New SEC rules offer an opportunity for advisors and their clients to reassess their strategies around liquid cash.

Major changes are on the horizon for money market funds. Following the 2008 Financial Crisis and the pandemic-induced stock market plunge in March 2020, the U.S. Securities and Exchange Community adopted new rules designed to discourage massive outflows and prevent future instability.

Under new regulations announced on July 12, 2023, money market funds—which are short-term-oriented pooled investment vehicles—will be required to keep at least 25% of their funds invested in assets with daily liquidity, and 50% of their assets must be kept in securities that are liquid on a weekly basis. Moreover, holders of institutional prime and tax-exempt money market funds will pay mandatory fees when a fund is forced to pay out daily redemptions that exceed 5% of fund assets. This essentially means that when the next period of market volatility arises, client returns could be significantly impacted.

Advisors have long considered money market funds as a safe place to transfer client assets prior to deciding where to invest longer term, or for storing emergency cash reserves. But these new rules may change that calculus, and advisors would be smart to further scrutinize money market funds before allocating client cash to these vehicles.

What do these new rules mean for clients? Here are five reasons why now is a good time to rethink money market funds and consider instead helping your clients move their cash into high-yielding FDIC-insured savings accounts:  

1. Liquidity rules may drive down yields. The new regulations around liquidity will force fund managers to migrate fund holdings to more liquid investments. Part of how money market funds deliver high yield is by taking duration risk by purchasing longer-dated securities, so a regulatory mandate to curtail this activity can be expected to drive down returns.

2. Clients are at risk of paying added fees. With the rule change, certain money market funds with 5% or more daily redemptions must impose liquidity fees, meaning the remaining investors in a fund will have to bear the burden of those added costs, further diminishing returns.

3. Money market accounts are not FDIC-insured. Many investors mistakenly believe that money market funds are insured by the Federal Deposit Insurance Corporation. They’re not. In fact, during the financial crisis, the Reserve Primary Fund “broke the buck,” meaning clients didn’t get back 100 cents on the dollar. Ironically, investors in money market funds often earn less than they could simply by keeping their cash in FDIC-insured bank accounts. In short, by purchasing money market funds, clients are often taking on more risk and earning less return.

4. Beware of brokered deposits. Because the FDIC only guarantees up to $250,000 per depositor, per account type, per bank charter, depositors must be vigilant about staying within these limits. Many banks and brokerage firms offer a service known as cash sweeps, which route client cash to an intermediary that in turn spreads cash across a network of other banks. But this service can be risky, as assets are held in omnibus accounts and are not custodied directly in the depositor’s name. If the originating institution brokering the deposits were to fail, clients could temporarily lose access to all their savings. Moreover, if clients already hold deposits at another bank, they may unknowingly exceed FDIC limits. It’s smarter (and safer) for clients to hold cash directly in their own names in their own accounts at multiple FDIC-insured banks.

5. Clients can avoid needless risk by opening high-yield savings accounts. Instead of investing in money market funds, clients can often earn a higher yield that is also FDIC-insured by opening high-yield savings accounts. Some online banks are currently paying rates above 5%, which are FDIC-insured if depositors keep deposits below applicable limits. These accounts are also more liquid, titled directly in the client’s own name, with the ability to withdraw funds the same day. Services like MaxMyInterest can help clients parcel out their cash across multiple bank accounts held directly in the client’s own name.  In doing so, clients can increase their FDIC insurance coverage while earning market-beating yields of up to 5.30%, without the risks inherent to brokered deposits.

When advisors build portfolios for their clients, they must balance risk with reward. Clients who have a higher appetite for risk stand to earn potentially higher returns. But money market funds upend the traditional risk-reward continuum, as investors are essentially assuming higher risks while settling for lower returns. Why would you take on the risks of a money market fund—however small—when there are safer, more liquid, and higher-yielding options available for clients?

