Cash is an important part of a diversified investment portfolio. While not a primary driver of long-term growth, it can serve as a safety net for unexpected expenses and potential market downturns. Cash can also provide opportunities to buy assets at lower prices.
The key is effective cash management. When done right, this process ensures that investors have enough liquidity to meet financial obligations, make strategic investments, and navigate market fluctuations. RIAs play a vital role in helping clients achieve just that.
In this article, we’ll discuss how advisors can help clients manage cash allocations in their portfolios. We also talked to an industry expert who shared practical cash management strategies for maximizing returns.
Cash management is the process of overseeing cash inflows and outflows with three primary goals in mind:
Cash management is an important part of the investment process as it has a direct impact on financial stability, cash flow, and the ability to seize profitable opportunities.
“[Cash management] works by turning something boring into something more sexy,” explains Luke Lloyd, president and chief executive officer at Lloyd Financial Group. “It involves taking action in the boring parts of your portfolio, like cash!”
Some might find the process “boring” because it focuses on routine tasks such as monitoring balances and transactions. But despite this, proper cash management is important in maintaining financial health.
Here are some of the top reasons why effective cash management is considered a crucial part of investing:
For business owners, cash management ensures that there’s sufficient cash to pay bills, suppliers, employees, and other debts, helping prevent financial distress. It also serves as a financial safety net, allowing businesses to withstand economic downturns or unforeseen challenges without needing to sell assets at a loss.
When markets crash or assets are undervalued, having cash readily available allows for opportunistic purchases, which can lead to higher returns. Effective cash management also enables RIAs and their clients to plan and execute strategic investments.
Maintaining adequate cash reserves ensures that your clients have liquidity to cover immediate and short-term expenses. For business-owner clients, this helps prevent disruptions in their operations. It also keeps them from taking on expensive short-term loans or credit lines just to keep their business going.
Good cash management provides a clear picture of available funds. This leads to better decision-making regarding capital allocation and investments. It also allows for more effective long-term planning and strategic initiatives.
Check out our special report on the Best Independent Advisors to find out which industry players lead in providing exceptional service.
RIAs can improve the cash management process significantly by providing investors with strategic advice and access to tailored services. These investment professionals are experts in understanding their clients’ financial goals and risk tolerance. Because of this, they are able to maximize cash allocations, while managing risks and potentially increasing returns.
Let’s get into the details on the essential roles advisors play in helping investors manage cash in their portfolios:
RIAs assess a client's cash flow patterns, liquidity needs, and risk tolerance to develop cash management strategies that match their needs. This ensures that the process aligns with the client's overall financial goals. Advisors also guide investors in determining the appropriate allocation of cash across different investment vehicles.
“RIAs provide structure and clarity around how much cash to hold, what it’s for, and where it should be placed,” Lloyd says.
These investment experts can offer access to various cash management solutions to help clients optimize interest income. They can also give advice on how to mitigate risks associated with different cash vehicles.
In some cases, RIAs can provide access to credit solutions, allowing clients to leverage their investments for short-term needs without liquidating them.
“We introduce options that most individuals either don’t know about or can’t access on their own,” Lloyd explains. “That’s where the real value is added. You’d be surprised how many people are earning nothing on their money, and costing them thousands, sometimes even millions of dollars – I’m not kidding, I’ve seen it before!”
RIAs take advantage of new technology and digital platforms to automate cash management tasks. This lets their clients save time and effort. For RIAs, these innovations free up their time and resources to allow them to focus on higher-level financial planning and advisory services.
RIAs can also provide clients with real-time visibility into their cash positions and transactions, which leads to proactive decision-making.
“Advisors help prevent behavior-driven mistakes like panic-selling to cash during volatility and missing the rebound,” Lloyd says. “As volatility and macro uncertainty continue, clients may lean even more on their advisors for disciplined, rules-based cash decisions.”
RIAs are held to a fiduciary standard. This means that they must act in their clients' best interests. This responsibility also guarantees transparency in the cash management process.
Advisors’ fiduciary duty also ensures that clients receive unbiased recommendations suited to their unique needs, rather than being steered towards proprietary products or services.
You can learn more about how fiduciary duty works when it comes to investment advice in this guide.
By offering tailored cash management solutions, advisors can establish strong client relationships. Having a personalized approach can also help build client trust and loyalty.
“The future of advice will include smarter cash integration – where every dollar, even in cash, has a strategic role in the plan,” Lloyd notes. “Sometimes, even simple recommendations can be life changing.”
Listen to this podcast where our very own Chuck Failla and other industry experts discuss how RIAs can use cash management solutions to attract and retain clients.
Advisors can maximize cash management by using strategies that balance liquidity, risk, and return.
For Lloyd, the most effective strategy is segmentation, where cash is divided into functional “buckets” based on timing and purpose.
