In the world of finance, change is the only constant. The landscape continually evolves, presenting new challenges and opportunities for Registered Investment Advisors (RIAs) to explore. As the financial markets become increasingly competitive and unpredictable, a new avenue for organic growth has emerged, capturing the attention of advisors with clients sitting on vast sums of uninsured or low-earning cash. This largely untapped potential (approximately $7 trillion*) has proven to be a boon for RIAs looking to expand their businesses while providing value to clients seeking potentially higher returns and safety on held-away cash.
In today's interest rate environment, clients are often stuck between a rock and a hard place. They want safety for their funds, but they're frustrated by the meager returns offered by many traditional banks. In the past, many advisors would introduce clients to an online bank only to realize they were feeding clients to the competition who were quickly solicited for wealth management services. Today, RIAs are stepping in and taking direct responsibility to offer these clients innovative solutions that add value beyond just getting a better rate.
Redefining Value with Competitive Returns and Safety
There is a growing number of advisors who are embracing a proven approach once reserved for family offices and private bankers, which is to take a holistic approach on all household assets, which often includes significant cash reserves held away from the advisor. The strategy revolves around providing clients with competitive interest rates while ensuring their funds are safeguarded. Traditionally, uninsured cash could mean risk, but with the availability of high-yield options backed by substantial FDIC insurance coverage, like StoneCastle Cash Management’s (“StoneCastle”) FICA For Advisors, the narrative is changing.
“Offering clients ten times the rate available at most traditional banks and having up to $25 million in FDIC insurance coverage allows us to give clients the best of both worlds,” said Chuck Failla, CEO of Sovereign Financial Group. “They can enjoy competitive returns without compromising the safety of their funds. It’s about transforming their perception of risk and helping them see the importance of that as it relates to all of their household assets."
In an era where the traditional haven of savings accounts hardly yields any interest, this kind of proposition holds immense allure. For RIAs, it's a chance to stand out in the market by showcasing their commitment to delivering tangible value. But how can they implement this strategy effectively and organically grow their businesses?
Building Trust and Relationships through Education
One of the key components in attracting or deepening existing client relationships with large cash reserves is education. As advisors, it's vital to empower clients with knowledge about the potential risks and rewards associated with different investment objectives. This means taking the time to explain how the higher-yield solutions work, how FDIC insurance provides a safety net, and how the combined approach can be a game-changer or at least a shot in the arm for their financial wellness.
"Transparency and education are paramount," says Mr. Failla. "By breaking down the mechanics of an insured cash solution like this and emphasizing how it can align with clients' goals, we create a foundation of trust. And that trust translates into deepening client relationships.”
Many high-net-worth individuals are associated with businesses, organizations, charities, foundations, endowments, or other associations that are meaningful to them. By educating them on the benefits of the solutions for their personal assets, it often opens the door to these organizations that could also benefit from the same care. In this case, either insuring more of their organization’s cash or simply seeking a better return…or both. Education and transparency become the foundation upon which longer-lasting relationships are built.
Collaboration: A Rising Tide Lifts All Boats
The shift toward attracting clients with substantial uninsured or underperforming cash isn’t just a growth opportunity for individual RIAs—it’s also a chance to foster industry collaboration. As more advisors embrace these innovative strategies, their collective expertise grows, which can benefit the entire profession and the clients they serve.
"The financial industry is at its best when it thrives as a community," says Morgan Ludovico, Senior Vice President at StoneCastle. "When we share insights and success stories, we help to raise the bar for everyone. This isn't just about competition; it's about elevating the standard of service we provide to our RIA partners and driving better outcomes for their clients."
Where Opportunity Meets Responsibility
As the financial world continues to evolve, the role of the RIA becomes increasingly complex. Not only are advisors responsible for securing clients' financial futures, but they're also tasked with uncovering opportunities that may be hiding in plain sight. The allure of uninsured or low-earning cash is one such opportunity—a chance to redefine the narrative, transform perceptions of risk, and deliver tangible value to clients seeking to protect, earn, and save more within this important asset class.
Ludovico concludes that, "It's about showing our clients that there's a way to organically grow their businesses while adding client value in enhancing and protecting more of their wealth. It's a responsibility we take seriously, and it's a responsibility that helps to propel the advice industry forward." Readers can learn more at Advisor.Cash.
*Source: FDIC.gov 8/30/23
Sovereign Financial Group is a current client of StoneCastle. Mr. Failla is not affiliated with StoneCastle and was not compensated for his statement.