For Advisors, New Technology Brings More Cash Into View

Max brings more cash into view.

Max brings more cash into view.

After eight years of near-zero yields, clients are eager to earn higher returns. Financial advisors want to deliver greater returns without taking on more risk. Advisors are using a novel technology, called Max, to achieve both of these goals, helping clients earn more while growing assets under management.

Which asset class can generate an incremental 0.90% of return, without taking on risk or sacrificing liquidity? The answer lies in a forgotten corner of client portfolios: cash. Most investors are earning little to no interest on their cash held in their bank or brokerage accounts. Since yields have been so low for so long, most financial advisors don’t spend much time thinking about cash.  Instead they focus on higher-return asset classes like stocks, fixed income, or alternative investments.

But how much clients earn on cash can make a significant difference to the overall performance of their portfolios. Here’s the math: the average high-net-worth investor holds 23.7% of his or her net worth in cash, according to the 2015 CapGemini/RBC Wealth Report. Earning an extra 0.90% on that cash means the portfolio as a whole will earn 0.21% more. Because it’s cash in the bank — FDIC-insured — this incremental return is risk-free.

Max is an intelligent cash management service that automatically allocates clients’ cash between their existing checking or brokerage account and a portfolio of higher-yielding FDIC-insured savings accounts at the nation’s leading online banks. Most Max clients are earning more than 1.00%. By contrast, many bank or brokerage accounts pay only 0.01% or 0.02%.

How does Max help clients earn more on cash? By capitalizing on the efficiency of online banks. These institutions don’t have branches, and their lower cost structure allows them to pass along more yield to clients who deposit cash with them.

For financial advisors, offering Max to clients has the effect of bringing held-away cash into view. Over time, clients migrate cash towards Max, where they can grant their financial advisor read-only access to their balances through the Max Advisor Dashboard (a free service for financial advisors.) With the ability to see the cash that clients are holding, advisors can spark a new conversation about portfolio allocation, and often nudge some of this cash into higher-beta asset classes.

Max is not a bank, nor does it provide financial advice.  Max is a technology-driven tool that automatically optimizes a client’s cash balances among accounts at online banks held in the client’s own name. Clients retain direct access to their funds, maintain their relationship with their primary checking-account bank, and can continue to use all bank services like notaries and tellers.

Learn more about the Max Advisor Dashboard and how to invite clients to Max by visiting MaxForAdvisors.com. Or contact advisors@maxmyinterest.com with questions.

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The Best Deal in Fixed Income: Online Savings Accounts

Max members are earning approximately nine times as much on cash as the national average.

Max members are earning approximately nine times as much on cash as the national average.

We all know that interest rates have remained low for the last eight years, a deliberate policy on the part of the Fed to keep the cost of funding low to help spur the economy.  This has made it easier for people to borrow money to buy homes, propping up the housing market. It has been good for the stock markets, helping companies refinance high-cost debt and fund share repurchases.  And it’s been favorable to hedge funds as well, reducing the cost of leverage used to boost returns.

Where low rates have had a negative effect is on investors’ cash in the bank, which yields barely anything.

There’s something odd at play this time around, though.  Historically, money market funds yielded more than bank savings accounts.  No longer.  Most money market funds yield a small fraction of what is currently being earned by Max members.

Even more surprising, though, is the fact that term deposits and longer-term bonds are yielding far less than online banks these days.  The yield on the 2-Year Treasury stands at 0.84%, and 5 Year CDs at most brick-and-mortar banks hover around 0.60%. At Chase Bank, a 10-year CD pays 1.05% — and that’s only if you keep $100,000 or more in the CD, and lock up your money for 10 years.

We at Max are puzzled as to why investors would buy 2 Year Treasurys or lock their funds up in bank CDs when it’s possible to stay liquid and earn up to 1.05% on FDIC-insured bank deposits, with no minimum deposit level.