“Short-term needs go into high-yield savings or money markets; medium- to longer-term goes into T-bill ladders or ultra-short bond ETFs. Most of my clients own T-Bills through ETFs or money market funds that produce more interest than savings accounts.”
Let’s explore some other strategies that can help investors optimize cash management:
These accounts automatically transfer funds between a primary account and a secondary account based on predetermined thresholds. This ensures that excess funds earn interest or pay down debt while maintaining a minimum balance in the primary account.
This type of mutual fund invests in short-term, low-risk securities, including:
Money market funds have become a popular cash management option because of their high liquidity and relatively stable principal.
These tools help advisors adjust cash levels to desired amounts with minimal trades. By using these platforms, RIAs can address client needs efficiently and minimize idle balances.
This strategy enables advisors to build customized portfolios that mirror an index. It offers diversification and risk management benefits and can act as a buffer during market fluctuations.
This is one of the most popular methods investors use to reduce capital gains and income taxes. This strategy involves selling securities at a loss to offset gains in other investments. Find out if tax-loss harvesting is a good cash management option in this article.
Evergreen and drawdown private market funds can offer clients greater flexibility and diversification. This cash management strategy, however, requires careful planning for allocations and cash flow.
If you’re wondering about how these strategies could fit into your overall cash management plan, our picks for the top books on investing might provide additional insights.
If your RIA firm is into managing cash allocations in client portfolios, you can benefit from using a cash management platform. Key considerations, according to industry advocate and our very own Chuck Failla, are:
Here's an overview of some of the leading cash management platforms in the market:
Flourish Cash offers competitive interest rates on deposits. The platform uses omnibus accounts, which are co-mingled. It provides a single account for customers and ensures they receive high FDIC insurance coverage through its network of partner banks.
One key benefit of Flourish Cash is that it does not impose restrictions on the amount of money your client can move. The platform also allows unlimited transfers without minimum amounts or fees. Failla even admitted switching providers from StoneCastle to Flourish because of this feature.
Flourish Cash supports automatic withdrawals through recurring transfers. Its interface also mimics that of traditional bank accounts, making the platform user-friendly.
MaxMyInterest, now known as Max, is a cash management platform that helps your clients maximize interest earned on their savings. It does so by managing funds across multiple high-yield online savings accounts. Max also serves as a communication tool, connecting users with banks offering better rates than traditional institutions.
Max does not have restrictions on the amount of money your clients can move, although banks connected to the platform may have daily transfer limits. All bank accounts on the Max platform are all FDIC-insured, same-day liquid, and in the account holder's name.
Max also does not allow automatic withdrawals. While users can access a central dashboard to manage transfers between linked accounts, withdrawals are initiated by the account holder, not automatically.
The platform is designed for saving and maximizing interest, and not for everyday spending or frequent withdrawals.
StoneCastle is a cash management platform that provides access to FDIC insurance on large cash deposits by distributing them across a network of participating banks. The tool suits institutional investors, including wealth managers, corporations, endowments, and municipalities.
The downside of using this platform is the restriction on how much money depositors can move, which varies depending on the type of account. On the positive side, StoneCastle allows automatic withdrawals and transfers to high-yield accounts, which can be set up via a mobile app.
The platform also boasts several features that make it user-friendly, including a single portal and 24/7 online access.
Investors face many challenges when it comes to cash allocations in their portfolios. According to Lloyd, “inaction and habit are the biggest headwinds.”
“Clients leave money in low-yield accounts and lose purchasing power over time. Many aren’t aware that they can earn 4 percent to 5 percent plus on insured, low-risk vehicles with daily liquidity. This won’t last forever, so take advantage while you can!”
Fear of market timing can keep clients stuck in cash, he adds, resulting in investors missing long-term growth opportunities.
Cash management is a complex task and investors choosing to take on the process on their own can face additional risks. Some examples include:
Ensuring adequate cash on hand to meet immediate and short-term obligations, while also having the flexibility to invest in opportunities, can be complicated. Not having enough liquidity can also make it harder for investors to buy or sell assets at desired prices. This often leads to missed opportunities and even financial distress.
Predicting future cash inflows and outflows accurately is essential for effective cash management. Unpredictable factors, however, like economic downturns and unexpected expenses, can make planning difficult.
Financial regulations are changing constantly. This makes compliance complicated and costly as non-compliance can lead to fines, penalties, and reputational damage.
Relying on incorrect data results in poor decision-making and inefficient cash management.
Cash management is not just about having enough money. It's also about managing and using cash strategically to ensure financial health, seize investment opportunities, and achieve long-term goals.
“RIAs help reframe cash as a strategic tool – not just for emergencies, but as part of broader portfolio design,” Lloyd says. “As generational wealth transitions accelerate, advisors who can educate and guide clients on cash management will stand out and retain trust.”
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