With the move towards the fiduciary standard across the investment-management landscape, financial advisors increasingly are looking at how they can make sure their clients are getting this standard of advice for the cash portion of their portfolios as well as for their securities. That’s where Max comes in. 

Cash is the one asset class that’s present in every portfolio. But a near-zero-interest-rate environment over the last few years has meant that investors overwhelmingly are earning almost nothing on cash. The national average on savings accounts is 11 basis points — 0.11%. As a fiduciary, an advisor is bound to give advice that’s in a client’s best interest financially. For cash, this means advisors have to seek out ways that clients can earn more interest while remaining insured under the FDIC deposit guarantees.

– Think carefully before using money market funds

Money market funds are a traditional substitute for cash, because they’re designed always to trade at a stable $1 per share. But with new regulations, these funds may now be able to hold onto investors’ money if markets are in turmoil. That means that clients may not be able to get their money out of a money market fund when they need it most. With this lower level of safety, and essentially no yield, money market funds may not be up to the fiduciary standard as a cash equivalent.  

– Use online banks

Online banks don’t have branches, so their cost structure is considerably less than their brick-and-mortar competitors. This imbalance allows them to offer higher interest rates to depositors — above 1%, in some cases, making online banks the highest-yielding places to park cash that clients wish to keep fully liquid. FDIC-insured online banks have the same federal deposit guarantee as any other U.S. bank protected under the program.

– Seek more FDIC coverage

Many investors don’t realize that exceeding the FDIC limits in their accounts means that excess money may not be safe if something happens to the bank. If your clients hold more cash than the FDIC limit — $250,000 per depositor, per account type, per institution — you should consider helping them open accounts at additional banks to gain FDIC coverage for as much of their cash as possible. Keeping cash safe is a prerequisite for fiduciaries.

– How Max can help

It’s possible to get both higher interest on cash and greater FDIC coverage. That’s what Max provides for advisors and their clients through the Max Advisor Dashboard. The average Max client is currently earning more than 1.00% on cash and enjoying FDIC coverage across several institutions. Learn more about how you and your clients can benefit at MaxForAdvisors.com.

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.

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.

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.

With interest rates remaining low, many investors wonder how to evaluate the safety of various places to keep cash. Max invited financial advisor James Sanford of Sag Harbor Advisors, a performance-fee-based wealth manager, to talk about how best to think about choices for cash in a portfolio.

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By James Sanford

With the Federal Reserve now expected to wait at least until the December meeting to end 8 years of zero interest rates, and some strategists putting the first lift-off out to March or June of 2016, it’s time to revisit where to put your cash when cash is king. Two-year Treasury notes are now down to 63 basis points. Emerging market weakness in China and commodity-centric nations led to a 12% decline in the S&P 500 from July through September 28, and a surge in the Volatility Index (VIX) to over 40. If you’re with me in the camp to move a substantial amount of the portfolio to cash after the Central-Bank-fueled reversal rally of more than 10% since October 1, it’s important to understand where your broker or advisor places your cash, which is called the “cash sweep.” If swept into money market funds, you’re not in cash at all, but merely a basket of short-term risky securities that earn a paltry yield of zero to 15 basis points.

First, these underlying securities contain corporate credit risk of default like any other corporate bond. Second, there’s no legal guarantee of a “par put” from the manager. Money market funds routinely maintain a fixed $1.00 par value, rather than mark to market, a convenient shell-game trick which completely hides the underlying volatility of the basket of securities in the portfolio, convincing the holder he owns a “cash equivalent.” What he actually owns is a portfolio of risky corporate senior unsecured-debt obligations, which despite their 7, 10, or 90-day maturity, are equal in recovery and default risk to corporate long bonds maturing 10 and 30 years from now. Some money market funds hold tax-free municipal bonds. These are commonly considered “risk free,” which is absolutely not the case, as investors learned the hard way in Detroit, several cities in California and Rhode Island, and, soon, Puerto Rico.

Usually the portfolio in a money market fund doesn’t move at all in price, due to its very short duration. That’s until a shock event hits one of the securities, which was the case with the Lehman Brothers default. Lehman, opened up Monday morning, September 15, 2008, at a bid-offer of $10 to 12 cents on the dollar.  Suddenly this “cash” equivalent lost 90 cents on the dollar. Roughly 35 to 40% of all investment company assets are comprised of money market funds, with 80% of corporations using money market funds to manage their cash balances, and 20% of household cash balances comprised of money market funds, according to a 2009 SEC report.

