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Blame rising bond yields or slumping equities. Either way, cash – a long-ignored asset class – is back.
After what feels like a generation of cash being out of favor, it’s not surprising that some advisors are caught off-guard by the resurgence. StoneCastle Cash Management stands ready to aid advisors in their quests to add value for clients seeking alternatives to basic bank accounts for their held-away or savings cash.
Data confirms now is an excellent time for advisors, particularly those with substantial numbers of high-net worth (HNW) clients, to have cash conversations with clients.
“Federal Reserve data shows that, as of the end of the first quarter, U.S. households held $17.9 trillion in cash and cash equivalents, up a bit from the fourth quarter and much higher than the $13.7 trillion they had at the end of the first quarter of 2020,” reports The Wall Street Journal. “Indeed, before the pandemic, U.S. households never experienced anything like the increase in cash they have experienced over the past two years, and this remains true even after adjusting for the run up in inflation.”
Translation: There’s a lot of cash floating around the U.S. economy, but many advisors don’t know how to tap into that reservoir. StoneCastle helps them get there.
StoneCastle Checks Important Boxes
Let’s call it $18 trillion in cash and cash equivalents that’s currently held by U.S. households. Clearly, that’s a massive amount. It’s more than eight Apples (NASDAQ:AAPL) as measured by market capitalization.
That also represents significant opportunity for advisors teaming with StoneCastle because many cash-rich clients feel as though they have limited options. That’s particularly true in a market environment such as the current one. Bonds aren’t working. Neither are equities. Cash is king, but clients –rightfully so – want the benefits of FDIC insurance and keep to the tenet that cash should be a riskless asset class.
StoneCastle checks that box and goes above and beyond…100 times beyond, in fact. FDIC insurance goes up to $250,000 per bank account. In other words, a client with $10 million in cash wanting to protect that capital would need a staggering 40 bank accounts to accomplish that objective. On the other hand, as StoneCastle Managing Director Frank Bonanno notes, the firm’s FICA For Advisors (FICA) solution provides advisors’ clients with FDIC insurance on up to $25 million per tax ID though one account.
“Affluent clients often have more cash than advisors realize and that conversation isn’t taking place enough because advisors don’t know where to turn to find value in cash solutions,” says Bonanno. “We are simply providing the tool for advisors to attract millions in held-away cash, while bringing immediate value to their HNW clients by efficiently providing high levels of FDIC insurance, a competitive rate, and overnight liquidity—in most cases increasing rate while decreasing risk. And for many advisory firms that currently bill on cash and cash equivalents—the capture of held-away cash can help to offset AUM decreases/fees while providing a bona fide value add for their clients.”
Bonanno is onto something with that sentiment as data confirms wealthy households are in fact hoarding significant amounts of cash.
“It also remains true when looking across a variety of wealth, income and demographic strata, according to distributional data released by the Fed on June 15th. People in the top 10% by wealth held 32% more in cash and cash equivalents in the first quarter from two years earlier,” according to the Journal.
Now is the Time for Advisors to Take Action
During the go-go days of the recently deceased bull market, professional investors and pundits bandied about the acronym TINA as in “there is no other asset” in reference to stocks being the asset class that made the most sense.
Times change and they do so in dramatic fashion. Some of the largest Wall Street banks are forecasting 40% to 50% chances of a recession. JPMorgan points out that, today, investors are hoarding more cash than they were at the onset of the coronavirus pandemic and M2 money supply is recently soaring.
Put it all together and now is the ideal time for advisors that have been ignoring cash for years to flip that script and embrace the safety, efficiencies, and liquidity offered by StoneCastle Cash Management.
Related: Cash is Back as an Asset Class