The new SEC rules offer an opportunity for advisors and their clients to reassess their strategies around liquid cash. Most advisors will find that clients are better served by spreading their money across a network of high-yield savings accounts that are insured by the full faith and credit of the U.S. government. 

Gary Zimmerman is CEO of MaxMyInterest, a service that offers cash management solutions for financial advisors and their clients. For more information about Max, please visit www.MaxForAdvisors.com.

 

In the weeks since the sudden collapse of Silicon Valley Bank, other banks, brokers and fintechs have scrambled to roll out increased FDIC insurance solutions to capitalize on the opportunity to attract new deposits. Unfortunately, in the mad rush to roll out something, anything, they are exposing your clients to the very same risks that they should be seeking to avoid.

The collapse of SVB was scary for depositors for two reasons.

First, when a bank fails, any deposits in excess of $250,000 — the Federal Deposit Insurance Corp. limit — leave depositors unsecured, which means they may not get all of their money back.

Second, when a bank fails, even insured deposits can’t be withdrawn until the FDIC takes over the operations of the bank or orchestrates a sale. 

If you think about why clients hold cash, it’s for safety and liquidity. Any solution that puts either safety or liquidity at risk would defeat the purpose of holding cash. That’s why we created MaxMyInterest.com and MaxForAdvisors.com, to create a better, safer, more liquid, and higher-yielding way for clients to manage cash.

The Problem With Sweep Accounts

For decades, banks and brokerage firms have used sweep accounts (known in the industry as brokered deposits) to earn a spread for themselves on client cash. While these solutions are marketed to clients as a means of keeping cash safe by obtaining increased deposit insurance, if you peek under the hood, you’ll find that they expose clients to safety and liquidity risks and are rife with conflicts of interest. 

To identify these risks, it’s first helpful to understand how these sweep programs work. Essentially, an originating institution — could be a bank, brokerage firm, or fintech company — tells you they can provide increased FDIC insurance by spreading (selling) your cash across their network of other banks. That may sound okay on paper, but the reality is that your cash gets swept up into omnibus accounts held in the bank’s name, not in the client’s name. 

This means that if the originating institution were to fail, your clients would lose access to all their funds until the resolution process is complete. In the case of a bank, that may happen in a matter of days, but if a fintech has custody of a client’s funds and they fail, clients may be stuck waiting through a bankruptcy process. Just ask anyone who thought their funds were safe at FTX. 

If a client needed that cash to buy equities when the market dips, too bad. And if they needed the money to make a tax payment or close on the purchase of a house, they may be out of luck, with dire consequences. Clients can’t contact the underlying banks that hold their funds, since they have no relationship with them. 

Furthermore, they don’t know to whom their deposits were sold, and if they happened to be placed with a bank where clients already hold other deposits, they may overlap and exceed the FDIC limits. This means that clients might not be fully insured, even when you thought they were. 

Avoiding Unnecessary Risk

These risks are avoidable. In fact, the main beneficiary of clients taking on these risks is the very institution that is brokering their deposits, since in the process of selling deposits out to other banks, they keep a spread for themselves, passing along a net rate to the customer while hiding the embedded fee or spread that they’re keeping. In short, there’s a conflict of interest that leaves the depositor with less yield and more risk than had they just opened more bank accounts directly in their own name. 

In 2009, in the midst of the Financial Crisis, I identified these risks and began managing my own cash differently, spreading it out across my own accounts held directly at multiple banks, so that I’d have the benefit of increased FDIC insurance coverage while maintaining full visibility, liquidity, and control over my cash, with no single point of failure. When I found that my safer approach had also generated tens of thousands of dollars of incremental yield, I figured that many more people could benefit from this same approach, and we created MaxMyInterest in 2013 to create a new, safer, higher-yielding way to manage cash.

It Pays to Read the Fine Print

Not 48 hours after the collapse of SVB, many advisors, banks and fintechs began repeating the same mistakes of the past. They looked for solutions that purport to keep cash safe without considering the implications of these solutions for safety and liquidity. As a fiduciary, when it comes to your clients’ cash, it pays to read the fine print. By avoiding brokered sweep accounts, you can keep cash safer, more liquid, and earn higher yields at the same time.