With rates expected to rise, online banks seem like the most logical place to keep cash. As interest rates go up, cash held in these accounts can be expected to follow the upward movement in rates. With Max, cash automatically flows to the banks with the best rates, even as these banks vie to offer the highest yield on savings. This happens while keeping cash safely below the FDIC insurance limits at each bank.

While hedge funds can’t take advantage of the higher yields available through online banks, individual investors can earn significantly more by keeping cash in these online accounts. Learn how MaxMyInterest.com can help with a fully-automated solution that makes it easy to open and manage online bank accounts, all without changing how you interact with your existing checking account.

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When Cash Beats Treasury Bonds

The U.S. Treasury in Washington, D.C. (Source: Treasury.gov)

The U.S. Treasury in Washington, D.C. (Source: Treasury.gov)

Certain truths are thought to be self-evident, like the idea that bonds always pay more than cash in the bank. In today’s interest-rate environment, that’s not true. The highest interest Max members can earn is now 1.05%, while the 5-year U.S. Treasury bond currently yields 1.03% and the 3-year bond yields 0.77%. It’s part of the worldwide flight to high-quality assets after the U.K.’s vote to leave the European Union. Many investors are worried that “Brexit” may severely hurt the world’s economy.

What does this mean for investors? Both yields are backed by the U.S. government; the Treasury bond is a government obligation, while Max members are holding their cash within FDIC-insured savings accounts at online banks that are also guaranteed by the government. So the risk profile is the same.

FDIC-insured bank deposits are fully liquid, meaning you can withdraw your money at any time. Bonds, on the other hand, aren’t risk-free; changes in interest rates can cause their prices to rise or fall, introducing what’s known as duration risk. If you buy a bond now and then yields rise, you’re locked in at the old, lower yield, meaning the market will be willing to pay less for your bond and the price will fall.  So unless you hold it to maturity — the entire five years — you’ll lose money.

While buying a Treasury bond means you’re exposed to changes in interest rates, Max members benefit from optimized rates. If the rates on their online savings accounts change, Max will automatically rebalance their funds into higher-earning accounts.

So why would anyone buy Treasury bonds?  Normally, if you’re willing to lock up your money for longer periods of time, you get paid more for taking that duration risk. But not today. At these yields, you can earn more with overnight bank deposits than you can even on a five-year Treasury.  This inefficiency impacts hundreds of billions of dollars of cash held by individual investors.

We built Max to make it easier for individual investors to more effectively manage the cash that they hold, whether it’s in their bank accounts or brokerage accounts.  Max simultaneously delivers higher yield and broader FDIC insurance coverage, with full liquidity, and without switching banks.  

The national average yield on cash held in savings accounts is 0.11%, and many bank and brokerage accounts pay even less. If you’d like to earn more on your cash, or are seeking broader FDIC insurance coverage, or want to keep your funds fully liquid and don’t want to take the risk of investing in Treasurys when it seems like yields have nowhere to go but up (and thus the value of those bonds have nowhere to go but down), keeping cash in high-yielding online savings accounts might be the answer for you.

You can learn more about Max by visiting www.MaxMyInterest.com.

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Introducing the Max Advisor Dashboard

For financial advisors, cash is often the forgotten asset class.

For financial advisors, cash is often the forgotten asset class.

High net worth households are holding about one-quarter of their assets in cash. But financial advisors say their clients have 10% of their portfolios in cash. These are the same investors; why the discrepancy?

Financial advisors are charged with managing their clients’ investment portfolios. That includes stocks, bonds, and other asset classes — but it frequently excludes cash. That’s because investors often hold cash across multiple institutions — in their checking account, brokerage account, and perhaps other banks as well — and may only tell their advisor about the portion of their cash they intend to use for investments. They may not realize that they could be earning significantly more on this cash, or that they should be apportioning it to take full advantage of FDIC insurance.

With the new Max Advisor Dashboard, when an advisor’s clients become Max members, it’s now possible for the advisor to see all client cash holdings in one view. This is good for both the advisor and the client.

