Unlocking Organic Growth Through Cash with Morgan Ludovico

Let's start with that. What's the meaning behind the name?

[00:00:31] Morgan Ludovico: So the Keep, Doug is the safest, most fortified room in any castle. If you're a Game of Thrones fan or if anyone listening in is a fan of Game of Thrones, you might remember The Red Keep. That's a reference that a lot of folks have been making since we launched our rebrand in the fall of last year.

 To your point, it is a much more succinct and memorable name than what we were previously. And I think the change is really a testament to our commitment to the wealth management space. And ultimately we wanted the conversation between the advisor and the client to be simpler and for them to have something that's easy to convey who we are, what our offering is.

And of course, first and foremost that is safety and protection. So the KEEP is a noun and it certainly ties into the StoneCastle. But it's also a verb. It's more fun as a verb, and it helps us to tell our story. We can say things like, keep saving, keep protected, keep earning, keep growing. In terms of market panic, maybe it's keep calm.

Right? We're familiar with that one. So, we've enjoyed the new brand and it's been well received.

[00:01:38] Doug Heikkinen: It's really clever. So now that we know where the name came from, and beyond being a message of safety, tell us a little bit about what KEEP actually is.

[00:01:48] Morgan Ludovico: So in the simplest terms, Doug, KEEP is an enhanced savings account solution.

 You can think of it just like your standard Chase or B of A or Wells Fargo savings account. It's a truly riskless cash vehicle with some major added benefits. So first and foremost, federal insurance, we leverage our network of over a thousand insured depository institutions to allow for a hundred million in federal insurance through one account.

So every tax ID is insured up to a hundred million. Really an unprecedented level. Couple that with competitive rate, typically six to 10 times whatever the national average savings rate is, and overnight liquidity. It's fully liquid. There's no lockup period, there are no fees to utilize KEEP.

And it introduces a real level of simplicity into the advisor client relationship because the depositor is able to link their outside bank accounts, link their investment account, money movement is super simple. So above all, a better savings account for the advisor, to help them combat traditional banks, online savings banks, and to hopefully capture a lot of those assets that might be held outside of their jurisdiction and grow their business while better servicing their best clients in terms of rate and protection.

[00:03:09] Doug Heikkinen: I think you mentioned on a previous podcast, and I've certainly seen it in your materials, that cash is the most widely held asset class, but the least spoken about. Is that still the case?

[00:03:21] Morgan Ludovico: Sure. So let's break that down into two parts. I think, and we'll start with is cash the most widely held asset class?

Yes, everyone has it. You know, I have it. You have it. Every trust or corporation or nonprofit that an advisor might work with. There is an opportunity to bring value. But specifically with high net worth households, if you look at the level of cash that high net worth clients hold, and if we look at Capgemini's World Wealth Report in particular, they put this number out every year.

It's usually around 20% to 25%, which is much higher than you might assume it to be. But then if we look at, well, what is the average cash allocation that an advisor has under their purview? And that number's only about 5% to 7%, Doug. So that leaves us with a pretty wide gap. That leaves us with a nearly 15% gap on average.

Where is that excess cash being held? So what we're doing is working to educate advisors on how to engage clients about that 15% that's held away. How do you smartly address it? How do you increase client's rate of return without introducing any extra principle risk? And that's an important piece.

So from a fiduciary standpoint, certainly it's a really valuable and easy conversation to have with clients. But I would say, to part two of your question, is it the least spoken about? Just because it's an easy conversation doesn't mean that it's always occurring. So I would say unfortunately, yeah, it might be still the least spoken about asset class.

I would agree with that. But given the hundreds of advisor relationships that we have and the thousands of clients through those advisors and a lot of new entrants into the space and other programs that have brought good attention to the opportunity here. It seems to me like we are successfully moving that needle and really getting advisors engaged in speaking with clients about cash and how to integrate it into their overall wealth plan in every conversation.

And importantly, not just with existing clients, but with prospects as well.

[00:05:24] Doug Heikkinen: So is that the main topic or theme advisors are talking about today? And if not, what is it?

[00:05:31] Morgan Ludovico: Well Doug, as we're speaking, it's end of May, 2025. Without a doubt the main topic that advisors are talking about and thinking about is organic growth.

I'm sure you've seen a lot of the headlines this year. Every RIA conference or event that I've been to this year, it's been a major theme. And what's interesting is I'm starting to see that our partner firms have specific goals, numerical goals around organic growth. It's not just a suggestion that advisors focus on this.

But it's becoming a mandate, right? And a lot of home office level folks, they're really thinking about, okay, how do we best compliment our referral programs? How do we compliment the inorganic growth initiatives that we've built, and how do we make sure we're not falling behind when it comes to this all important piece of the equation, which is the organic piece.

