Investors hold cash in their investment accounts from time to time, often without giving much thought to what happens with their money. What investors may not realize is that, in Canada, investment dealers are generally permitted to use uninvested client cash – commonly referred to as “free credit balances” – for their own business purposes, subject to regulatory limits. Mutual fund dealers, by contrast, are required to keep client cash fully segregated from their own assets.
International approaches to client cash vary. In the UK, all dealers must fully segregate client cash. In the US, are allowed to use client cash within prescribed limits. US dealers also commonly offer “cash sweep programs” to sweep cash into interest-bearing accounts, often held at an affiliated bank.
In both jurisdictions, regulators have raised concerns about how firms manage client cash. In 2023, the UK regulator flagged concerns with firms’ cash management practices and directed them to improve disclosure, ensure fair treatment of clients, and comply with their Consumer Duty obligations. In 2025, the SEC in the US took action against two large dealers alleging that they failed to adequately disclose conflicts of interest in their cash sweep programs and that they unfairly benefited from using client cash while higher-yielding alternatives were available to their clients.By contrast, Canadian regulators have been largely silent on how current industry practices involving client cash align with the enhanced disclosure and conduct standards introduced under the Client Focused Reforms.[KM2]
What A Quick Scan Revealed
To better understand current practices in Canada, we reviewed publicly available information from the largest bank-owned investment dealers and found:
- Most pay little or no interest on client cash balances.
- All disclosed that they use, or may use, client cash for their own purposes.
- Some suggested they may pay interest to clients, but did not do so.
- In every case, disclosures failed to clearly explain that clients would receive little or no interest in exchange for the dealers using their cash.
- One firm, that does not pay interest, advertised it offered “competitive” interest rates which is potentially misleading to investors.
Practices Warranting Regulatory Attention
It is difficult to understand how such vague, incomplete and potentially misleading disclosures meet regulatory standards. However, our concerns go well beyond disclosure. In advisory accounts, we question if firms are meeting their suitability obligation where they pay no interest on cash balances when higher‑yield alternatives are readily available. Even more concerning, in fee‑based accounts clients may be paying advisory fees on their cash that their dealer is using for its own purposes. It is not evident how dealers are managing these conflicts in the client’s best interest or meeting their obligation to treat clients fairly, honestly and in good faith.
What Needs to Change
To be clear, we are not suggesting that all dealers must fully segregate client cash. However, this is an area where regulators need to do more to enforce existing rules. At a minimum, this should include:
- Excluding cash balances when calculating advisory fees in fee‑based accounts;
- Requiring clear, plain‑language disclosure explaining how client cash is used, how it benefits the clients, and what interest rate, if any, clients may receive;
- Assessing the suitability of cash in advisory accounts, particularly where better options exist for clients; and
- Reviewing dealer cash‑management practices to determine whether they are in the client’s best interest.
A regulatory review of dealers’ use of client cash should be more than just a routine compliance exercise. With the implementation of Client Focused Reforms, it should prompt regulators to reassess long-standing industry practices from the investor’s perspective and to clarify what it truly means to act in the client’s best interest.