The client gets all the benefits that come with Max membership, starting with more yield on cash: currently about 1%, or 10 times as much as the national average. Max automatically optimizes accounts for FDIC coverage, and makes sure members always are earning the maximum interest possible across their accounts. The client can optimize accounts on demand, instruct money to move from checking to savings and back, and receive one file with all their 1099-INT tax reports.

For the advisor, the benefit is in being able to offer clients a higher yield on cash than the current rate offered at most institutions. Gaining a view of clients’ cash held in different accounts means that advisors know what funds are sitting on the sidelines in case investment opportunities come up. And advisors can now have a conversation with clients about what the cash is for, and how to make the best of it.

Clients can grant their advisors read-only access to their Max account simply by adding their advisor’s email to their Profile page. In addition to gaining visibility over client cash balances, advisors will find additional materials on the Max Advisor Dashboard, including setup guides, explanatory materials, and a sample email to clients to let them know about this new offering.

Learn more and get started with the Advisor Dashboard now.

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Cash: Making the Most of a Turbulent Market

Be wise and optimize: Start with cash.

Be wise and optimize: Start with cash.

With the stock market off to a violent start to the year, many investors are looking to an asset class that performed better than equities last year: cash.

In 2015, most cash in the bank earned, essentially, zero: the average bank savings account paid depositors about 10 basis points, or 0.10%. But those investors savvy enough to put their money in online-bank savings accounts earned up to 1.05% on FDIC-insured cash.

That’s a healthy return, compared to the equities market. In 2015 the Dow Jones Industrial Average fell 2.2% and the S&P 500 declined by 0.7%, according to the Wall Street Journal. Poor returns are contributing to the growing number of pension funds and other institutional investors who are warehousing cash — as much as 10% to 15% of some portfolios, the newspaper found.

For individuals who also feel they should hold cash on the sidelines — either because they’ve adopted a conservative, capital-preservation stance, or because they want to reserve dry powder for market buying opportunities — the difference between 10 basis points and 100 basis points on cash is significant, particularly when compounded over time. It’s even more material when the stock market itself is in decline.

And rates probably won’t stay this low forever. Now that the Federal Reserve finally has raised interest rates, online banks likely will raise their rates more rapidly than bricks-and-mortar banks, because their cost structures are more flexible. Investors who already have online savings accounts for their cash will benefit from this trend. Those who use Max to optimize their cash will see higher rates automatically, when the banks raise them, since Max automatically helps funds flow to whichever banks are offering the highest yields.  

For cash held on the sidelines, it makes sense to earn as much as possible, while protecting principal by ensuring full FDIC coverage. Risk, and the volatility of risky returns, are for other asset classes. Cash is stable, and should churn out a steady yield while staying safe. Learn how Max can help investors earn more on the cash within their portfolios.

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The Role of Cash in Investor Portfolios

There’s global-volatility-roller-coasternothing like a little reprise of global market volatility to remind us that stocks don’t always go up.  That’s no reason to panic, of course, but sometimes it’s good to take a moment to reflect on portfolio theory and appreciate why most advisors don’t advocate a 100% allocation to equities.

Here at Max, we are not financial advisors, nor do we offer financial advice. Our goal is simply to help individual investors earn as much as possible on whatever portion of their portfolio that they — or their advisors — have chosen to hold in cash, while keeping it safe.  Today, our members are earning approximately 1.00% yield on their liquid cash, with FDIC insurance of up to $5 million per couple.  This works out to roughly 10x more interest income than paid in most savings or brokerage accounts and 20x more than most money market funds (which, it’s worth noting, are not insured.)

According to the most recent Capgemini/RBC Wealth Management World Wealth Report, 4.7 million high net worth households in North America — defined as those with more than $1 million of investable assets beyond their primary residence — are holding a collective $3.8 trillion dollars in cash & cash equivalents.  That works out to 23.7% of their portfolios.  Yet most financial advisors think that their clients are holding closer to 10% of their portfolios in cash. What accounts for the difference?  It seems as if Americans are more conservative than their financial advisors would seem to believe or advise.  They must be holding cash in other pockets — bank accounts, CDs, and money market funds outside the view of their advisors.