Don’t squander the chance to reassure clients they are protected while also setting them up for even greater long-term success.

With the twin losses of Silicon Valley Bank—the second-biggest bank failure in U.S. history—and Signature Bank, the federal government has moved quickly to shore up public confidence, providing account holders with access to all money, even on accounts exceeding the Federal Deposit Insurance Corporation limit of $250,000, which in the case of SVB, included more than 90% of their deposits.

Despite these assurances, the renewed focus on the health of U.S. banking system has caused considerable consternation, not just within the financial services sector, but more widely. Across the country, Americans are asking: How safe is my money? If my bank were to fail, would I get all my money back? What should I do if I have more than $250,000 in cash?

Cash is an important part of any investor’s portfolio, but, too often, financial advisors have little insight into how much their clients are actually holding. For financial advisors, this crisis offers an opportunity not only to strengthen client relationships but to spur a larger conversation about how cash fits into an overall portfolio, and ensure the money clients hold is fully protected, whether it’s in the brokerage account or not. To start a dialogue with clients, consider the following:

De-Risk and Maximize Interest

At minimum, ensure that your clients’ cash is FDIC insured. FDIC insurance provides protection on deposits up to $250,000 per depositor per account category, per bank. If cash exceeds those limits, clients should spread their savings across multiple banks to keep within the threshold— otherwise, they’re putting themselves at risk if a bank collapses. And by spreading cash across multiple banks, advisors can help their clients eliminate the risk of a single point of failure. Much as in equities, with cash, diversification is key.

Once your client knows their money is safeguarded across multiple accounts and backed by the full faith and credit of the U.S. government, the big difference boils down to interest rates. According to the FDIC, the national average yield for savings accounts is 0.35% APY. However, online banks, which have lower operating costs, typically offer higher interest rates—up to 5.05% APY today. That means a client with $100,000 in cash could earn as much as $5,000 per year in incremental interest – compared to just $350 per year at a bank paying the national average.

Beware the Fine Print

How can you ensure clients’ cash is safe, liquid, and earning the maximum in interest? It’s critical to read the fine print, as not all cash solutions are created equal.

Historically, the brokerage industry used so-called ”brokered deposits” (often referred to as “sweep accounts”) to try to assure clients their cash was safe. Deposit brokers are intermediaries who sell client’s deposits to other banks in exchange for earning a spread. But these services can be risky for clients because the cash is not custodied in the client’s own account, nor do account holders have immediate access to their money. If the originating bank were to fail, clients lose access to all their cash. There’s no direct relationship between the client and their cash in each bank. That’s a mistake, and a risk that’s not worth taking. After all, these brokered deposit solutions provide lower yield, with greater risk and less liquidity, vs. simply keeping cash titled in a clients’ own name in their own bank accounts. By skipping deposit brokers, clients can hold cash directly and have immediate liquidity, with no single point of failure.

The takeaway: when evaluating cash management solutions for your clients, make sure the money is held directly in the account holder’s name with same-day liquidity. Otherwise, you’re taking unnecessary risk.

Gain Greater Visibility

It’s difficult for advisors to get the full picture of their clients’ cash holdings. You might discuss the matter during a client’s annual review, but those figures are likely to fluctuate throughout the year any time a client makes a large purchase, receives a bonus or comes into an unexpected windfall.

According to the Capgemini World Wealth Report 2022, high net worth individuals hold 24% of their assets in cash and equivalents. By talking with your clients about cash and providing them with a way to earn more on held-away cash, you will gain better visibility into how much they are holding. Doing so can help you grow your AUM and deepen existing relationships.

As an advisor, it’s your fiduciary responsibility to understand all aspects of your client’s financial lives—especially an asset class that typically comprises one-fifth of their liquid net worth. If you’re not asking about their cash, my question is: Why not?

