How cash is honing my RIA's competitive edge

For years, the contents of clients' bank accounts have gone overlooked by financial advisors, regardless of FDIC insurance limits or competitive interest rates. However, the prospect of rising rates combined with the specter of last year's bank failures are making advisors reconsider the role of cash in conversations with clients.

At our firm, a $2.7 billion RIA that serves over 750 clients, cash has never been an afterthought. Our clients often hold substantial amounts of cash — more than we might anticipate — a trend corroborated by Capgemini's 2023 survey of over 3,000 high net worth individuals and wealth management professionals. It found that 34% of high-net-worth investors' portfolios comprised cash or cash equivalents outside the portfolio, including CDs and money market accounts. 

Though it may seem counterintuitive to think of cash as a key component in a clients' investment portfolio, it's our responsibility as fiduciaries to guide clients through the always changing market landscape. Today, when clients are asking for a more holistic approach to their finances from their advisors, it is especially important that we consider all types of assets, and that includes cash.

Initiating discussions about clients' cash holdings is just the first step; subsequent conversations should focus on securing better returns while increasing the amount of their FDIC insurance. While retail solutions have been around for decades, today there are advisor-focused cash management solutions that can benefit the client and the advisor. 

At our firm, we adopted a cash management solution, Flourish Cash, in early 2019, and eventually onboarded over a thousand households. The platform allows RIAs to offer their clients access to competitive-yield cash accounts with elevated FDIC coverage while giving advisors visibility into held-away cash. We were proactive in its implementation, integrating it into every client's agenda and conducting twice-yearly reviews of cash holdings. This approach led us to discover previously undisclosed assets, largely in checking and savings accounts in clients' banking institutions. To date, our clients collectively keep over $100 million in assets on the platform. They earn substantially more interest and, through the program banks, are protected by more than 10 times the FDIC insurance as compared with big banks.

On our end, our team appreciates being able to see if a client has signed up and how much they've put in the account. By integrating cash into regular portfolio reviews and performance assessments, our advisors have the data to explore opportunities to invest not only cash but its earnings in fee-earning portfolios.

READ MORE: Understanding why clients hide held-away cash

The modern independent RIA model is easily threatened by other service providers. Bringing cash into the conversation helps our firm maintain our competitive advantage. An in-house solution prevents clients from seeking alternatives with national and regional brokerage firms or robo-advisors offering high-yield savings accounts. As an independent RIA, an integrated, scalable cash management approach is one of the elements that sets us apart. 

Even better, the financial benefits for our clients are evident. In the first half of 2023, our client accounts collectively earned over $1.75 million in interest through Flourish Cash. Clients consistently express their satisfaction when they receive their tax statements, which reveal substantial returns on their cash holdings. By simply asking clients about their cash holdings, advisors can capture more wallet share while providing attractive yields. 

Providing a compelling interest rate on cash reserves encourages clients to take financially responsible steps, enhancing their financial well-being. Cash management has not only fortified our financial planning but also added a layer of security against competitors and brought hidden assets to light. Clients with small businesses, in particular, benefit from cash management solutions, given the higher risk associated with FDIC limits. That's hard to ignore. 

Cash is indeed making a resurgence in financial planning, offering both advisors and clients the opportunity to grow.