Why so much cash? There are several reasons. Some have to do with timing differences. A law firm partner might, for instance, receive monthly draws from the partnership, but pay estimated taxes quarterly. This results in a build up of cash that must be set aside to pay taxes. But if that cash is sitting in a regular checking or savings or brokerage account, it is likely dramatically under-earning its potential. Other households may be saving for a major purchase, such as a first or second home, or reserving funds against commitments made to invest in private equity funds. Again, cash set aside earning next to nothing creates a drag on the portfolio and represents a lost opportunity to earn on those funds.

Other investors are more strategic about their cash allocation. For some, it’s a hedge (amidst market volatility, where the values of stocks and bonds gyrate, it’s nice to have the comfort of an asset class that acts as a store of value.) For others, cash is an even more strategic asset – a form of dry powder, ready to be deployed when market opportunities present themselves.

For all the talk of cash being a zero return asset class, excess cash in a portfolio can also facilitate outsized gains. Looking back on the financial crisis of 2008-2009, an investor with cash on the sidelines, who was able to bravely dip a toe into the market while others were fearful, could have tripled her money simply by buying the S&P 500. Had that same investor been fully invested, she would have missed one of the greatest investment opportunities of our lifetimes. This past week’s market volatility again reminds us that having cash at the ready can mean the difference between fretting over falling share prices vs. capitalizing on opportunity.

Financial advisors should pay close attention to these statistics. Astute advisors know that they can deliver better financial advice if they have a truer picture of their clients’ assets, objectives, and risk tolerance. Bringing more of a client’s cash into view can help inform this discussion and lead to better investment outcomes. MaxMyInterest.com is one such tool that can be deployed to generate better returns for clients, both directly by way of higher yield, and indirectly, by assembling a pool of cash that’s ready to be deployed when volatility emerges.

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Intellectual Horsepower

01-2012-tesla-model-s-fd-1347336745Brains are replacing brawn throughout the economy.

So it’s not a surprise that the last bastion of American muscle, the automobile, is ripe for disruption. This week’s revelation – that Apple is developing an electric car that it hopes to bring to market by 2020 – is a logical, albeit ambitious, progression as Apple seeks to create the ultimate mobile device.

For the past 100 years, cars have been marketed on performance: horsepower, torque, engine displacement, acceleration. But what if user experience is more important? Fundamentally, all cars go from point A to point B. But how enjoyable and productive can that journey be? Perhaps rather than thinking about travel time, we need to think about productive travel time – the car, after all, is just another work space. By the time cars drive themselves (which, according to Google and Tesla, is not far off), a car can be a mobile office. Surely the new Apple car – by the time it is released in 2020 – ought to be self-driving.

The new horsepower, I would argue, is interface. Performance is taken for granted. For years, the leading Android phones have had more horsepower under the hood than the iPhone, with better technical specs across the board. But who cares? Apple has better software and a better-integrated user experience. And it’s Apple’s phones that command premium pricing, not because of the hardware, but because of the seamless melding of hardware and software (and some pretty great marketing too.)

hero-01-LHDTelsa – with its stunning Model S – has captured the heart of Silicon Valley. It encapsulates all the Valley’s values, and has become the car among VCs for all the right reasons: it’s modern, elegant, technologically superior, and changed the rules, disrupting a massive old-line industry in the way that only dreamers can. The vehicle is sleek and its performance metrics impressive, but what impresses people most is the stunning 17” touchscreen console. Picture a giant iPad running Google maps for navigation on top with your Twitter feed on the bottom. It’s an instant sale.

So what does this mean for Ford and GM and the rest of the major auto OEMs? Watch out.

Traditional auto companies have long operated under an assembly-and-test model. Most parts are outsourced. The only major component they build themselves is the engine, and that’s where all the margin is. It’s why the industry has resisted drivetrain innovation for so long. Take away the engine, and you take away the profit. Back in 2000, at least one of the Big 3 automakers had a fuel cell that was the size of a briefcase, ran on hydrogen, and emitted only pure water. Using this fuel cell, the company could have manufactured a zero-emission vehicle. But the project was scrapped, largely because swapping out the engine would mean saying goodbye to 100 years of production efficiency gains – and some $3,000 of profit per vehicle.

