5 Ways Financial Advisors Can Use Cash Management to Help Boost Business

At Betterment for Advisors, we’ve identified five benefits for financial advisors who offer a cash management solution to clients.

Number 5

The numbers don’t lie. Cash makes up a large percentage of total investable assets, whether you manage it or not.

  • Research from Capgemini reports that cash and cash equivalents have made up about 25% of high-net-worth portfolios from 2018 to 2022. In the wake of a turbulent market, that number increased to 34% in 2023.  
  • A survey by Allianz Life found that 61% of Americans would rather have their money sit in cash than have it endure market swings.
  • Yet, 82% of Americans are saving in low-rate savings and checking accounts, missing out on high yield that can help combat inflation.

If you’re not managing your clients' cash, you’re missing out on seeing their full financial picture. And seeing that entire picture is key when your firm’s success depends on providing the best, fulsome financial guidance to clients.

At Betterment for Advisors, we’ve identified five benefits of bringing cash into focus and offering clients an all-in-one cash management solution. Cash management can:

  1. Help you provide better planning services and advice
  2. Bring assets into your orbit, serving as a pathway to investing
  3. Strengthen your client relationships
  4. Decrease risk for your clients (and your firm)
  5. Turn your client experience into a competitive advantage

The 5 key benefits of bringing cash into focus

Let’s explore how a modern cash management solution can help boost your firm’s bottom line and provide your clients peace of mind.

1. Cash management can lead to better advice

Gaining visibility into your clients’ held-away cash can help you uplevel and personalize your financial plans. By understanding your clients’ needs outside their investing portfolio, you can better help them reach both short- and long-term goals. 

Clients may be holding cash for many reasons. They could be saving to buy a home, planning to fund educational expenses, or may simply be worried about the economy. Knowing your client’s goals—and worries—can help you provide better advice to manage their cash and investments. For example, you may be able to advise them to open a 529 account for education expenses or move cash into a high-yield cash account for a mortgage down payment.

If you find your client is holding more cash than expected, you can use this as an entry point to discussing why, and exploring your client’s unique needs.

You also could be better equipped to respond to sudden influxes of cash such as:

  • Annual bonuses or raises
  • Lump sums in low-rate savings accounts
  • Cash gifts, inheritances, or profits from selling assets

These large sums of cash often end up sitting in a checking or savings account earning little interest. You’re in the perfect seat to coach clients on how to make the most of large sums of cash.

As your clients’ advisor, you’re committed to your fiduciary obligations, and managing their cash can put you in a better position to serve them.

2. Cash management can be a path to responsible investing

Picture this: The stock market starts to rise. Your client has $20,000 that you are unaware of sitting in a savings account at a bank. They get the urge to buy so they don’t miss out. In a hurry, they open a brokerage account one evening and buy some tech stocks. Now what? 

If you are managing your clients cash, not only will you have more assets under management, but you’ll be able to advise them on responsible investing, helping them manage risk through approaches such as dollar cost averaging.

The path from cash to investing can look like this:

  1. Understand your clients’ total cash available and their goals for that cash
  2. Understand what they are earning on their cash
  3. When the time is right, you can invest either the earnings from your clients’ cash or larger portions of the cash

While your clients' cash isn’t invested, there is an opportunity to increase their portfolio’s overall yield. With the federal funds rate at its highest point since before the Great Recession and with only 18% of consumers taking advantage of high-yield cash accounts, now is the time to help your clients make sure their uninvested cash earns the highest return possible.

By keeping a pulse on your clients’ cash, you can avoid having your clients keep cash at other institutions and potentially make poor investment choices. Most importantly, you can create a streamlined approach to investing clients’ cash at the appropriate time.

3. Cash management can strengthen your client relationships

Frequent and strategic conversations about cash with your clients can bolster your relationship. We recommend having “cash conversations” at these three pre-planned moments:

  1. Client onboarding: Provide your clients with an intro to cash management, explaining the benefits like the potential for higher yield and more holistic advice. Use it as an opportunity to show how you can bring additional value and how cash management can help your clients reach their short-term and long-term goals.
  2. Quarterly or biannual cash reviews: Schedule time when you have your regular meetings with clients to review cash. Make sure you focus on the cash you manage and the cash in external accounts.
  3. Ad hoc new cash situations: Coach your clients to contact you when they have increased their cash holdings. This allows you to advise them on what to do with the newfound cash. 

We recommend the following “Cash Questions” to begin discussing the importance of cash with your clients: 

  • Do you have cash at other or new institutions?
  • What rate(s) is your cash earning? 
  • What are your goals for the cash?

Knowing the answers to these questions can help you in providing options for your clients’ held-away cash that prioritize their financial well-being.

4. Cash management can decrease risk for your clients (and your firm)

By offering cash management,  your firm can decrease the risk of losing clients to a competing firm, where cash management is provided. By decreasing that risk, you potentially gain:

  • The ability to increase your AUM as you move cash into investments
  • The possibility of additional revenue streams via cash management services

Your clients benefit from a decrease in the risk of making uninformed decisions without your holistic advice. Reducing that risk positions your clients to benefit from:

  • Earning potentially higher interest rates to keep up with inflation
  • Your guidance to “stay the course” and take the appropriate amount of risk 

Bringing cash management under your roof can help demonstrate your value in volatile market conditions, mitigating risk for you and your clients.

5. Cash management can create a competitive advantage with modern technology

As we know, people have cash needs. Why not meet those needs while creating a competitive advantage at the same time? 

New cash management platforms may offer:

  • Modern technology for you and your client to manage and automate savings
  • Higher yields compared to traditional bank savings accounts to earn more from your client’s cash
  • Additional FDIC insurance if covered by multiple program banks
  • Recurring / automated transfers into investing, which can create dollar-cost averaging opportunities

Whether your clients hold their cash at banks or other wealth management firms, a modern platform can give your RIA an edge in a world where liquidity, yield, and security are valued by investors.

We’ve built a modern cash management solution for advisors

At Betterment for Advisors, our high-yield Cash Reserve account lets you offer your clients a competitive cash management solution on our easy-to-use platform. Your clients can set savings goals and use automated tools, all while you guide their financial plan.

If you're curious about how Betterment can help you grow your practice, schedule a demo with us today.