Financial advisors play a crucial role in helping clients achieve their financial goals. While the focus is often on stocks, bonds, mutual funds, ETFs and other investment offerings, there’s untapped potential that many advisors overlook — cash! There’s a significant opportunity to capture more wallet share from clients simply by asking about their cash holdings. By initiating this dialogue, advisors can uncover potential growth opportunities, strengthen client relationships and increase firm AUM.
The first step is to gain an understanding of clients' cash holdings. Many individuals hold significant amounts of cash in their bank accounts, whether for an emergency fund or an upcoming life event and many advisors I’ve spoken with are often shocked at how much cash their clients have in the bank.
Studies show high-net-worth individuals hold more than 20% of their net worth in cash. With current market conditions, we are witnessing higher yields on cash offerings — a trend that has attracted investors' attention. A survey by Allianz Life found 62% of Americans said they would rather keep their money in cash than endure market swings. Discussing cash holdings can help advisors gain insight into clients' risk tolerance, liquidity needs and overall financial picture.
Now that you know about their cash holdings, where is that cash? While cash provides stability and accessibility, it often generates minimal returns when held at big money center banks. The second step for advisors is to educate clients about the opportunity cost associated with holding excess cash in low-interest-bearing accounts for extended periods. With inflation eroding purchasing power, highlighting the need for alternative cash allocation strategies, such as high-interest savings accounts, is a simple and effective way to help clients reach their financial goals.
Fortunately, there are solutions available that allow clients, through their advisors, to achieve better returns on their cash while keeping funds liquid and secure in FDIC-insured accounts. After opening the conversation about client cash holdings, the final step is to talk about solutions. Bringing cash into advisors’ orbit allows them to incorporate cash into regular portfolio reviews and performance assessments, while opening up an opportunity for advisors to discuss whether some of the cash — or even just the earnings — would be better suited to investment in a fee-earning portfolio.
Steve Atkinson, managing director of advisor relations at Buckingham Strategic Partners, brought in such a solution and noted the fact that a cash management solution that lets advisors “play a part in helping clients implement and execute is a huge value-add. It allows us to lean into the cash conversation instead of avoiding it.”
Leaning into cash can generate a new pathway to growth for advisory firms. Let's consider a hypothetical scenario: A $1 billion registered investment advisor with an average client account size of $2.5 million may not be aware that its 400 clients collectively hold more than $150 million in cash that’s not currently invested. Even if a small portion of that cash finds its way into the investible portfolio, it could have a notable impact on the firm's organic growth rate.
Conversely, neglecting the conversation about cash holdings can provide an opportunity for competitors to step in. Clients who keep their cash in conventional banks with wealth management divisions are likely to receive promotional emails and calls when their account reaches a certain threshold. To counter this competition from private banks and wirehouses — as well as the increasing threat of robo-advisors, which also offer competitive yield solutions — it’s crucial to provide added value and increase share of wallet as an advisor. Consider excess cash as the bridge between clients' checking accounts and their investment portfolios, making it a routine quarterly discussion topic — particularly in this high-interest-rate environment, when clients' attitudes toward cash and their savings behavior may evolve monthly or quarterly.
Asking your clients about their cash holdings can open doors to capturing more wallet share and expanding your role as a trusted financial advisor. By understanding their cash allocation, educating them about the opportunity cost, exploring diversified investment opportunities, providing customized solutions and offering ongoing financial education, you can help your clients optimize their wealth and foster long-term gains. Remember, it all starts with a simple question: "How much cash are you holding?"
Max Lane is the CEO of Flourish, whose platform is used by more than 600 wealth management firms representing more than $1.5 trillion in AUM.
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