Beyond manufacturing, the major automakers are marketing companies. Each brand tells a story, and people tend to buy the brands that most closely reflect their values: luxury, performance, muscle, rebellion, family. But Apple knows a thing or two about marketing. With all the data collected from your iPhone, an expert system may already know precisely which model of car will suit you best, which could lead to dramatic efficiencies in producing just the right product mix for the market at any point in time.

How hard could it be for Apple to go from 0 to 60 in a whole new sector? Can they meet the ambitious goal of producing a world class automobile in 5 years, vs. the industry norm of 7? I wouldn’t bet against it. BMW recently did a study of how a switch to all-electric cars would impact their engineering staff. The result? 90% of engineers wouldn’t be needed. An electric vehicle is so much simpler to engineer, as there are far fewer moving parts, and fewer systems to coordinate. Eliminate spark plugs, pistons, oil, cooling systems, transmission, exhaust, and all the interplay between them and what’s left is a much simpler machine.

Apple exudes engineering prowess and style. And by controlling the car’s operating system, they can create a fully integrated experience. Imagine a self-driving car that reads your iPhone calendar and automatically drives you to your next meeting. And since your iWatch knows how well you slept the night before, the car can evaluate traffic patterns and see if there’s time to stop at Starbucks along the way.

What does all this mean for investors? Carl Icahn’s prediction that Apple will reach one trillion dollars in market capitalization may not be that far off. But the other end of that trade might be just as important: will the incumbent automakers be able to compete?

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5 Tips for Making the Most of Tax Time

IRS-hqYou’ve been smart all year long about how you organize your finances. Now that tax season is here, make sure you’re doing everything necessary to take advantage of your efforts during the past year. Here are our best tips for preparing for April 15th:

– Keep It Together

Prepare a file, and into it put all tax-related documents — W-2s, 1099s, and other forms — as they arrive in the mail. When you’ve collected all the forms you receive from employers, banks, and funds, sit down and scan them to your computer as PDFs (or take a photo of each on your smartphone) so that you can easily send them to your accountant. You’ll then be able to store them on your own computer or on a cloud storage service like Dropbox so that if you get audited any time in the next 7 years, you’ll have the necessary documentation close at hand.

– Know Your Interest

Gather 1099-INT statements, which detail the interest you’ve earned, for all your bank and brokerage accounts . If you’re a member of MaxMyInterest.com, you can use the new Consolidiated Tax Reporting feature to automatically gather all your 1099’s for you and put them into one password-protected PDF that you can print or forward to your accountant.  Couldn’t be simpler.

– Watch Your Calendar

If you are required to file taxes for different states or municipalities, such as New York City, you may have to keep notes on which days you are physically present in each place. To document these moves, be sure to keep taxi receipts, airplane boarding passes, and other papers that can prove where you were on a specific date. Scan them in case your accountant needs them in an audit.  For a more streamlined 21st century solution, try MileIQ, an innovative iPhone/Android app that leverages the GPS in your phone to automatically track your location and deductible mileage in an IRS-compliant manner.

– Track Your Deductions

If you’re entitled to take deductions for items such as mortgage interest or money you’ve contributed to a 529 college-savings account, be certain your accountant has the right documents to provide proof. Check your returns prior to filing to ensure these deductions have been properly incorporated into your returns.

– Make Charity Count

Keeping a spreadsheet of your charitable donations during the year helps at tax time.  You can maintain a running tally to ensure you’re donating your target percentage of income. Your accountant will also need printouts or digital copies of receipts for your donations. Don’t forget to include anything you’ve donated in kind, from school auction items to charity thrift shops.

