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.