the one of the lowest cost
loans you can get anywhere.
Most of these accounts offer additional services
such as a Visa or MasterCard (or sometimes American
Express) as a debit card against your account balance.
Charges are taken from cash or money market funds
first, and then from an automatic margin if the loan
exceeds the cash available. Money in the account is
automatically invested in a money market fund until you
use it -- thus dividends received on stocks in the
account will have same day credit and earn interest.
Using a credit card against a brokerage account as
such may be reckless, but if you handle your money
properly there are many advantages to these accounts.
You can use the account as your principal checking
account, keep most of your money invested, never worry
about an overdraft, use your debit card as a plastic
check (a blessing for emergencies in strange places
where a personal check would be useless), and have all
your record keeping done automatically. But the
instant liquidity factor (through margin loans) can be
a lifesaver in a major emergency -- no explanations, no
credit checks, just write out a check for whatever it
is that has to be done.
Many of these accounts have a $20,000 initial
opening balance requirement, but not all of them. Here
are some of the more interesting ones:
K. Aufhauser & Company Inc. offers the ProCash
Plus Account. They are a deep discount broker.
Minimum equity in the account has to be $10,000 --
that's equity, not cash, so you could transfer an
existing portfolio of stocks or bonds. They offer a
MasterCard which gives you access to cash at 76,000
cash machine's worldwide, free unlimited checking, and
of course the margin loan access. Call (800) 368-3668
and ask for an information kit and account application.
Charles Schwab & Company offers a similar service
with no annual fee, but with a $5,000 minimum balance.
They call theirs the Schwab One Account. They have
branches in many cities, but if you can't find one
locally, call them at (800) 442-5111. About 200
different no-load mutual funds can also be purchased
and kept in a Schwab One Account.
Fidelity Investments Discount Brokerage offers the
Ultra Service Account with a $5,000 minimum and no
annual fee. Call (800)544-6262 for information and
account forms.
Merrill Lynch was actually the inventor of this
type of account, with the introduction of the Cash
Management Account (CMA) nearly 15 years ago. That
account has a $20,000 minimum. But they have two new
versions. One is called the Capital Builder Account
(CBA) with a $5,000 minimum. They also offer a
business version called the Working Cash Management
Account (WCMA) with a minimum balance of $20,000, and
WCMA-II with a minimum balance of only $2,000, which
could be perfect for your small corporation. (WMCA-II
does not include a Visa card.)
All of the Merrill Lynch personal accounts offer a
Visa debit card (which can be used at 98,000 cash
machines), checking, and of course, margin loans.
They also can accept direct deposits, if you have
an automatically deposited payroll or Social Security
check.
The Merrill Lynch accounts are also available for
estates and trusts.
Contact your nearest Merrill Lynch office for
information and account application forms, or call them
at (800) 247-6400.
Another major advantage of these package accounts
with brokers is the ability to leave mutual fund shares
in them. That may not seem important, but if you have
ever tried to quickly sell a mutual fund share directly
you will appreciate the advantage of leaving it in the
brokerage account. You may have realized that taking
physical delivery of the mutual fund shares would
create problems, and left the shares in a statement
account at the fund. But did you ever read the fine
print in the prospectus about redemption procedures?
At the least you will have to get your signature
guaranteed by a commercial bank, and submit the
guaranteed redemption letter. A check will then be
mailed -- in due course. Note that we said commercial
bank -- a notary is not acceptable, nor is a savings
and loan. With the asset management account from the
brokerage firm, the shares are redeemed immediately and
the proceeds placed in your account ready for you to
access through any of the means the account offers.
And they'll be earning interest until you do access
them.
If you own T-bills, there is an advantage in
leaving them in one of these brokerage accounts. Not
only do you have free safekeeping and ready delivery if
you want to sell, but they are good for collateral of
90% of face value. This gives you margin call
protection if you are trading stocks on margin, or you
can use the T-bills to finance a fast stock trade. And
you have an instant line of credit, accessible by check
or debit card, should you need emergency money, or
money for a business deal.
When opening one of these brokerage accounts,
always sign the papers for a margin account, even if
you never intend to use it. There is no obligation to
use it, but the whole point is to have the ability
instantly in an emergency -- not a week or more after
you've had to revise the account paperwork, which may
have to be sent to the firm's head office. Flexibility
is the word here.
Send stock certificates unsigned by registered
mail. That way they are not negotiable. Then in a
separate letter, preferably not even on the same day,
mail the broker a stock power form with your signature
and the number of shares in the transaction, which
authorizes the broker to sell the stock or transfer it
into your account.
