Why Advisors Should Care About Cash
By FLOURISH
In a July 2024 conversation with Morningstar, financial planning expert Michael Kitces described a ‘crisis of differentiation’ in the wealth management industry, which challenges advisors to create clearly recognizable value for their clients in a market where many services appear similar. The crisis, he explained, highlights the need for advisors to find unique ways to enhance their client offerings.1
While developing a long-term strategy is essential, there are immediate opportunities to stand out. One simple yet powerful tactic is for firms to bring held-away cash into focus. As of September 16, 2024, the FDIC reported that the average national savings account paid 0.46% APY.2 Supporting clients with a high-yield cash solution can substantially improve their returns beyond what they could earn from a standard bank savings account, creating a quick win for advisors.
Bringing cash into advisor workflows
One of the challenges with cash is that it typically lives outside of advisor workflows. While an advisor may recognize the potential value of helping clients earn more, the reality is that if a client’s cash is outside of their visibility, they may fail to offer a solution at the moment it’s needed. What is a challenge for some firms can be an opportunity for those who leverage technology to systematize their business — particularly firms with CRM at the center.
That’s why we’re so excited to announce our integration with Practifi, which allows advisors to invite clients to Flourish Cash from directly within Practifi, prepopulate client applications using CRM data, and view account information alongside other client details. The integration allows advisors to move directly from reviewing and updating client records to sending invitations, helping to bridge the gap between holistic advice to seamless execution. It is paramount that the tools advisors use every day marry planning and advisory best practices to create efficient, standardized workflows in order to maximize value for clients.
Your clients hold more cash than you think
Research suggests that high net worth individuals hold substantial cash, often to the surprise of their advisors. According to a 2022 Capgemini World Wealth report, people with $1 million or more in investable assets keep an estimated 20% of their net worth in cash.3 Flourish Cash4 account data shows similar habits, with clients with a self-reported net worth of $1-2 million holding an average of $194,716 in cash. Meanwhile, those with $5-10 million held an average of $390,631.5 Bringing these reserves into view can enhance financial planning and risk management, adding significant value and differentiating your practice.
Not only does paying attention to client cash create a differentiator for firms, but also helps to defend against competitors. Flourish President Ben Cruikshank explained, “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.”
Supporting clients’ financial and emotional well-being
Cash is often emotional and it’s important for advisors to recognize the psychological benefits clients derive from having cash on hand. Research suggests that individuals with higher cash balances feel more confident and satisfied with their financial situation. Specifically, studies have shown that people with more significant cash reserves experience greater well-being, regardless of their income, investments, or debt levels.6
When it comes to understanding why clients hold cash, Dr. Daniel Crosby, Chief Behavioral Officer at Orion Advisor Solutions, recommends assuming a stance of curiosity. Clients appreciate when advisors incorporate this holistic and emotionally-informed viewpoint into their process. By helping clients optimize their cash holdings and earn a more competitive yield, you can create an easy win for them. Further, ensuring proper FDIC protection is also a critical part of the equation, helping clients feel more secure about their cash holdings.
Benefits for advisors
There are key benefits to adding a cash-management solution to your practice:
- Create Value for Your Clients. Helping clients shift their low-earning savings into a well-insured, higher-yield cash account quickly affirms the value you deliver. For instance, a client with $150,000 in Flourish Cash accounts would earn $6,750 annually at the variable rate of 4.50% APY7 at time of publication, compared to just $690 in a standard account.
- Increase the Visibility of Client Assets. Increased transparency can lead to better financial planning and investing decisions. Further, our data analysis shows more deposits flow from Flourish Cash into brokerage than the other way around.8 Consequently, some of those assets are likely to eventually flow to a fee-earning portfolio. Open conversations about optimizing cash allocations and deploying funds as interest rates drop can make that conversation far more natural.
- Stand Out in a Crowded Landscape. In an increasingly competitive market, advisors must offer more comprehensive services to attract and retain clients. “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.” By focusing on cash, advisors can defend against competitors and enhance client retention and acquisition.
Starting the cash conversation
Since emotions are usually tied to a cash allocation, it is critical to understand that clients may need education and encouragement to make a change. Here are some strategies that may help.
- For existing clients, make cash a recurring topic during quarterly meetings. Simple questions like “How much cash are you holding?” and “Do you know the rate you are earning?” can open the conversation. By presenting options offering competitive rates and increased FDIC insurance, you show clients that you’re proactively looking out for their best interests.
- Addressing cash can be a smart move with prospects as well. Introducing cash solutions at the start of a new advisory relationship can demonstrate immediate value and a holistic approach. Also, discussing cash can set you apart immediately for new prospects looking for more comprehensive financial planning
Key takeaway: Opportunity knocks
Advisors should continue seeking ways to differentiate their services and create value. While interest rates and FDIC coverage remain in the news, adding cash management can be a relatively simple but timely way to gain an edge. Even as rates decline, helping clients think strategically about cash holdings can help secure your relationships and deepen trust.
To learn more about elevating your practice with a cash management solution, download The Cash Opportunity eBook or read the Flourish blog for more information.