Tax time is also a good time to review your investment strategy.  Were you careful about tax loss harvesting to match capital gains and losses?  Are your dividends and interest producing regular cash flow that you might want to divert into other investments?  If you’re not earning at least 1.00% on the cash portion of your portfolio, you might consider a service like MaxMyInterest.com to help generate incremental yield while keeping your cash FDIC-insured.

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American Express Raises its Online Savings Rate to 0.90%

What would you do with an extra 0.89% of interest each year?

What would you do with an extra 0.89% of interest each year?

Continuing the trend of rising interest rates, this morning American Express increased the rate it offers on its Personal Savings accounts to 0.90%. This represents American Express’ second rate increase in two months.

Online savings rates have been rising rapidly since December, with several banks now offering more than 1.00% in interest on FDIC-insured bank deposits. For investors, this represents a compelling opportunity to finally earn more on the cash portion of their portfolios after five years of near-zero interest rates.

This stands in contrast to the Bankrate.com national savings average, which remains stuck at a paltry 0.09%. Brick and mortar banks have much higher overhead costs than their online peers, which contributes to their lower rates. It’s the same dynamic that makes online shopping compelling: just as a toy might cost less at Amazon.com versus buying that same item at Toys-R-Us, online banks are able to pass on the efficiency of transacting online to their depositors by paying higher rates. Since online bank deposits are FDIC-insured in the same manner as brick-and-mortar bank deposits, depositors can rest easy knowing that their deposits at leading online banks such as GE Capital Bank, Barclays, Ally Bank and American Express are just as safe as deposits at their brick-and-mortar peers, so long as total deposits are held below the FDIC-insurance limits, currently $250,000 per bank, per depositor, per account type (individual and joint accounts count as separate account types.)

With Max, we’ve created a system that helps depositors mange their cash more intelligently. Our members link their existing brick-and-mortar savings accounts to a number of higher-yielding online bank accounts. Max then monitors changes in interest rates, and periodically tells your banks to transfer funds between your own accounts so as to maximize yield, even as interest rates change. By default, Max also helps keep your cash below the FDIC insurance limit at each bank, so that you know that your cash is safe. And with Max, there’s no change to the manner in which you interact with your existing bank – direct deposit, bill pay, and access to tellers and notaries remain unchanged.

With American Express’ latest rate increase, Max members are now earning a weighted average 0.98% on cash – that’s 0.89% more than the national savings average, and 0.97% than the yield on most money market funds. Today, many members are earning as much as 1.05% on their first $250,000 being optimized by Max.  And as rates continue to rise, Max members benefit automatically.

What could you do with an extra 0.89% of ‘found money’ each year? Save it, of course, and let it compound. Or donate it to your favorite charitable organization. Or take your family on a nice vacation. You can try out the Max calculator to see what this might mean for you.

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The Race to the Top is On

Screen Shot 2014-12-15 at 9.25.47 AM

Max members are currently earning dramatically more than the national savings average.

Barclays became the fourth bank in the past week to raise the interest rate it pays on online savings, raising its rate from 0.90% to 1.00%.  With this rate hike, savvy investors are able to earn 100x as much as they could in uninsured money market funds, or 10x more than they could in most brick-and-mortar bank accounts.  With individual investors holding $900 billion in U.S. money market funds today, were all these investors to use Max instead, they could earn a collective $8.9 billion more each year in interest income.

But what does that mean for an individual investor?  An extra 0.90% of yield amounts to an extra $900 per year per $100,000 of cash on deposit.  This is effectively found money, and it can be put to good use — reinvested to compound over time, contributed towards tuition or a family vacation, or donated to a charitable cause that’s meaningful to you.  You can use the Max calculator to see how much more you could earn.

Certainly, there are other ways to earn higher yield, but most involve locking up money for longer periods of time, or taking on risk.  With Max, cash is spread across your own FDIC-insured bank accounts at leading financial institutions such as Barclays, GE Capital and American Express, ready for you to access it when you need it.  Max tracks changes in rates for you, helping your cash move to where it can earn the highest yields, automatically.

You can learn more at www.MaxMyInterest.com.

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