Print this article

How Advisors Are Cashing In On Cash

Charles Paikert

12 September 2023

Thanks to rising interest rates, cash is no longer an afterthought for financial advisors.

“No one was talking about cash a year ago; now clients are talking about it all the time,” said Michael Durso, chief executive officer at Shorehaven Wealth Partners. 

“As yields keep tacking up, you have to do something with that money.”

“Cash is now its own asset class,” according to Pat Nerney, vice president of investment solutions for Dynasty Financial Partners.

Indeed, a steadily increasing number of RIAs are offering clients cash management products from companies such as Flourish, MaxMyInterest and StoneCastle that are now yielding five per cent or more.

“We’ve added over 150 advisory firms to our platform this year and have doubled our assets under custody year to date,” said Flourish CEO Max Lane.

The company, which describes itself as a “fintech platform,” and also has a cryptocurrency business, launched in 2018 and was bought by MassMutual in 2021. It now works with over 600 RIAs according to Lane and has approximately $3.4 billion in assets under custody.

Attracting interest
Compared with interest rates paid by traditional bank savings accounts and money market sweeps from custodians, high yields are the primary attraction of accounts from Flourish, MaxMyInterest and StoneCastle. 

But interest from high net worth clients was also spurred by the crisis brought on by Silicon Valley Bank’s uninsured deposits this spring, said Chuck Cooper, managing partner at StrongBox Wealth.

“SVB was a real catalyst because it shined a light on what can happen if you have too much money in uninsured cash,” Cooper explained. 

Flourish insures deposits up to $10 million for a two-person household; MaxMyInterest insures an account from a couple for up to $8 million and StoneCastle insures accounts up to $25 million. 

Flourish does business with over two dozen banks and makes money on the spread between the gross yield and what it pays out to clients. MaxMyInterest describes itself as “a service that proposes optimal allocations of cash among your clients’ own bank accounts and then sends funds transfer instructions to their banks on their behalf.” Clients pay a fee of 0.04 per cent per quarter; advisors aren’t charged.

Advisors’ arsenal
The ability to offer high yielding cash accounts have become strategically important for advisory firms, according to industry consultant Mike Brynes.

“Wirehouses are not paying well on cash vehicles and these high-yield accounts have become big competitive advantages when RIAs are going after prospects,” Brynes said.

Cash accounts also provide advisors with “a holistic, big picture look” at a client’s full financial holdings and bring another element into the advisor’s ecosystem, allowing them to deepen client relationships, noted Dynasty’s Nerney. 

Cash management companies also tout advisors’ ability to view clients “held away” cash and integrate the cash accounts with reporting platforms, planning software and CRM tools.

Cash caveats
But cash management also comes with caveats.

“Asset allocation is important, and you don’t want to too much in cash,” Brynes warned. Durso agreed: “You don’t want clients sitting on the sidelines too long.”

“Why bother with anything other than US Treasuries, which have a five per cent yield, with no state income tax, at every duration going out two years?” asked Jonathan Bergman, president of TAG Associates.

Laird Norton Wealth Management has also recommended investing directly in short-term Treasuries for cash positions in cases where it makes sense on an after-tax basis, said David Baker, senior director of investment strategy.

But Laird Norton has been careful to “keep that guidance restricted to strategic cash positions versus altering our core fixed income,” Baker explained. 

“Bonds are arguably our most effective portfolio diversifier,” Baker said. “An inverted yield curve historically is a recessionary indicator and what has happened throughout history is that those shorter maturity cash exposures end up underperforming over the next couple of quarters or years as those relationships normalize with short-term rates typically coming down as the economy deteriorates.”

And what happens to those trendy cash accounts when rates do come down?

“People still want to keep a significant amount of their money in cash,” Lane said. “The average investor isn’t going to put all their money in the market. We see this as a very steady business.”