For many, the demise of Silicon Valley Bank and Signature Bank has brought back stark reminders of the 2008 financial crisis. Thus far, we’ve avoided a system-wide collapse, and the banking sector is, by many measures, much stronger than it was in 2008. But financial advisors and their clients must not close their eyes to potential risks.

President John F. Kennedy said: “In crisis, be aware of the danger—but recognize the opportunity.” As we confront yet another potential crisis, don’t squander this opportunity. Both reassure clients they are protected while also setting them up for even greater long-term success. 

Holistic Cash Solution

Max helps advisors accomplish all of these goals, delivering increased deposit insurance, industry-leading yield, and same-day liquidity, since all cash is held directly in clients’ own bank accounts. Financial advisors can register for a free advisor dashboard at MaxForAdvisors.com, while clients can get started earning more right away at MaxMyInterest.com.

For much of the last decade, the yield on cash has been practically nonexistent. As a result, cash was simply not that high a priority for clients or their advisors. 

In 2023, it’s a different story. As the Federal Reserve began to raise rates aggressively to fight inflationary pressures, the rates paid on deposits has risen dramatically. With minimal effort, clients could be earning more than 5% on their cash reserves, while keeping their funds FDIC-insured.

How Much Cash Do Clients Hold?

After a decade of enduring few good choices for cash, clients need help figuring out where to put the cash they have chosen not to keep in their brokerage accounts. And as this cash comes into view, advisors can help clients identify other asset classes that might provide better returns than cash over time.

Where Should Clients Keep Cash?

Now that rates are over 5%, more advisors will no doubt be helping clients answer the question, “Where should I be keeping my cash?” Today clients often turn to Google, which often leads to visiting an advertising-driven rate comparison site that has incentives to promote a bank that may not offer the best options. And for higher-net-worth clients, a single bank can’t provide sufficient FDIC insurance coverage, nor is there any guarantee that the bank that pays a high yield today will continue to provide competitive yield over time. Fortunately, there’s a way to help clients continuously earn the best yield without advertising or ongoing effort.

Is There a Solution for Advisors and Clients?

MaxMyInterest (or just “Max” as it’s commonly known) is a platform that helps clients open and manage high-yield savings accounts, so they can take advantage of rate changes at banks while staying below the FDIC limits even if they hold large cash balances. Advisors can register for a free client dashboard in 2 minutes at MaxForAdvisors.com, providing access to current rates, client balances, and the ability to help clients enroll in just a few minutes.

Voted as the best cash platform for advisors and their clients according to the T3/Insiders Forum survey for 5 years running, and winner of the “Wealthies” Award from WealthManagement.com, Max is a solution that’s truly differentiated and a WealthTech success story.

With Max, a client’s cash is always safe, fully liquid, and held in their own FDIC-insured bank accounts. Max provides a dashboard and consolidated tax reporting, while clients can receive statements from their banks and contact them directly to access their funds same-day if needed. Max integrates with leading wealth management platforms including Orion, Redtail, Wealthbox, MoneyGuide, and Morningstar ByAllAccounts. 

How Do I Get Started as an Advisor?

Visit MaxForAdvisors.com to register for free access to the Max Advisor Dashboard, where you can view client balances and access materials to share with clients. Many advisors also choose to share articles about Max from leading publications such as The Wall Street Journal with clients. 

The Max Advisor Dashboard includes a getting started guide, fact sheet that provides up-to-date rate information, and the ability to search support content. Have questions? Advisors can schedule a phone call or request a live demo to find out how they can get started.

Now is the time to help clients start earning more on their cash. Register at MaxForAdvisors.com today to learn more and get started.

(Originally published on ValueWalk April 28, 2020)

Mark Twain is reputed to have said that “history does not repeat itself, but it rhymes.” The events of the past few months have certainly conjured up many memories of the Financial Crisis, and for those following bank stocks, the emotional roller coaster of 2008-2009 feels all-too-present today. The fate of many of our nation’s banks may rest largely on how long our economic paralysis is sustained in support of the greater good of public health.

