Cash is providing far from kingly returns, but that may be just the opportunity advisors need to add value, retain clients and capture wallet share.
Getting strong returns on investor cash is becoming increasingly important as the Federal Reserve, which held interest rates near zero for more than half a decade, began to raise rates at the end of 2015 and is predicted to continue raising them. Among advisors, particularly those explaining to clients their decision to break away from large broker/dealers (especially those b/d's offer just a few basis points on cash deposits) better interest rates on cash and cash equivalents can be a strong factor in client retention—and can even lead to an advisor increasing his or her share of wallet.
Advisors may be experienced at educating clients with lower total household wealth about the advantages of investing cash instead of keeping it in savings or checking accounts, but high net worth individuals, in particular, tend to hold outsized amounts of cash. Citi Private Bank clients who have more than $25 million in investable assets still hold about 22 percent of their wealth in cash, according to the bank’s global head of investments, David Bailin, in a recent Barron’s report. Ultra-high net worth individuals have behavior “similar to retail except it was worse,” he told the publication.
High net worth clients often keep such high levels of cash as “dry powder” said Gary Zimmerman, CEO of MaxMyInterest, which offers a cash management tool for both individual investors and advisors. The company recently announced that Dynasty Financial Partners was adding its tool, Max, to their platform. The tool is designed to reallocate cash among high interest online banks, maintaining what is now 170 basis points of arbitrage alpha from rates offered at brick and mortar banks, according to Zimmerman. Max’s current cash return yield is 1.81 percent and is FDIC-insured.
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