There is an investor perception that money market funds are insured by the manager due to the “never break the buck” concept. In fact, there is no legal requirement or guarantee that money managers must “never break the buck” or shield investors from losses. Many managers in 2008 compensated investors for losses in money market funds, because it was good for business and they had the capital. Those without the capital, such as the Reserve Fund, did not. Nobody legally had to.

So what advice would I give investors, as a financial advisor? Keep your cash in short-term T-bills? But there is very little if any interest. Take duration risk on longer dated Treasuries?  No.

The answer is more obvious then we think: it’s your common bank savings account. Investors can earn up to 1.1% on internet-only savings accounts that are 100% FDIC guaranteed, a guarantee as solid as U.S. Treasury bonds, yet one that offers overnight liquidity and no duration risk. In fact, investors would have to go all the way to the three-year note to earn a yield equal to the highest available online savings rates of 1.1%.  The counterparty risk of the bank offering the rate is immaterial. As long as it’s FDIC guaranteed, even in the event of an FDIC bank seizure, accounts holders with $250,000 or less, or $500,000 in a joint account for couples, will have unrestricted access to their cash. If the FDIC can’t honor its agreement, all investments will be set to zero. That would be the equivalent of a U.S. government default.

Advisors often don’t like using a savings account as the cash sweep option, as they can’t control the assets. At Sag Harbor Advisors, our clients’ advisor accounts at our custodian are linked via the ACH system to any bank account of their choice, and clients sign over authorization to draw specified funds back to the advisor account should we see market opportunities. For cash holdings that are well north of the FDIC limits, MaxMyInterest is the only way to efficiently manage funds.

Ask your advisor where your cash sweep is, what it’s yielding, and you might find it’s not really “cash” at all.  

 

Congratulations! You’re leaving your firm and embarking on a short paid vacation before starting a new role. During this gardening-leave period, you’re not permitted to work for your new company, and technically anything you produce still belongs to the firm you’re leaving. That means this is a perfect time to travel, read, and tackle the personal projects that you never have time to handle. Take this opportunity to make sure your finances are in order. Ideally your new job will mean you won’t have time to do this again for a while.

Here are some ways to get the most out of your gardening leave when it comes to financial organization.

 

– Documentation

Check that your will and the beneficiary designations on all your accounts are up-to-date, especially if you’ve had them for some time. Make sure you have a centralized list of all your accounts and benefits along with contact information. If someone had to call those institutions on your behalf, would they know how to reach the right person? It’s useful to keep a hard-copy “doomsday file” in a safe place for emergencies.

 

– Fee Review

What are your financial institutions charging you to manage your money?  Now is the time to look at the fees that you are paying for mutual funds, hedge funds, asset management, and credit cards, and banking. Don’t think you’re paying a fee? Consider what amount of money you have to keep with an institution to get “fee-free” services. Could that money be better invested elsewhere?

A new service called FeeX scans your retirement accounts, shows you exactly what you’re paying, and suggests similar products that cost less. Over time, money not spent on fees can compound into an important component of your portfolio.

 

-Legacy

Take a look at your charitable giving as a percentage of your income and consider whether it’s at the level you want. Also think about how you’re structuring your donations. Depending on your pace of giving, you may want to evaluate setting up a family foundation or a donor-advised fund, like Fidelity Charitable. This may allow you to maximize the tax benefits of your gifts.

Now is also a good time to think about your charitable involvement. Ask yourself whether you want to join a nonprofit board, or continue with one you’re already on. If you’re anticipating a lack of time with your new job, this may be the time to step back from volunteering or find a less time-intensive way to help.

 

-Asset Allocation

Review how you are allocating your assets among stocks, bonds, cash, real estate, and other investments. Look also at retirement and educational savings. Talk to your financial advisor about areas where you should rebalance.

Few investors think hard about their cash. This is money on the sidelines that could be working harder for you. Take a look at the yield your cash is earning in the bank. If you prefer to keep this portion of your portfolio liquid, consider online savings accounts, which pay as much as 10 times the national average in interest.

A MaxMyInterest membership can help you earn dramatically more: our members now earn about 90 basis points – 0.90% – more on their cash than the average of 0.09%. For a member with $1 million in the Max system, that comes to an additional $9000 or so each year in extra interest. Gardening leave is the perfect time to make sure you’re not leaving money on the table before you start your new job.

 

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.

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.

Max members are continuing to benefit from a rise in rates offered by online banks.

