Flourish Cash increases FDIC coverage, interest rate to meet advisor demand

Flourish Cash, a division of fintech company Flourish that provides registered investment advisors with access to cash management, announced Friday it is increasing its top-tier annual percentage yield as well as the amount of assets protected by FDIC insurance.

Advisors can now use Flourish, which is owned by MassMutual, to earn 5% on the first $500,000 in individual and business accounts, and the first $1 million in a joint account. The remaining assets will receive 4.5%. Flourish also increased its Federal Deposit Insurance Corp. coverage to $2.5 million for individual and business accounts, and $5 million for joint accounts.

A household of two could keep as much as $10 million in an FDIC-protected account with Flourish, but do financial advisors really want to keep that much of a client’s assets in cash? The yield offered is 11 times higher than the national average offered at savings accounts, but still well below performance of the S&P 500 in 2023.

“Most of my clients' cash management needs can be met with CDs and T bills,” Catherine Valega, a certified financial planner and founder of Green Bee Advisory, said in an email. “Not sure I would add another offering to my list, which works fine.”

However, high-net-worth investors often hold more cash than financial advisors are even aware of, said Max Lane, CEO of Flourish. HNW individuals hold an average of 30% of their net worth in cash, according to the 2023 Capgemini World Wealth Report. A separate study by Betterment, which recently increased its return on cash to 5.5%, found that 75% of all investors have increased their cash holdings in the past year.

There is also an emotional component, with 62% of Americans indicating they would rather have money sit in cash than endure market swings, according to an Allianz Life study.

“People sleep better at night and feel more confident having a certain number in the bank they can go look at,” Lane told InvestmentNews.

Most advisors know clients hold cash away from the firm, but don’t know which clients have how much, said Clifford Haugen, a principal and financial advisor with BLB&B Advisors, which uses Flourish Cash.

“Flourish gives us a way to get visibility into that cash, include the cash in reporting (if we want), and get real-time cash levels fed into our financial planning tools instead of ‘hey, could you send bank statements?’” Haugen wrote in an email. “This isn’t cash that would have been in their advisory accounts with us anyway — if it were, we would have invested it!”

The overwhelming majority of deposits Flourish receives are from existing bank accounts, not brokerage accounts, Lane said.

“Over time, what we see, is now that the advisor has uncovered these assets that were previously held away, once it’s in Flourish Cash and the advisor can see it, it’s now part of their orbit,” he said. “Conversations happen and a portion of the money moves into the portfolio over time.”

Increased demand for cash management is helping the fintech, well, flourish, especially among advisors working with business-owning clients still worried about the collapse of several high-profile bank collapses in the spring. Flourish has added 150 new RIAs to its platform in 2023 (for a total of 600) while doubling its assets under custody to roughly $3.4 billion.

“When we were having conversations [with advisors] in, say, February of this year, everything was about how great our [APY] rate was,” Lane said. After the failures of Silicon Valley Bank and Signature Bank, advisors were increasingly asking about FDIC protections. “It woke up the entire wealth management industry, if not the whole country, that sometimes these things can happen.”

Flourish Cash is far from the only fintech on the market offering cash management to financial advisors. MaxMyInterest, for example, connects savers to banks where they could earn the highest interest rate, helping them open several accounts to increase FDIC insurance. There's also StoneCastle Cash Management, which, like Flourish Cash, uses a broker-deposit model and offers as much as $100 million in FDIC insurance but also comes with asset minimum requirements.

These tools will be increasingly important for independent advisors to embrace as both robo-advisors and wirehouses offer banking services to generate leads for wealth management, Lane said. For example, Merrill Lynch plans to do away with cold calling in favor of relying on Bank of America’s consumer banking business to generate leads, the Wall Street Journal reported.

“As an RIA, don’t leave an opening for your competitor to serve or poach your client,” Lane said. “Make sure you're positioning yourself as [your client’s] core financial relationship.”