So we've certainly seen this shift, with the caveat that organic growth seems to be this buzzword that's at the forefront right now. But this idea that cash can be a conduit to growth for your business is something that we have seen in practice for years and is certainly an evergreen story. We've just got a whole lot of special attention on it right now, I guess you would say as of late. And the shift in my conversations is we used to talk a whole lot about transactional opportunities. Things like liquidity events, your client's selling a home, selling a business, they're coming into an inheritance. You know, is there an opportunity to give them a safe parking spot?

Do you have clients that just have excess cash that isn't fully insured? They're earning two basis points at a big bank. Is there an opportunity there? But those more transactional conversations have certainly fallen by the wayside as advisors have started to think about, how do I go outside the box of just this handful of immediate client opportunities and really think about better ways to incorporate cash into the overall wealth plan.

And the truth, I think, that I've discovered in having these conversations is cash tends to be not just the easiest, but the fastest way to organic growth and meeting those goals.

[00:07:45] Doug Heikkinen: So why is cash the easiest and fastest way to play and do what everybody's talking about, which is organic growth, and why StoneCastle?

[00:07:54] Morgan Ludovico: So, okay, so why, is it the easiest and the fastest? We'll start there. I think first off what we just said, cash is the most widely held asset class, which naturally means it's the widest opportunity scope. Everyone has it. Every client or a prospect that crosses your desk, you know that there's an opportunity to bring value.

I think too, it's just simple, Doug, right? It's so simple. It's easy to understand. If I'm not a sophisticated investor, I still know what a savings account is, right? And I understand what an interest rate on that account means, and I understand the importance of federal insurance in most cases. So, that's certainly why it's easy.

But I think cash means a lot of different things to different people and to different advisors. It has different levels of importance. Although it is always deeply, deeply personal. That's what I've found. And it's the building block one, right? It's the foundation upon which all else is built that therefore it's personal.

 But there's so many different ways to go at it. And in order to break things down for advisors and make it really easier for them to identify specific opportunities within their book of business to focus on, what we've done is we've taken this cash opportunity and organic growth story and broken it out into four pillars.

So I will quickly go through those now. But the four pillars of cash, pillar one is held away cash. I think that's the low hanging fruit, the most obvious. Those liquidity events scenarios that we just talked about. Just clients that are overweight in excess cash in a bank account that's being under serviced. Your immediate opportunities.

Pillar two though, is I think the most exciting and most relevant today, and that's affiliated cash, Doug. And when I say affiliated, what I mean is any entity, organization, business, nonprofit, that your high net worth clients are associated with. So if you're working with high net worth clients, 9 times out of 10, they own a business.

They're an active alum. They have certain charitable organizations that they care deeply about. They sit on the board of a foundation or an HOA. There's entities that they have in their orbit. If I am working with this client for a long time and I know that they care about this particular organization, and I say, hey, what are they doing with their cash?

Is there an opportunity for us to work together to bring some immediate value to that organization? The answer is, well, maybe, right? Typically it's maybe, and let's have that conversation. And then something really fun happens is once you're in the room with the board members, for example, and they decide, Hey, this solution might work for us.

Undoubtedly, the individual people, the stakeholders, the employees in the room, will say, Hey, can I use this for my cash too? And the answer is yes. KEEP is not limited to any one account type. It's the same parameters, whether it's an individual or a corporation opening the account.

 So that creates almost this feeder, this constant feeder of opportunity where you're starting conversation and that can lead to something else. And 99% of the time it leads to something much broader than just a savings account conversation for the advisor.

Pillar three. Institutional cash. 40% of deposits into KEEP by StoneCastle come from business accounts or institutions. Why? Because institutions have operating funds and they often have investment policy mandates that say, your cash has to be liquid, it has to be insured, right? So how do we help those entities check a box, while not sacrificing rate of return and not taking on additional principal risk. So it tends to be a great fit there.

And then the fourth pillar is impact cash. And in the interest of our time, I'm not going to go way down this road, but I will say we've been at this for a long time and we've built a network that stands at over a thousand insured depository institutions across all 50 states.

It's the second largest network of depository institutions that exist in the US. And we've strategically partnered with healthy, strong, well capitalized institutions, that look to us as a source of funding and are not the big name banks. They are in small towns, rural towns, resource scarce areas across the nation, where they're able to create social good.

So if you're working with nonprofits or foundations or high net worth individuals that have mission-based goals, and they say, you know what? The idea of doing something good with my deposits and sending them into a solution where they're going to go to these regular old small towns and do something good resonates, then that's something that KEEP can help you do as well, which is great.

 So again, held away cash, affiliated cash, institutional cash and impact cash. This is the major areas where we're helping advisors service clients. Part two of your question, if I remember Doug, after that long explanation is why StoneCastle, right?

