When it comes to cash, some financial advisors are missing the forest for the trees.
They might occasionally bellyache about cash left over in client investment accounts (to the benefit of their custodians). Some wrongly assume clients tell them everything; they would know if clients had large sums of money sitting in checking accounts. Other advisors might not be fussed at all about clients’ cash, which they aren’t managing and charging a fee for anyways.
But framed differently, the multitrillion-dollar asset class might pique the interest of more wealth managers.
Cash management solution providers say investors and advisors alike stand to benefit from leveraging their services. Investors can get far better interest rates compared to most checking or savings accounts. Meanwhile, advisors can offer a better service, discover held-away assets, and improve the advice they give with more client information. Cash management can also lead to more assets under management and make it harder for clients to leave an advisor.
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Advisors who don’t think their clients have a lot of cash might simply be unaware of it. In 2019, UBS surveyed 121 of the world’s largest family offices that had an average total worth of $1.6 billion and found they were allocating 13% of their portfolios to cash — a reflection of the uncertainty heading into 2020. Less wealthy investors allocate even more. Last year, high-net-worth individuals held 22.1% of their assets in cash and equivalents, according to the Capgemini World Wealth Report.
Cash management services are not new. But companies are hard at work to make it easier for advisors to extend their services to clients.
Stone Ridge, an alternative investment manager with $10 billion, created Flourish Cash, which attracted 350 RIAs (including Buckingham Strategic Wealth), then sold it to MassMutual in December. This week, Focus Financial announced that it partnered with Orion Advisor Solutions to add its cash, credit, and related services to Orion’s advisor platform.
MaxMyInterest, another cash management solution for financial advisors and their clients, said Wednesday it integrated with Redtail Technology, its first partnership with a client relationship management, or CRM system. Embedded in the software, advisors can send an email to clients encouraging them to sign up for Max with one click.
Max users can earn up to 0.75% APY on same-day liquid, FDIC-insured cash, a much better rate compared to the national average of 0.05%, the company says. “It’s basically alpha on cash,” Gary Zimmerman, the founder and CEO of Max. Advisors can use white-labeled versions of the platform.
“We like to think that advisors, first and foremost, use Max because it helps clients do better. But it helps advisors do better because of that visibility,” Zimmerman told RIA Intel.
Before joining F2 Strategy, a technology and marketing consulting firm that also serves as an outsourced CTO to wealth managers, Joe Price worked and consulted for First Republic and private family offices. For family offices in particular, which have numerous accounts dispersing cash to other accounts and various recipients, cash management solutions are critical to efficiency. In turn, they become another reason super rich families stick with specific institutions. If an RIA can offer something similar to their clients, their clients might also be deterred to leave, he said.
How impactful cash management solutions will be on independent wealth managers, and how many end up using the services, remains to be seen, Doug Fritz, the CEO and founder of F2 Strategy, said. RIAs genuinely focused on giving holistic advice to clients and serving as a central point of influence in their financial lives will want clients’ cash under their purview. Others might not.
“Growing, yes. Disruptive, no,” Fritz said about the RIA market for cash management solution providers.
In addition to other benefits, cash management firms might someday be capable of gleaning valuable information from investors and sharing it with advisors, Price suggested. For example, an advisor could be alerted of unusual cash account activity, mitigating fraud or other ill-conceived actions.
Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.