On the surface, cash appears to be one of the least controversial asset classes, and it's usually not one that elicits strong feelings one way or the other among advisors.
That's a good starting point, but the fact remains that there are some "sins" advisors can commit when it comes to sizable cash positions. Specifically, sins of awareness, substitution and self-preservation.
After a couple of years of cash being essentially irrelevant, that script now has been flipped. Thanks to the Federal Reserve's late arrival to the inflation-fighting party, which has kept its foot to the floor on the rate tightening pedal since mid-year and through its most recent meeting. These activities, on top of Chair Jerome Powell's previous statements, have prepared us for sustained high rates likely into 2024.
As such, the dollar is the world's best-performing major currency this year, and cash is back in style. Those factors underscore the relevance of speaking smartly to clients about their cash, namely, their held-away cash that may be languishing in indifferent bank accounts outside of your purview, or worse yet, uninsured.
While cash may not be your forte or an asset class in which you put much focus, this held-away cash is an asset class that is deeply personal (and tangible) to your clients. It's time to get deeply personal and speak with them about it. And when you do, here are some common pitfalls — nay, sins — to avoid.
1. Lack of Awareness
The primary cash sin committed by many advisors is the sin of awareness. Which is to say they are committing it not realizing that there are options available to clients beyond CDs, money markets, and T-bills.
This is all perfectly good and practical as it relates to having cash on hand within clients' managed portfolios. However, convincing a client to move deposits from their bank into a pooled investment such as a money market fund or taking on duration in a Treasury has proven to be a high barrier.
Advisors have insured deposit solutions available to them today that offer higher rates than traditional banks and 100 times more FDIC insurance (yes, 100 times!). For high-net-worth clients, this is a 101 class in potentially achieving a higher rate with less risk.
Take it a step further. Suppose an ultra-high-net-worth client asks you for assistance in generating some yield on $10 million in cash. Getting a great rate is not that hard to come by.
But to get FDIC insurance in a traditional fashion would require the advisor to spread the client's assets across a staggering 40 bank accounts. That's burdensome and inefficient (think of all the monthly statements and 1099s).
Did you know this can be achieved through one simple account? Many don't know it exists, yet hundreds of your peers already offer it to their clients. It's good to be in the know.