Bankers and research analysts agree that American banks are much better-capitalized than they were a dozen years ago and should be able to withstand several months of severe economic contraction. But if the economy were to remain largely shut for six months, absent a windfall of additional money-printing from the Fed, another financial crisis could ensue atop our existing humanitarian crisis.

With all this doom and gloom, there is a glimmer of hope. Like every other financial or humanitarian catastrophe to befall our modern age – World War I, The Great Depression, World War II, Black Monday, the collapse of Long Term Capital Management, the Dot-com bust, 9/11, and the most recent Financial Crisis  – the path downwards has been followed by an even more ebullient path upwards. The shape, timeline, and certainly of any future recovery is unknowable, but we can hold out hope that it will at least rhyme with the events of the past.

I’ve had the experience of living and working through several market dislocations. From each one, I’ve sought to learn how to extrapolate from relevant data and facts, and, perhaps more importantly, how to recognize and curtail emotions. While every investment brochure disclaims that “past performance is not indicative of future results,” as an investor, it’s important to learn from your own past performance and journal your mistakes. Only by dissecting your thought processes at the time – both rational and emotional – can you endeavor to make better decisions the next time you are faced with a similar set of facts and circumstances.

Online Banks: The Financial Crisis As Inspiration

I was stationed in Tokyo during the Financial Crisis, working as an investment banker for one of the largest American banks, which had recently acquired one of Japan’s largest brokerage firms. I arrived in August 2007, just after closing the last private equity-based capital raise that involved so-called “Toggle Notes,” where a borrower could elect whether to pay the interest it owed in cash or in-kind (i.e. more debt.) It was illustrative of just how favorable the capital markets had become for issuers – a sign of a raging bull market where seemingly nothing could go wrong.

As an analyst on Wall Street in the late 90s, I learned that the hallmark of the late stage of a bull market is when the market “climbs a wall of worry.” In other words, in spite of each piece of bad news that could befall the economy, stock market indices continue to march upwards. In addition to overly accommodating capital markets, several other more pedestrian warning signs were also present by the summer of 2007. The drivers who shuttled me home from the office late at night were increasingly talking about their stock market gains and the houses they were flipping for profit. In-flight magazines contained countless ads for hi-rise luxury condominium developments. Were these signs of a healthy economy where the rising tide lifts all boats, or a warning that the pace of wealth creation was unsustainable?

As 2007 progressed into 2008, the unsustainability of the bubble in asset prices became all-too-apparent, and banks began to fail. From 2008 through 2012, the FDIC closed a staggering 465 banks. To put this in context, in the five years prior to 2008, only ten banks had failed. The bank where I worked didn’t fare much better. Bearing witness, first-hand, to such a precipitous fall from grace taught me an important lesson in the fragility of banks. No matter how storied the name or how solid the marble that adorns its branch entrances, banks exist at the pleasure of investors and depositors’ willingness to extend credit in exchange for levered returns.

The Importance Of Keeping Cash Safe

In response to the Great Depression, President Roosevelt and Congress enacted the Banking Act of 1933, paving the way for the creation of the Federal Deposit Insurance Corporation (FDIC). When my bank’s share price hit $0.97 in March of 2009, it struck me that much of my cash held at that bank might be in peril. While the FDIC provides deposit insurance, that coverage is limited, and every dollar that you hold above the FDIC insurance cap makes you, in effect, an unsecured creditor of that bank. I realized that in order to keep cash safe, I needed a better solution.

I began researching options for cash. Many banks and brokerage firms offered brokered deposit solutions, where a bank takes your excess deposits and sells them to other banks. The pitch is that this helps you obtain increased FDIC coverage, and so you should feel safe keeping all of your funds at your home bank or brokerage account. But my research revealed several risks inherent in this system, as well as large conflicts of interest. If I was to ensure all my cash was safe and liquid, I needed a better solution.

