The failures of Silicon Valley Bank and Signature Bank within a week of each other in March, followed by the more recent failure of First Republic Bank in early May, have frightened many investors and advisor clients. While cash is often an afterthought for both advisors and their clients, these recent bank collapses have moved this issue to the forefront.
These current dynamics provide a good opportunity for advisors to discuss some basic cash management options with clients.
Cash deposits at banks are insured by the Federal Deposit Insurance Corp. only up to $250,000. As interest rates continue to rise, clients may be interested in earning more on their cash than their bank is willing to pay. Cash management accounts can help advisors and clients solve both these problems.
In evaluating a cash management account, be sure to carefully consider all aspects of the account to ensure it aligns with your client's cash management goals.
What Are Cash Management Accounts?
Cash management accounts started to proliferate in 2019 as a feature of online investing platforms. Robo-advisors Betterment and Wealthfront, as well as the online brokerage app Robinhood, all introduced cash management accounts that year. Several major custodians, including Schwab and Fidelity, offer their own versions of these accounts.
A cash management account is less like a regular bank account and more like the sweep accounts common at brokerage firms. Some features set these accounts apart from high-yield savings accounts and bank accounts.
- Through partnerships with multiple banks and brokerages, cash management accounts are able to offer a higher limit on FDIC protection than traditional bank accounts.
- Clients already using brokerage platforms like Fidelity, Schwab and others who offer cash management accounts can have both banking and brokerage needs met in one place.
Cash management accounts at traditional brokerage firms vary in both the interest rates paid and in the features of the versions available for advisors to use in conjunction with client accounts.
Beyond Brokerage Accounts
We've seen several third-party cash management apps geared toward advisors and their clients come to prominence recently. Here is a look at three of these services.
MaxMyInterest
MaxMyInterest allows financial advisors to view client account balances across linked checking and savings accounts regardless of the reporting or planning software used by the advisor. This tool integrates with a variety of popular reporting platforms, planning software and CRM tools used by advisors. The service is free for advisors. Clients pay a fee of 0.04% per quarter with no minimum account requirements.
The service also proposes an optimal allocation among a client's linked bank accounts to help maximize interest and to ensure they stay within FDIC limits across their accounts.
MaxMyInterest monitors interest rates in bank accounts daily. Once per month, it proposes an optimal allocation of a member's cash among bank accounts to maximize their returns.
Max is independent of any financial institution. A Max checking account links to bank and brokerage accounts at a number of U.S. institutions. Additionally, customers can link directly to accounts at 18 of the largest bank and brokerage firms in the country, including Fidelity and Charles Schwab.
MaxMyInterest clients can earn up to 5.1% interest on their deposits.
Flourish
Flourish, a wholly owned subsidiary of MassMutual, is available to financial advisors by invitation only. The company offers cash management services for advisors, as well as the opportunity to invest client assets in cryptocurrency. Its site indicates these functions are completely separate from each other.
On the cash management side, Flourish touts itself as a solution for clients' held-away cash. Its advisor-centric solution helps bring this cash back into the advisor's orbit. The service indicates it can be a good source of referrals to advisors as many individual investors have questions about managing their cash.
