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Asset account may reveal more than you would like


Putting together the best features of a brokerage account, a mutual fund account, a checking account and a debit card account has helped make millions of dollars for the brokerage industry.

Since Merrill Lynch introduced its Cash Management Account 15 years ago, almost all big brokerages, including two major discount firms, have brought out their own versions of these products, which go by the generic name of asset management accounts.

By now, the main features of these accounts are fairly well known: They act like checking accounts and pay interest like money market mutual funds. With a toll-free telephone call, money can be quickly moved into or out of stocks, bonds and other investments.

The accounts also include debit cards, expanded insurance on investments and a single monthly statement that shows account activity, balances and the value of the securities.

Less well known is that asset management accounts can also be used as marketing and sales tools, often by brokers to support pitches for new products, and to encourage customers to invest in stocks, bonds and mutual funds, which pay higher commissions than money-market funds.

To some, this raises the same privacy issues brought out in May when American Express agreed to tell cardholders that it tracks their spending habits and sells the names and data to other companies.

The agreement with New York Attorney General Robert Abrams would let American Express customers refuse to let their names be sold to advertisers such as Saks Fifth Avenue, Hertz Rent-a-Car and Marriott Hotels.

The agreement does not require American Express to change any of these marketing activities, just to do a better job of telling customers about them.

That kind of exercise may be in order for brokerages and the way they handle asset management accounts. If customers don't already know it, investment advisers say, they should be told that the entire account statement, including the record of checks written and use of the debit card, may be seen by the stockbrockers.

At Shearson Lehman Brothers, "clients are made aware that the information on the account is going to be shared with the financial consultant," or broker, Shearson spokeswoman Sally Cates said. This includes records of checks, credit and debit cards and investment activity, she said.

You may be perfectly comfortable having a broker know whom you write checks to or where you use a Visa or MasterCard, but you should at least know about it beforehand, these advisers say. At Shearson, this is mentioned at the top of the form used to open the account, Ms. Cates says.

However, others question whether brokers should have such information.

Brokers "shouldn't get more information than they need to do the job you've asked them to do," said Barbara Roper, a financial planning and brokerage specialist with the Consumer Federation of America.

Perhaps the most common -- and most justifiable -- way brokers might review asset management account statements is to check the growth of cash in the money-market mutual fund. In these accounts, idle cash, including interest and dividends, is automatically "swept" into the money fund. Some firms, such as Dean Witter Reynolds, Kidder Peabody and Charles Schwab & Co. make these sweeps daily. Others wait until $500 or $1,000 is available.

Today, though, most money-market funds are earning yields under 4 percent, so if a broker sees that the money fund account has grown well beyond the investor's normal cash levels, the broker probably should suggest moving some of it for a better return, perhaps to a short- or intermediate-term bond fund, or a stock.

"Sure, these accounts are used for prospecting, to identify dollars that aren't being put to use," said Craig Hoogstra, director of the financial-services department at the American Association of Retired Persons. "But a broker that's trying to serve his customer's needs isn't going to beat them over the head with this."

It is possible, though, that if a broker sees that a customer has written checks to an environmental group, for example, the broker might see an opening to suggest investing in the stock of pollution-control company or a socially conscious mutual fund, Mr. Hoogstra said.

A broker at a full-commission firm, which sells "load" mutual funds, might also inquire about a customer who sends money to a no-load mutual fund, he said.

Also, if your paycheck is deposited directly into one of these accounts, your broker can see how much you make and whether you recently got a raise, a bonus or some other form of extra income.

However, these statements can also help advisers improve their clients' spending habits, said Glenda Kemple, a financial planner and accountant in Dallas. She recently starting using an asset management account from Raymond James & Associates for her clients.

"As a planner, managing cash is one of the biggest challenges I have," she said. "This helps me see where my clients are spending their money."

Still, she said, brokers may find it tempting to look at a statement, then call a customer and recommend moving money into other investments.

If privacy is a concern, investors have a couple of choices. They can limit their use of the accounts' checking and debit card privileges to large purchases, and not write checks to political groups, charitable organizations or other places they don't want the broker knowing about. In such cases, they can use their checking accounts or bank credit cards.

Or they can use one of the accounts from a discount broker. The only people who see the statements for the Schwab One Account or Fidelity Investments' Ultra Service Account are processing clerks who are not involved in sales or money management with individual customers.

"We don't call people," Schwab spokesman Thomas Taggart said. "There are a variety of prospecting techniques full-commission firms use, because that's the business they're in." Even if you have a brokerage account with a full-commission firm, you could still have the asset management account at Fidelity or Schwab.

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