Wealth Strategies
How Advisors Are Cashing In On Cash

Rising interest rates have reminded investors of the attractions of holding cash in certain circumstances. Our US correspondent talks to a variety of wealth managers and specialist firms about cash and what people are doing.
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.”