Financial advisors are tasked with helping those that come to them for guidance take charge of every aspect of their financial lives.
But if
That was one of many cash topics tackled Tuesday during an event held by
Called "Cash Awakening: Exploring the CIO Perspective on Cash," the hourlong discussion moderated by Financial Planning Wealthtech Reporter Justin L. Mack called upon Brian M. Spinelli, co-chief investment officer at Halbert Hargove, and Kristi de Grys, chief operating, investment and compliance officer at Merriman Wealth Management, to break down how clients view cash, common use cases and how their firms are using modern cash management tools as part of a holistic advisory offering.
Flourish officials said the discussion was inspired by the fact that one of the most frequent questions they get from advisors across the more than 700 RIAs they partner with is how Flourish Cash works along with money market funds, Treasurys and other cash equivalents in the advisor toolkit.
In addition, the amount of cash that sits outside a client's portfolio and outside of an advisor's purview continues to exceed expectations.
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Because advisors can't easily see, manage or bill on that cash, it often goes ignored. Those aware of what they're missing can flip that into a business opportunity. But first, they need to understand why clients are keeping all that cash held away in the first place.
For de Grys, the reasons are both practical and psychological.
"One is liquidity. They need to spend it in the next three to 12 months. They have tax payments. They have spending needs, but they don't know what they're going to spend. And because we don't know what portfolio returns are going to be over the short term, it totally makes sense to a money in cash for most people," she said. "The second is that it's secure. And that's really less of an investment question and more of a psychological question.
"We think about that as a feeling of safety, a feeling of being in control, a fear of the unknown. And for those clients, they want cash."
Spinelli said one of the keys to breaking through and getting clients to come clean about their held-away cash is helping them understand the role the advisor is trying to play in their lives.
"It's about trying to guide clients versus being a spending cop. As far as cash, two years ago, it wasn't a conversation. Everybody was just complaining (that) they got nothing. But at the same time, their mortgage rates were also artificially low. But it has all changed," he said. "The environment is a lot different now. So as clients think about inflation, they think about just what their assets are doing for them. They need to maximize their cash returns as best as possible. And who knows if they're going to stick around for the long term, but at least in the current environment, it needs to be focused on."
He added that for many wealth management clients, the bucketing mentality comes into play.
"They want to see it in a separate account. They don't want to see it piled into a managed account where they're like, 'oh, that's (Halbert Hargrove's) money, so I don't want to touch it. Or I don't have to call them and ask them to liquidate," he said. "They really want a little bit more privacy to make the transfers and do it themselves and not have to feel like they're going to mom and dad for the allowance.
"Maybe it's a potential home purchase. Maybe they're saving for something long term and they just want that standalone account. These are the conversations that are coming up in client meetings in this environment."
Trust is also a major factor. De Grys said typically, questions about cash come up during client onboarding and are rarely revisited by many advisors.
As a result, issues of control and privacy creep in, motivating clients to provide only some of the picture instead of a complete view.
"They're building trust, and they don't know you … oftentimes, we find that they didn't tell you about something upfront, and then (for the client) it becomes, well, if I tell you about it now, it's an admission that they didn't trust you before," de Grys said.
What's interesting is that the truth does eventually set clients free, but it frequently happens during a changing of the guard.
"If an advisor has retired and we have a new advisor coming in to take on that relationship, it's surprising how often that new advisor is able to find out about this cash or these other assets," de Grys said. "I think the clients just feel uncomfortable because they didn't talk about it on day one. And three, four years into the relationship, how do you come forward and say, by the way, there's $1 million dollars I didn't tell you about. Or I've been keeping $500,000 on the side."
So once the trust issues are resolved, what do advisors who break through and have access to cash management tools stand to gain? Spinelli said there are big benefits in terms of competition and growth.
There is also an opportunity for RIAs to give affluent investors a safe spot for their cash as confidence in the banking segment wanes. Research released earlier this year by Cerulli Associates found that while most affluent investors are confident in the disposition of their own assets, just 59% indicate they are "very" or "somewhat" confident in the stability of the banking system itself.
More than half (52%) report a decreased level of confidence in the banking segment in the previous months because of 2023's collapses, and nearly two-thirds (63%) of investors favor increased federal regulation to reduce the likelihood of future crises.
"One of the things that we were running up against is, as an independent RIA, we had no banking arm. We were competing with entities that had a banking arm that were focused on client cash and then trying to transition that into fee-based management," he said. "This kind of levels out the playing field. This was a way to say, we can do something that they're sort of doing, too. But you can do it on your own without the sales pressure that you're going to get over there. So it was a way to kind of compete with some of these entities that have banks attached to them and also make it easy on the client to do it."
