Advisors finally being forced to reckon with client cash
For the first time in a long time, advisors are being forced to think about cash.
Stashing excess client funds wasn’t an issue for financial advisors at the start of 2022, because cash was barely generating any return. With the federal funds target rate at 1.5% back then and money market rates close to rock bottom, the default custodial cash sweep option was not top of mind for wealth managers.
Why would it be? Cash is for spending in a low-rate rate world, not for investing.
Fast forward a year and a half, not to mention 11 Federal Reserve rate hikes later, and suddenly financial advisors have real decisions to make about the cash in their clients’ accounts.
“Cash is finally back,” said Jack Heintzelman, financial planner at Boston Wealth Strategies. “We are looking at high-yield savings money markets for short-term goals and needs. You can get over 4% in most high-yield savings money markets.”
For more specific time frames that don’t require near-term liquidity, Heintzelman is also using CDs, which now pay more than 5% in yield. Treasury bills are another option he’s using, another testament to the perhaps overwhelming array of choices now facing advisors in what was once a neglected asset class.
“Money markets are certainly very attractive now compared to where they were two years ago. They have become a viable short-term solution for anyone that has excess cash, needs liquidity and wants to take advantage of the current high yields in this rising-rate environment,” said Chris Mankoff, partner at JTL Wealth Partners.
Mitchell Kraus, financial advisor at Capital Intelligence Associates, believes the rise in interest rates is ushering in a new era of choice for clients.
Among the ideas he’s currently discussing with
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