The best thing I could think of was to open new bank accounts at multiple banks and diversify my holdings by spreading my cash across them. I’d hold each account in my own name, control how much was kept at each bank (to ensure all funds remained below the FDIC limit at each bank), and retain full same-day liquidity at each bank. Unlike brokered deposits, where you might not be fully insured if the broker sells your deposits to a bank where you already hold accounts, and where you could lose access to all your funds if your main bank goes under, with my strategy, I knew that I’d maintain full control, full liquidity, and full FDIC-insurance coverage.

Online Banks And Interest Rates

In 2009, online banking was still relatively nascent, but, it turned out, opening new accounts at online banks was much faster and easier than going into a bank branch. I opened accounts at several of the leading online banks, which also happened to offer higher interest rates than their brick-and-mortar peers, owing to their lower operating cost structure. Much like Amazon had figured out how to sell a textbook cheaper by eschewing physical stores, online banks applied this concept to banking, making it possible to earn a higher interest rate on FDIC-insured savings accounts.

Still, the online banks changed their rates with great frequency, and often when I logged in to check my balances, I found that interest rates had changed. It occurred to me that I could move funds from one bank to another to benefit from yet-higher interest rates. For the next three-and-a-half years, I found myself logging in each month, checking rates, and manually moving funds from bank to bank to obtain the highest yield while keeping all my funds FDIC-insured.

This strategy could be highly lucrative (effectively capturing a pure arbitrage in the market for bank deposits) but also a huge time sink. There had to be a better way. How could I automate this process, so that my money could continue to earn the highest yields possible without my having to lift a finger? And if I could find a way to automate the management of my own cash, why couldn’t I open up this same strategy to anyone else who wanted to simultaneously earn higher yields with less risk?

Online Banks: Conclusion

The result: I created my own automated cash management platform – MaxMyInterest.com. Seven years and three patents later, Max is now the highest-yielding cash management solution in the United States, used by financial advisors at thousands of wealth management firms with more than $1 trillion of assets under management. With a top yield of 1.71%, Max stands above all other cash options offered by banks and brokerage firms – yet, the core premise remains the same as it was back in 2009: deliver the best yields, fully FDIC-insured, with same-day liquidity and no conflicts of interest.

While it may be difficult to envision now, the COVID-19 crisis shall too pass. And, if history does indeed rhyme, in its wake American ingenuity and determination will likely push our economy and financial markets yet higher – although the recovery may be long and uneven. As an investor, your appetite for risk may again increase, too. But for the portion of your portfolio that remains in cash, you should remain as protected and earn as much as possible.

The financial industry is abuzz with a bevy of new cash solutions aimed at individual investors. Each offers benefits versus keeping funds in traditional bank or brokerage accounts. But it’s important to read the fine print – not all solutions are created equal.

Fundamentally, people hold cash for two reasons: safety and liquidity. Safety typically refers to the preservation of value or the use of cash as a hedge against turmoil elsewhere in the portfolio. Liquidity is for paying monthly bills, funding capital calls, or for the option value inherent in being able to invest at a moment’s notice.

The latter is why Warren Buffett loves cash so much. Holding lots of cash on hand enables you to be “greedy while others are fearful” and also provides the psychological cushion necessary to weather the ups and downs of the market. This may explain why, according to Capgemini, the average high net worth household keeps a surprising 23% of its investable assets in cash. In the midst of the financial crisis when everyone else was selling, those fortunate or prescient enough to hold cash were buying – and they profited handsomely. Had you bought the S&P 500 at the market trough, you’d be sitting on a 300% gain right now, a once-in-a-generation event in public equities investing.

If the most important aspects of cash are that it be kept safe (i.e., fully FDIC-insured) and liquid (i.e., immediate accessibility), why are these new cash solutions falling short on both fronts?

The answer is in the fine print.

