Waning confidence in banks creates opportunity for advisors to manage clients' cash

Affluent investors have lost confidence in the banking system, and it could create opportunities for financial advisors to offer a more trusted destination for clients’ cash.

New research from Cerulli Associates found that 43% of households with between $100,000 and $250,000 in investible assets partner with bank providers as their primary financial services provider, but just 59% indicate they're confident about the stability of the banking system itself. More than half (52%) cited a decreased level of confidence over the previous months following turmoil in the bank sector triggered by the collapse of Silicon Valley Bank and Signature Bank.

The current climate could increase accelerate the momentum of fintech platforms that help financial advisors offer cash management to clients, said Scott Smith, director of advice relationships at Cerulli Associates.

“These troubles definitely provide advisors the opportunity for advisors across channels to reach out to clients, and active prospects, to discuss their liquid portfolio strategies. Whether it’s using a variety of accounts or money markets investors want to reassurance that their cash truly is safe and accessible,” Smith said in an email. “Connecting with clients now and really showing them the data allows advisors to not only strengthen their client connections with reassurance, but also positions them to aggregate held away accounts whose providers are not doing the same.”

Cash management was a significant fintech trend in 2019 when robo-advisors, lending companies and stock trading apps rolled out products, and were quickly followed by companies like Carson Group and Envestnet. More recently, BNY Mellon expanded its LiquidityDirect platform to include access to various short-term cash management funds and strategies.

Surveys of affluent investors have consistently found that most clients prefer a single provider for both investments and cash management, Smith said. However, only 37% currently have a single provider. Younger people are more likely to use one provider for both cash and investments than older people, which underscores how financial lives become more complicated with age.

“Marriage, child-rearing, and employment changes are transformative life events and frequently result in the creation of new financial arrangements,” Smith said.

Financial advisors have also traditionally ignored assets held outside of the portfolio, including cash that clients keep with banks, said Ben Cruikshank, president of Flourish, a cash management fintech that MassMutual acquired in 2020.

Advisors today not only have an opportunity to settle client nerves about the banking system, they can also capitalize on the fastest set of interest rate increases in history. Americans have lost $291 billion in interest since 2019 simply by keeping their savings with the largest U.S. banks, according to the Wall Street Journal.

Providing cash management can bring more assets into an advisor’s orbit, Cruikshank said.

“In addition to keeping their cash safe, the extra interest earned could pay for an extra vacation, or even offset a substantial portion of the typical client’s advisory fees,” he said. “While RIAs could afford to ignore held-away cash before 2023, the world changed in just a few short months. Talking to your clients about cash is becoming table stakes; forward-thinking advisors are increasingly bringing cash into the conversation, both to deliver more value to clients and to grow their business.”