[00:13:16] Doug Heikkinen: Right, right.

[00:13:18] Morgan Ludovico: Okay, so quickly just, I think it's twofold.

You know, why StoneCastle? Point number one is just our, experience and our pedigree in the institutional space. As mentioned, we introduced this solution in '09, and for about a decade it was only offered to the largest institutions in the nation, Fortune 500 companies and municipalities and foundations and endowments and public funds and so on.

So if I'm looking at you Mrs. Advisor and saying, I think you should put this in front of a big organization that your best client is affiliated with, and use this to start a relationship. Well, there's going to be a degree of comfort knowing that we are well equipped with the experience and the knowledge to service and entity of that size and stature so that's number one.

Two is scale, right? We're talking about over a thousand banks in our network. We're talking about a hundred million in federal insurance. That means there's very little thinking required from the advisor, right? We're not having to vet opportunities. Oh, it's not like, oh, they offer five or 10 million in insurance.

 We can cover, if not all, the nearly all opportunities that come your way. And cash is simple, right? So if we're, if we are, excuse me, requiring advisors to think and vet, we're immediately losing our value, right? So this is a one size fits all solution given our scale. And I wouldn't be able to say, let's create this organic growth feeder cycle by doing this if that weren't the case.

[00:14:53] Doug Heikkinen: let's talk opportunity. What's the size of the market for advisors? Meaning how much cash is out there for advisors that they can address?

[00:15:02] Morgan Ludovico: It is a good question. I've been in this role at StoneCastle for about five and a half years, Doug, and in that time period we've had a pandemic.

We've had some major banks collapse, Silicon Valley being the most notable in 2023. We've had a rapid runup of interest rates. We've had so many economic and political events that have really affected client outlook. It shifted advisor priorities. But amazingly, there's one thing that hasn't moved all that much, and that is the level of deposits sitting in US banks uninsured or earning zero interest.

There's certainly been ebbs and flows, but those numbers haven't moved, given all of this crazy stuff that's gone down. So, it's wild. So it's about roughly $7 trillion in uninsured deposits and roughly $4 trillion earning no interest. So if we tie that in and kind of couple that with the organic growth opportunity and the four pillars that I just talked about, I think that demonstrates how important, if not imperative it is that advisors are talking about this with their clients. And hopefully wrapping their arms around some of those held away assets. There's a psychological component, and this is just one other point here in terms of the scope of the opportunity, and why cash helps you to grow, is the psychology behind referrals. And I think that's worth mentioning. I'll just call it out directly. You know, if you give your client an awesome investment strategy and it works out so well for them, they might still be hesitant to say to their colleagues, friends, and family, Hey, let's try this. You know, you should do this. It was so great for me. Because there's a certain level of risk, you know, that'll be introduced.

Whereas if you say, Hey, why don't you go tell people about this savings account that's liquid and no fee, and there's likely only upside, and if you change your mind, that's okay. Right? It's more likely that those conversations will actually occur, which I think is why we're seeing the simplicity of cash open doors the way that it is.

[00:17:13] Doug Heikkinen: So are advisors concerned about cash? I mean, are they actively seeking you out to discuss cash? And if they are, why?

[00:17:23] Morgan Ludovico: They are, I mean, many are concerned about it, just in the sense that if they're not talking about it, they're not having a complete wealth management discussion. And it's very likely that someone else is trying to have that conversation with their client.

Others are concerned about it just when clients accumulate too much of it and all of a sudden they have underperforming assets or in the worst case situation, they're uninsured. So they need an immediate solution. I think most tend to be concerned when we see events like the collapse of SVB, where people start to panic and get nervous.

And these "never say never" sort of inevitable things occur. They do happen. All of a sudden everyone is super concerned about cash then. So, we certainly don't ever root for a market or credit event of that nature. But as you can imagine, Doug, when they happen, our phones start to ring a little bit more often.

So part of my job, me and my team, is to help advisors recognize, hey, it's a lot easier to be set up and be prepared with a solution or even have an account open before these events occur. And then if you do that and these things happen, you get to have this really awesome kind of feel good moment with your client where they call in a panic and you say, keep calm. It's okay. We've got you a hundred million in guaranteed principle protection. And really with KEEP, there's no such thing as an uninsured deposit. So we certainly feel good about being able to offer that peace of mind in those situations.

[00:18:55] Doug Heikkinen: How does the rate outlook for the year affect your conversations with advisors?

[00:19:00] Morgan Ludovico: Yeah, so we're expecting likely two cuts, give or take this year. And I think even still the risk rate, risk-free rate on cash will be well above what the national average savings rate is, which is about 45 basis points today. The held away cash story stands strong, and I'm confident that advisor interest will remain strong even if we see a little bit of a decrease. It's certainly all relative.

