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Advisors finally being forced to reckon with client cash


Advisors finally being forced to reckon with client cash

For the first time in a long time, advisors are being forced to think about cash.

Stashing excess client funds wasn’t an issue for financial advisors at the start of 2022, because cash was barely generating any return. With the federal funds target rate at 1.5% back then and money market rates close to rock bottom, the default custodial cash sweep option was not top of mind for wealth managers.

Why would it be? Cash is for spending in a low-rate rate world, not for investing.

Fast forward a year and a half, not to mention 11 Federal Reserve rate hikes later, and suddenly financial advisors have real decisions to make about the cash in their clients’ accounts.

“Cash is finally back,” said Jack Heintzelman, financial planner at Boston Wealth Strategies. “We are looking at high-yield savings money markets for short-term goals and needs. You can get over 4% in most high-yield savings money markets.”

For more specific time frames that don’t require near-term liquidity, Heintzelman is also using CDs, which now pay more than 5% in yield. Treasury bills are another option he’s using, another testament to the perhaps overwhelming array of choices now facing advisors in what was once a neglected asset class.

“Money markets are certainly very attractive now compared to where they were two years ago. They have become a viable short-term solution for anyone that has excess cash, needs liquidity and wants to take advantage of the current high yields in this rising-rate environment,” said Chris Mankoff, partner at JTL Wealth Partners.

Mitchell Kraus, financial advisor at Capital Intelligence Associates, believes the rise in interest rates is ushering in a new era of choice for clients.

Among the ideas he’s currently discussing with clients in higher tax brackets who can stomach a little short-term volatility are short-term municipal bond funds, which can create an even better after-tax return than some other options. And for clients with a more definitive time frame, he’s been buying short-term Treasuries that are “both safe and are yielding better than most bank savings accounts.”

Jon Swanburg, president of TSA Wealth Management, sees value in using “alternative money market funds with significantly higher rates for excess cash.”

Imagine that. Just a year ago all the buzz was about generating income through often illiquid alternative investments — now advisors are seeking out highly liquid alternative money market funds to do right for their clients.

“We are making sure we have our cash working for us in either high-yield savings, CDs or Treasury bills. With so many safe, easy, liquid options, anything beyond our working capital or daily account should be earning interest now!” said Catherine Valega, wealth consultant at Green Bee Advisory.

Now that cash is king again, even more short-term options are on the way as fund providers seek to differentiate themselves based on something other than yield.

For example, Dreyfus announced this week the launch of SPARK shares, which offer a charitable twist on money markets. The fund enables clients to use their highly liquid investment to direct a donation to an eligible nonprofit organization of their choice.

“We will take 10% of our net revenue on their average balance over the course of the year and allow them to choose the charity to donate that to based on what’s in the hearts and minds of their employees, and what’s in the hearts and minds of their boards and other key stakeholders. So that customization element is really bringing us closer to clients,” said Stephanie Pierce, CEO of Dreyfus, Mellon & Exchange-Traded Funds at BNY Mellon Investment Management.

While there are currently options aplenty for advisors seeking short-term parking spots for excess funds, Pierce still expects more products to hit the market now that cash has clout again. And that’s fine with her.

“There’s always room for more innovation,” she said. 

High-yielding, ESG-friendly water stocks offer more than just liquidity


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