Merrill Lynch comes to golfers' rescue -- and draws imitators
The golfers kept losing their prize money. After all those subpar rounds, the winners on the Professional Golf Association tour would be handed checks for their prize money, put them in their pockets or golf bags, and promptly lose them. The PGA had to stop payment on so many checks worth thousands of dollars and issue new ones that it jumped at the opportunity from Merrill Lynch, Pierce, Fenner & Smith.
Merrill Lynch offered to help the PGA set up special accounts for the golfers in its Cash Management Account, the firm's versatile money market fund. Now, instead of giving the pro a sizable (and losable) check, the PGA deposits it directly into his Merrill Lynch CMA account, where it can begin earning interest. Over 100 golfers have the accounts.
For Merrill Lynch, the PGA deal provided another source of deposits for what is probably the fastest growing of the money market mutual funds. Since the CMA went into operation early in 1978, it has gained about $7.5 billion in assets.
And it has begun to gain something else: imitators.
"The cash management concept is the most revolutionary financial services product to come down the pike in a long time." That plaudit only soundsm like it comes from a Merrill Lynch brochure. It is actually from Jeffrey Lane, executive vice-president at Shearson Loeb Rhodes Inc. Later this year, Shearson will begin testing its version of the CMA and put it into operation in January.
Shearson is one of at least six firms testing, planning, or talking about some form of the CMA.
They cannot call it a Cash Management Account, however, since Merrill Lynch has already registered that name with the US Patent Office.
Whatever they call it, the account is very different from a typical money market fund that takes investors' money, purchases a variety of short-term government notes and bank securities, and pays interest rates currently running in the 15 to 17 percent range.
The CMA is basically a margin brokerage account. It provides a more efficient way for the broker and the investor to manage the account of a customer who wants to invest in stocks. The money in the account can be used to invest in different securities as the broker and investor see fit.
Whatever interest and dividends the securities earn are automatically put into the money market fund, to begin building up interest.
If an investor needs some of the money, it is fairly easy to get. At Merrill Lynch, customers have access to their money through the account's check-writing privilege or through a VISA debit card. Unlike a VISA credit card, the debit card simply takes money out of the account rather than billing the customer for payment later.
Another firm where the new account will use a VISA card is Dean Witter Reynolds. For a minimum $20,000 investment, a customer may chose from three of Dean Witter's money market funds, said Robert Stovall, director of investment policy. "The total account is swept every day and the money it has earned goes into the money fund," he said.
Dean Witter's account is currently being tested in Pennsylvania and Virginia and should be operating nationwide by January, he added.
Shearson Loeb Rhodes expects to be just starting its operations in January, Mr. Lane said. Shearson, which is in the process of merging with the American Express Company, will use the American Express "Gold Card," which Lane says gives it an advantage over the VISA card.
"If you use VISA's debit card," he said, "the money is taken out of your account immediately. With the Gold Card, the money stays in the account and earning interest until the bill comes in. . . . That's the key difference with our account."
Other firms reported to be developing variations on the cash management account are Bache Halsey Stuart Shields; A. G. Edwards; Paine, Webber, Jackson & Curtis; and Advest Inc.
One reason it has taken more than three years for other firms to follow the Merril Lynch example is the complicated computer and personnel apparatus that must be installed. "Any time you tie that many services in one account, you're going to have a complicated system," Shearson's Mr. Lane said.
At Dean Witter, the firm has had to put 60 people in its New York headquarters alone to handle the mechanical and bookkeeping chor es, Mr. Stovall said.