Cash tends to exist at the forefront of individuals' day-to-day lives for many reasons: as a stable savings vehicle for near-term goals, a safety net for unforeseen emergency expenses, and, of course, to pay for daily living expenses, just to name a few. And this nearness to daily life means that cash - and how it is used - is also often at the forefront of individuals' minds. In general, this means that people are more likely to be more aware of how much cash they're holding than the other numbers in their financial life, like the balances on their retirement accounts (which, being less 'immediate' in their intended purpose, are not often at the forefront of most people's minds to the same extent that cash is).
However, despite the impact that cash may have on a person's mindset, advisors have traditionally spent little time advising clients on what to do with their cash - except simply to tell them not to hold too much for risk of losing value to inflation. With recent economic changes, though, there are renewed opportunities for advisors to help clients manage their cash more effectively. For example, bank account balances have increased sharply in the last three years due to governmental programs in response to the pandemic and also to generally rising wages and salaries. At the same time, the Federal Reserve has recently raised key interest rates, which has resulted in higher yields on bank accounts, CDs, and other cash-like assets. Which means that, for the first time in years, individuals might start earning non-trivial yields on their cash, and potentially have a higher amount of cash on hand to manage as well. And so advisors have an opportunity to add value in new ways by advising clients on the questions of how much cash to hold and where to keep it!
While high-yield savings accounts at online banks have been a popular place for storing cash for the last decade, in more recent years the FinTech world has developed more options that could create more value for advisors and their clients. One example is cash management accounts developed by digitally-focused broker-dealers and robo-advisors, which while similar to savings accounts from a customer's perspective, provide key features (like higher FDIC coverage limits and a streamlined experience with the customer's existing investment accounts) that distinguish them from traditional savings accounts.
Though many of these accounts exist primarily to serve retail customers of broker-dealers and robo-advisors (which might make advisors hesitant to recommend them for fear of introducing customers to a potential competitor), there are also multiple options for cash management accounts developed solely for clients of financial advisors. With these options, advisors can offer a cash management service within the rest of their financial planning 'ecosystem', offering competitive yields on cash and FDIC coverage limits of up to $25 million, without having to send clients out to other financial institutions that might want to lure them away from the advisor!
Ultimately, the key point is that while the current economic provides a particular opportunity to focus on cash management, the reality is that the value of cash management can be ongoing despite the ebb and flow of economic conditions. For advisors looking to be paid directly for this value, a small, flat cash-management fee might be feasible without eating up too much of the yield on clients' cash. However, in most cases, cash management may actually be a worthwhile 'free' service – both only as a differentiator for prospects, but also as a way to renew existing client relationships and continually provide ongoing value!