Why Advisors Shouldn't Ignore Clients' Held-Away Cash

Independent RIAs pride themselves on helping clients with every aspect of their financial lives. Yet it turns out that advisors — even fiduciary, holistic, planning-oriented advisors — often ignore the simplest asset class of them all: cash.

As advisors are increasingly pushed to deliver more value to their clients, and as interest rates have skyrocketed in recent months, advisors have an opportunity to deliver more value — while building their businesses — with a focus on cash.

It turns out there’s a bigger reason to focus on cash than most advisors realize. Over the past five years, we’ve seen that many advisors simply do not know how much cash their clients hold in the bank.

When we’ve asked advisors how much cash they think their clients hold, advisors frequently answer “1-2%” — meaning, the uninvested cash that advisors manage at custodians. Yet numerous studies, such as the 2022 Capgemini World Wealth report, show that high-net-worth investors actually keep 20% or more of their wealth in cash.

To advisors fighting to minimize cash drag in the portfolio, such large cash balances may sound impossible: “that might be true for other advisors, but not for my clients.”

But data from Flourish Cash tells another story. In a recent analysis, we found that across the more than 500 RIAs we work with, clients with a self-reported net worth of $1 million to $2 million hold an average of $183,672 in Flourish Cash accounts. There is far more cash out there than many advisors think.

‘Out of Sight, Out of Mind’

And why are advisors blind to held-away cash? To start, held-away cash sits outside of the portfolio — out of sight, out of mind. Advisors almost never charge on held-away cash, reducing the incentive to pay attention.

And, until recently, the lack of advisor-centric solutions meant that advisors couldn’t help clients open or manage accounts, leading many advisors to avoid the conversation entirely.

Yet for clients, cash is a critical part of their everyday financial life. Cash enables daily household liquidity, fills up emergency funds and is often the right vehicle for short-term liabilities, from home purchases to tax bills.

More deeply, cash helps clients “sleep at night.” Studies have even found that individuals who have more cash on hand feel more confident about their finances and ultimately, are more satisfied with their lives. Instead of net worth, income or investments, happiness is driven by the amount of cash in the bank.

Perhaps more difficult for many advisors to accept is the fact that many clients view cash as “their money,” somehow distinct from funds held in the portfolio. As my own mother has said to me, “I trust my advisor with everything, but I don’t want to have to ask permission to make a big purchase or redo the kitchen.”