Also, Doug, the market loves when rates come down because it just means that money is in motion again. And when there's money in motion, that's opportunity for advisors to capture that outside cash in particular, bring it under their purview, and make more comprehensive, complete decisions for their clients.

[00:19:45] Doug Heikkinen: You mentioned KEEP has a network of more than 1000 insured depository institutions in its network. I would imagine there are some benefits that come along with that, other than the high levels of federal insurance, yes?

[00:19:59] Morgan Ludovico: Absolutely. So again, I think it's 1,050 or so, insured, depository institutions.

And so the most obvious benefit that comes with that scale is the a hundred million in federal insurance. But there are certainly other less obvious. But just as important, just as impactful benefits to scale. So we've spent 15 plus years building these strong, longstanding relationships with all of these institutions.

Again, it's the second largest network in the US. And that that has two major effects that I'll talk about in response to this. The first thing, I'm going to use an example, so I just talked to one of our advisor partners a couple weeks ago and we were talking about how he uses KEEP to fuel organic growth in particular, because of course that's the hot topic.

And the way that he put this was much different than anything I've heard before, but I think is just a nice little nutshell of what the scale means. And he said, Morgan, when I put this in front of a big client or especially a big prospect, it immediately conveys to them that I am accustomed to servicing big clients and I am accustomed to handling sophisticated client situations. It gives me this little bit of credibility because I'm able to say, this is an institutional grade solution that you now have exclusive access to through your relationship with me. Right? So the background and the scale and the time that we've spent building this network lends itself to those conversations for advisors, which is really, really great to hear that feedback.

I think the second benefit to the scale that tends to fall by the wayside, but is again, really important, is risk mitigation, Doug. I'll give you an example for this one too. There's been a lot of entrance into this extended insured deposit space in the last few years, and the biggest difference between StoneCastle and all of those players is size of network and scale.

And a lot of them have, let's say 20, 30, 40 banks, right, in that range. Certainly not a thousand, regardless of what the number is. And let's say I'm an advisor. I custody all my clients with Fidelity and they all have cash, transactional cash, in the Fidelity Suite program. They have their outside checking and savings accounts at a couple of banks, and then they're using our insured deposit program, similar to KEEP in concept.

There are often situations where the same banks in the custodial suite program exist in that insured cash program. So what happens when there's overlap is, we are now entering a conversation around fiduciary responsibility, where if those are the same banks, there's opportunity for the exceeding of $250,000 at one institution under one tax id.

And of course, all of these programs kind of put the onus on the depositor to say, you have to identify if that is possible, but we all know that really it's the advisor's responsibility. They're going to look to the advisor and say, do I need to worry about this? If they think of it, right? So, all the attention and the new entrance into the space have brought this to the forefront.

And we're thinking of it kind of as like this silent overlap discussion. And I think if you are working with StoneCastle, if you've chosen KEEP, what you can do is forget everything that I just said, Doug, and just pretend, that didn't happen. And never think about it ever again for the rest of your life.

Because, with scale on your side, you can exclude as many banks as you want and doesn't affect the level of insurance or the rate that is offered to your client. And in fact, we have several partnerships where on a systematic basis we exclude all of their custodial suite banks for every client that opens an account with us, that they'd never have to think about that.

So risk mitigation, is my second point there.

[00:24:11] Doug Heikkinen: All right, last one for you. What else does StoneCastle, do?

[00:24:16] Morgan Ludovico: You know, Doug? We don't do anything else. We are singular in our focus. Cash is all that we do. We're not a bank, we're not a brokerage. We don't have affiliation with another financial institution.

That is now something that's unique in this space too. You know, a lot of these other players that I was referencing have a whole product suite and that's good and well, you know, they're involved in the insurance space or with crypto or with a lending platform, you name it. We made the decision a long time ago to do one thing and to do it really well.

And my favorite part about being singular in our focus is that it allows myself and my team the ability to really become an extension of every one of our partner firms' home office, where we're not to them just the people that give us KEEP and can get me a hundred million in insurance, but we're the cash experts that can be called upon for insights and information when their client asks a funky question or they see an article, or they want to know if they should be worried about this thing that's trending. being singular in our focus allows us to do that.

[00:25:25] Doug Heikkinen: Morgan, what a huge opportunity for advisors and you're giving them such a great solution.

Thanks so much for joining us.

[00:25:34] Morgan Ludovico: My pleasure, Doug. Thank you.

[00:25:35] Doug Heikkinen: To learn more about KEEP, please visit keepcash.com. We are on all social media platforms @Advisorpedia. Please give us a follow. For our producer Tory Miller and everyone at Advisorpedia, thank you so much for listening.