Behind each of these cash-like offerings is an old system of brokered deposits. Invented nearly 20 years ago, brokered deposits were a simple way for banks to offer customers increased FDIC insurance coverage to prevent customers from opening up additional accounts at competing banks. Unfortunately, brokered deposits don’t offer same-day liquidity, and sometimes cap withdrawals at as little as $100,000 per day. And brokered deposits aren’t always fully FDIC-insured since deposit brokers often place funds at banks where you might already have a bank account, resulting in less-than-full coverage. Investors typically need to read the fine print to figure out where their funds are being placed and then mail in a written letter to request that certain banks be excluded from the brokered deposit program. Hardly a transparent or practical option for most investors.

Brokered deposit systems work by taking your deposits and selling them to other banks. The deposit broker collects a high-interest rate from the recipient banks – circa 2.50% in today’s market – then keeps a spread for itself, perhaps 0.20%, and passes on a net yield of 2.30% to the client. While advertised as “free,” this offering isn’t “free” at all. As a customer, you’re paying 0.20% for this service, and if you read the fine print, you’ll find that you are taxed on the full 2.50%, even though only 2.30% of that will ever see its way through to your account. Need access to your money the same day? You’re out of luck – your funds are locked up by the broker and not available until the next day. Changed your mind and want to withdraw all your money? You may not be able to do that either due to withdrawal limits imposed by the broker. And if the originating institution fails, you could lose access to all of your funds until the FDIC resolution process is complete.

What’s shocking about these recent developments are that some robo advisors are RIAs that should be acting in a fiduciary capacity are now co-opting the same tools that broker-dealers have used for years to make money on their clients’ cash while marketing these solutions as “free.” They are by no means free. That spread that they keep for themselves is the fee. It’s just hidden in the fine print.

Investors seeking higher yields on their cash have other options. They can look directly to online banks, or solutions like MaxMyInterest, which helps clients obtain increased FDIC insurance coverage, preferential yields, and same-day liquidity on the cash that sits in their own bank accounts, in a manner that’s fully transparent and free from conflicts of interest.

If you’re sitting on cash, you may be fortunate enough to benefit from the next market dislocation. Before you decide to move that cash in search of a higher yield, I encourage you to do one thing: read the fine print.

Gary E. Zimmerman is the Founder and CEO of MaxMyInterest, an independent, intelligent cash management solution that helps individual investors earn more on their cash, free from conflicts or cross-sell. Visit MaxMyInterest.com or MaxForAdvisors.com for more information.

When clients hear that they could earn more on their cash without sacrificing liquidity or giving up FDIC insurance, they are often surprised. Aren’t banks paying almost 0% in interest now?

It’s a conversation we hear frequently at Max, where we are working to help financial advisors and their clients maximize the interest they earn on cash in the bank.

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%.

Clients, and advisors, frequently have questions about how Max can accomplish this goal. Here are some real-life comments they’ve made:

 

“Please look into this opportunity to earn more interest on cash.”

“[Your financial-advisory firm] is behind the times. You guys need to establish a relationship with Max so I can earn better interest on cash.”

“Have you heard anything about this outfit? I read about them in The Economist. They claim to move funds between bank accounts to optimize interest rates. The advertising implies that they can get around 1% versus whatever bank you have is paying.”

“Any chance [your financial-advisory firm] would offer this?”

“I saw a reference to this website in the WSJ and found it to be pretty interesting. Please take a look and we can discuss when you come to Boca.”

 

The reason clients are curious about Max is that the average savings account in the U.S. pays 0.11%, with many bank or brokerage accounts paying only 0.01% or 0.02%. That means Max members are earning about 10 times as much on cash as the average, and considerably more that they earn in a brokerage account.

How does Max help clients earn more on cash? Online banks are more efficient than brick-and-mortar banks. Without retail branches, their lower cost structure allows them to pass along more yield to clients who deposit cash with them. And by optimizing clients’ cash across several online banks, Max helps keep cash within the FDIC deposit-guarantee limits.

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 (or custodial account at Fidelity or Schwab), 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.

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.