BROKERAGE FIRMS' `FLOAT' TIME CAN ADD UP TO BIG COST.

Byline: Marcia Vickers The New York Times

Edward Cowan doesn't miss much. A former journalist, he discovered three months ago that when he deposited several thousand dollars into his money market account at a brokerage firm, the money did not begin to earn interest until five business days later.

``The branch manager told me it was a new policy, but I'd never heard of it, and I've been a customer there for 17 years,'' Cowan said. ``I was really hot about it.''

Indeed, Cowan, who lives in Washington and is the manager of an investment research firm, became such a squeaky wheel that the branch manager at his brokerage firm, Quick & Reilly, took action. He coded Cowan's account so that money would start to earn interest only two business days after deposit.

Is the issue small potatoes? Imagine a customer who deposits $10,000 into a money market account at Quick & Reilly. If the account carries an annual interest rate of 5 percent, the customer would be out $4.11 or $6.85, compared with those who fight to get the two-day treatment. The difference depends on whether the two business days encompass a weekend.

That may not seem like much, but if investors make deposits frequently, it can add up. And in the world of money market funds, where a fund strives to offer returns that are one basis point - one-hundredth of a percentage point - higher than its competitors', these policies can matter.

In the example, the lost dollars would cut the customer's annual return from 5 percent to 4.96 percent or 4.93 percent - four or seven basis points lower.

``It's a competitive issue among brokerage firms and a detail that customers rarely look at,'' said Joe Ricketts, chief executive of Accutrade, a discount broker in Omaha.

In the aggregate, of course, the ``float'' - the amount of time that deposited cash sits idle, without earning interest for the customer - can mean very big money for a firm. There is now $257.8 billion in United States money market accounts at brokerage firms.

A difference of four or seven basis points on that amount is $103.1 million and $180.5 million, respectively.

Brokerage firms generally have been free to impose as long a float as the market will bear, said Larry Kosciulek, an assistant director at the National Association of Securities Dealers.

Few regulations govern this lucrative area, with the float usually a matter of contract between a brokerage and its customers.

``Only if a brokerage is sitting on the money'' after its designated float period had passed, Kosciulek said, ``would we say it is a violation of our rules.''

Brokers follow a variety of policies, both in straight deposits to their money market funds and in the frequency of the ``sweeps'' of money from a cash management account into a money fund.

At Charles Schwab & Co., for example, credit for interest generally begins on the second business day after a check is deposited. Olde Discount has the same five-day policy as Quick & Reilly. And another broker, the Stock Mart, sweeps all cash deposits under $1,000 into money markets once a week, on Friday, so a customer who deposits a check Monday would have to wait until the end of the week to earn interest.

Because of the sums at stake, are some firms lengthening the float? ``With more discount brokerages cropping up, this is becoming a trend,'' said John Markese, president of the American Association of Individual Investors. ``They are getting you in the door with very low rates because they have no choice; it's a very competitive marketplace.''

While the float represents another cost for investors, he said, it seldom is a primary consideration in choosing a discount firm - and brokers know it.