The benefits of bringing cash into focus for advisors and clients

We’re in the midst of a series of articles exploring all things cash. More specifically, the cash that people have outside their portfolio — usually in accounts earning minimal interest — and outside the purview of their advisor. In the first two articles, we looked at what held-away cash is and why people have it. Once advisors recognize the importance of cash and understand client motivations, then they can make the most of the advantages it offers. In this next part of the series, we’re taking a closer look at the benefits that bringing cash into focus offers for both advisors and their clients.

Throughout this series, we’ve shown there is a lot more cash out there than advisors realize and that clients have significant reasons for keeping it close. Advisors might be wondering what the incentive is to bring cash into their practice if — so far — business has been fine without it. From conversations with hundreds of RIAs, we’ve identified three key reasons why bringing cash into focus can have substantial benefits for advisors and their clients. 

1. Add client value 

As we discussed in the last article, clients have real reasons for holding cash, including for an emergency fund, for short-term liabilities, and to enhance their sense of security. While these cash reserves have typically been outside the advisor’s realm, that no longer needs to be the case.

Advisors who offer client access to a cash management solution with a competitive rate open the door to a variety of benefits: 

• Higher yield: Traditional bank accounts offer clients a low interest rate on their cash. According to the FDIC, a standard account earned 0.35% APY in February 2023, while competitive-yield accounts such as Flourish Cash¹ often provide over 10x the returns.² On a tactical level, this can be presented in terms of dollars and cents. Clients with a self-reported net worth of $1-2MM hold an average of $183,672 in Flourish Cash accounts.³ At our current top rate of 4.25% APY,⁴ they are earning more than $7,800 annually. In a standard account, that same cash balance would earn only $642. At current rates, the extra yield earned could pay for an entire vacation or offset half of the typical client's advisory fees. 
• Maintain liquidity: Unlike CDs and certain fixed income investments, cash remains accessible to clients. Advisors who can recognize a client’s internal motivations for wanting to retain liquidity will be in a stronger position to advise on the opportunities. 
• Increased happiness: Research has shown that people with larger cash reserves experience a greater sense of well-being.⁴ Advisors have the opportunity to deliver more value to clients by helping them optimize their held-away cash: increasing both the yield and their happiness. 
• Help clients with their businesses: Many clients are deeply engaged with businesses and nonprofits, which typically sit outside the advisory relationship. Through support for corporations, LLCs, nonprofits and partnerships, advisors can offer a value-add solution for another critical part of their clients’ financial lives.

Particularly when faced with challenging market conditions, enabling clients to earn more on their cash gives advisors a new opportunity to help clients reach their goals. “Telling clients to do nothing and stay the course can be some of the hardest advice to give,” said Flourish President Ben Cruikshank. “Now the story can be: ‘We’re not making any changes to the portfolio, but we’ve identified a major opportunity for you to reach your goals.’” Giving clients concrete steps to take can help them stay on track, while demonstrating that you’re working hard on their behalf.

A Tale of Two Rates:

Source: Flourish Financial LLC; data as of 01/13/2023, average balances calculated with respect to each household's non-zero Flourish account balances across all household accounts.

2. Bring assets into your orbit 

Gaining visibility of held-away cash can lead to better financial planning. Visibility can result in better advice, particularly when it comes to understanding clients’ needs outside the portfolio and helping them reach both their short- and long-term financial goals. Many independent advisors aim to offer clients holistic planning and taking held-away cash into consideration is an essential part of the picture.

In addition, bringing assets into your orbit can lead to better investing. Understanding how much cash your clients hold, and the reasons why, can help advisors gauge the right amount of risk to take in the portfolio, potentially increasing equity exposure when faced with larger than expected cash balances. 

In the situation where a client is holding more cash than anticipated, advisors can open a conversation about client goals, fears, and needs. If, working together, advisors and clients determine that the client is holding more in cash than is needed, it can open up a conversation about bringing excess cash into a fee-earning account within the portfolio. Visibility is key to starting the conversation. 

3. Defend against competitors 

In a time of increasing competition, advisors need to deliver more to ensure client – and asset – retention. As Flourish CEO Max Lane said in his year-end letter to advisors, “Critically important parts of your clients’ financial lives sit outside the portfolio, held away from you…Banks, startup trading firms, robo-advisors, lending platforms, crypto exchanges, and more are all attempting to win a portion of your client’s financial lives for themselves by focusing on these gaps.” 

Bringing cash into focus helps advisors fill in the gap and protect their clients’ assets from the hands of their competitors. As Cruikshank explained: “In FinTech, companies such as Betterment, Robinhood, Personal Capital and SoFi are all racing to become the all-in-one shop and have introduced cash solutions in recent years. Banks such as Ally and Marcus have hired teams of CFPs and integrated cash with their advisory teams to cross-sell affluent investors with their advisory services. Cash is either inside your orbit, or it’s not. And if it’s not, it’s some other competitors’ opportunity to pick off.” Advisors need to deliver more for their clients — or someone else will. 

In addition to client retention, defending against competitors requires client acquisition. “Most RIAs have high retention rates and don’t think they need to worry about competitive pressures,” said Cruikshank. “But the same RIAs often have low, single-digit organic growth rates. While you may not lose a client due to cash today, in ten years it could be the difference between being a firm that is acquiring and a firm that is being acquired.” Growth-minded firms are not only interested in serving the clients of today, but also bringing in the clients of tomorrow. 

Building your business through cash

With the greatest generational wealth transfer on the horizon,⁵ advisors have an opportunity to secure their position by focusing on their clients' holistic financial lives. Offering a suite of additional, exclusive products to clients can bolster your firm’s brand in a competitive market. Taking cash into consideration is low-hanging fruit. Access to a RIA-centric cash management solution offers clients tangible benefits while enabling advisors to gain essential visibility into their clients' financial lives, offer more holistic planning, increase their level of service, and defend against competitors. In the next article of the series, we will dive into how to initiate conversations about cash with clients at all levels. 

About Flourish

Flourish builds technology that empowers financial advisors, improves financial lives and retirement outcomes, and delivers new and innovative investment options to advisors. Today, the Flourish platform is used by more than 500 wealth management firms representing more than $1.5 trillion in assets under management. Flourish is wholly-owned by MassMutual. For more information, visit www.flourish.com.