This morning, American Express increased the interest rate paid on its Personal Savings online accounts to 0.85%.  This comes on the heels of GE Capital Bank‘s rate increase on Monday.

For Americans with substantial cash balances, the ability to spread deposits across multiple online banks helps keep larger amounts of cash safe via increased FDIC insurance, while dramatically increasing yield vs. other alternatives, such as brick-and-mortar savings accounts or money market funds.  Max makes it easy to manage a basket of these accounts, monitoring changes in interest rates and automatically reallocating cash among your accounts to seek the best combination of yield and FDIC insurance protection.  Max charges a small fee of 0.02% each quarter for this service.

For months we’ve been predicting a rise in rates, and in turn a widening of the spread between the yield available from the network of online banks supported by Max vs. the national savings average.  Max members are now earning a weighted average 0.93%, as compared to the Bankrate.com national savings average of 0.09% or most money market funds that yield only 0.01%.

More information about Max can be found at MaxMyInterest.com.

Do you hold cash in your portfolio? Of course you do. It’s the universal asset class. Everyone needs some degree of cash to manage their monthly expenses: homes, automobiles, tuition, travel, dining and entertainment. But how much cash is enough cash? Should you hold cash beyond what you need on a monthly basis? And how much are you earning on the cash portion of your portfolio?

For most high net worth investors, the bulk of their portfolios are comprised of domestic and international equities, tax-advantaged fixed income instruments, real estate, commodities and alternative investments like private equity, hedge funds or real assets. Yet today, cash represents a substantial portion of the portfolios of both individual investors and family offices. Most of it is earning next to nothing.

Forbes Magazine contributor Jim Cahn recently cited a study by US Trust that found that “one-fifth of all high net worth individuals (with $3 million or more in investable assets) are holding more than 25% of their portfolio in cash.” This is consistent with our anecdotal conversations with individual investors and family offices. Sure, we occasionally run into investors who hold virtually no cash, choosing to margin securities when they buy a car or pay tuition. But most investors do keep a meaningful cash allocation. One family office we know is 100% in cash – to the tune of $250 million.

For most investors, having a sizable cash cushion helps them manage both personal and portfolio risk. As I discussed in a recent interview with Christine Benz at Morningstar, we all remember the depths of the financial crisis. Most investors prefer to have a cash cushion to withstand economic swings. They also like to have on hand some “dry powder” that can profitably deployed, so that they can, in the words of Warren Buffett, “be greedy when others are fearful.” Cash can serve not only as a hedge, but also as a strategic reserve.

Among the most conservative investors are investment bankers, many of whom hold seven figures in cash. Working in a volatile industry, where layoffs accompany each business cycle, it makes sense to hold a rainy-day fund in cash. Law firm partners are similar. One leading private banker told me his white-shoe law firm clients tend to hold between $1 million and $3 million in cash, with one client holding a staggering $20 million, all earning no more than 0.30%. Whether that reflects inertia or a deliberate allocation doesn’t matter – what matters is how clients invest that cash, to ensure it doesn’t unduly drag down the returns of the entire portfolio.

At Max, we don’t take a view on how much cash investors should hold – each individual is different, and should consult with his or her financial advisor to determine what’s prudent. However, for whatever portion of your portfolio that you’ve chosen to hold in cash, you ought to earn as much as possible on it, while ensuring that it is safe, insured, and accessible when you need it.

MaxMyInterest is a cash management solution that helps investors earn substantially more on their cash, while keeping it safe. Max members are today earning a weighted average 0.89% on their cash, held in their own accounts at leading FDIC-insured online banks such as American Express, Barclays and GE Capital. As interest rates change, Max automatically reallocates cash to help ensure its members benefit from the best rates available. Best of all, Max members need not change the way that they interact with their existing checking account, so direct deposit, bill pay, and access to tellers and notaries remain unchanged.

An incremental 0.80% of return can be meaningful, particularly when compounded over time. Savvy investors know that it’s important to monitor every aspect of portfolio risk and return. With Max, investors can generate incremental return without incremental risk, the holy grail of investing. So, much like you wouldn’t put up with a mutual fund that consistently underperformed the market by 0.80%, no longer should you suffer such a fate from cash.

We’re all busy, and focusing on cash often falls to the bottom of the To Do list. However, Max was designed so that – after a one-time setup – you never have to think about your cash again. You can just sit back, knowing that the cash portion of your portfolio is optimally invested in your own FDIC-insured bank accounts.