Raymond James ramps up industry's fight for client dollars idling in banks

Raymond James wants its financial advisors to tap into the trillions of dollars Americans are keeping in checking and savings accounts at big banks.

The St. Petersburg, Florida-based firm launched a pilot program aimed at converting what experts refer to as "held-away cash" at the giant Wall Street banks into accounts at Raymond James, Chief Financial Officer Paul Shoukry said at the Credit Suisse Financial Service Forum last week. 

The move is aimed at grabbing some of the $17.9 trillion that Americans hold in liquid dollars in accounts at "money-center banks" like Bank of America and JPMorgan Chase. With cash an increasingly competitive area of the industry, Raymond James is mum on how much interest it will pay under the new program.

In a trend known as  "cash sorting," savers and investors are increasingly looking for greater yield in liquid assets such as money-market funds amid the Federal Reserve's interest rate hikes. 

Brokerages already generate substantial profits for themselves by sweeping their uninvested holdings into accounts that pay low yields to most clients. The new Raymond James program would offer a third option to the sweep accounts and traditional bank accounts. 

"A lot of this cash is sitting at the big banks earning, you know, basis points — maybe two to five basis points in checking accounts," Shoukry said. "So {advisors} can go to their clients and say, 'Hey, bring over that cash from your big bank, and park it into an enhanced yield savings program where you're really optimizing the return that you're earning on your investable cash balances.' So we're offering tools like that to diversify."

Technology

Wealthfront, SoFi and Fidelity top latest robo-advisor rankings

February 22, 2023 1:49 PM

Industry publication Financial Advisor-IQ first reported the program. Raymond James hasn't revealed any further details, such as the level of yield customers would receive in the savings accounts and whether the program would have any impact on client cash sweeps. Representatives for Raymond James declined a request for an interview or more information. 

Like all of the largest brokerages in the industry, Raymond James sweeps its pool of client cash from uninvested balances into accounts that give the firm a much higher yield in most cases than the one it pays to its customers. As of the end of 2022, these client cash sweep balances amounted to $60.4 billion, which was 18% below the same time a year earlier and 10% down from the third quarter due to "continued cash sorting activity given the higher short-term interest rate environment," according to the firm's latest earnings report.

A comparison of the latest rates in the firm's sweep programs to those in money market funds explains why many advisors and clients move out of those accounts. 

The Crane 100 Money Fund Index, which is the annualized yield of the largest money market funds, stood at 4.38% on Feb. 21, according to Crane Data, a research firm that publishes the Money Fund Intelligence Newsletter. As of Feb. 16, Raymond James sweep accounts paid clients a maximum yield of 3% for cash holdings of $10 million or above, with lower tiers for cash levels between $1 million and $9.9 million (2.25%); $250,000 to $999,999 (1%); $100,000 to $249,999 (0.5%); and under $100,000 (0.25%), the firm's latest available figures showed. Meanwhile, Raymond James collected an average yield of 2.72% in the fourth quarter.

With most banks offering low-yielding savings and checking accounts and brokerages with cash sweep deposits facing a ubiquitous industry conflict of interest, startups and incumbents alike have been introducing higher-yield alternatives to sweep programs and the held-away cash at the money centers. 

Fintech

Maximizing your client's money, with guest Gary Zimmerman of MaxMyInterest

August 24, 2022 3:29 PM

Examples include Ally Bank, Synchrony, Marcus by Goldman Sachs, MaxMyInterest, First Citizens Bank's CIT Bank, Advisor.cash by StoneCastle and Flourish Cash. These competitors can make a compelling case: Americans lost $603 billion worth of yield in the past eight years on their cash in checking and savings accounts by keeping them in the five largest banks rather than moving to companies offering higher rates, the Wall Street Journal reported last month. Average rates on savings accounts stood at just 0.35% on Feb. 21, according to the Fed.

The latest Federal Deposit Insurance Corporation figures show there is about $17 trillion sitting at the money centers, with about $8 trillion of it lacking FDIC insurance coverage and more than $5 trillion earning little to no interest, according to Frank Bonanno, the head of marketing at StoneCastle Cash Management in New York. The firm has $21 billion in assets under administration across its institutional clients and Advisor.cash's FICA For Advisors, which works with more than 400 registered investment advisory firms after launching about four years ago. 

StoneCastle's product currently pays an annual percentage yield of 4.16% on a client's first $1 million, with blended rates for cash above that level. Advisors are often surprised by how much cash clients are holding in checking and savings accounts at large banks, particularly among high net worth clients, Bonanno said in an interview.

"A lot of times they're finding that there's millions of dollars sitting there," he said. "It's a huge value proposition for the advisor to bring that up with their end clients, which is really what we're trying to educate them on."

Practice and client management

Getting closer to clients through cash and crypto, with Flourish President Ben Cruikshank

December 14, 2022 1:59 PM

Flourish Cash, a program offered by an RIA technology firm that is a subsidiary of insurer MassMutual, pays clients a rate of 4.25% on the first $250,000 of an individual account and $500,000 for a joint one and 3% on cash holdings above those levels. The firm has more than $1.5 billion in cash AUA from over 500 RIAs after a 142% increase in assets last year. 

Around the time that Flourish Cash launched in 2018, the company conducted a survey that found a disparity between how advisors viewed their clients' cash holdings and the way their customers measured them, according to Flourish President Ben Cruikshank. When asked about the share of their assets in cash, high net worth clients cited levels of up to 20% in their bank accounts. But when the firm spoke with advisors, the planners cited figures like 1% or 2%, which was the amount of uninvested cash in a client's brokerage account.

Raymond James and its competitors are part of "a race in all of wealth management" to provide more holistic services, Cruikshank said in an interview.

"It's just, to me, another drop in the broad trend that started in 2018 and 2019," he said. "This is now a very, very important topic of conversation."

Wealth management firms like Raymond James, which has its own bank, aim to get into that conversation as well. The firm has been closely tracking cash trends since it heard from "big banks asking us for cash sweep money," Reilly said at the Credit Suisse event last week. He noted that investors could soon be saying to each other next year at cocktail parties, 'I'm getting 5%. What are you getting?'" The cash sorting movement could go on as long as the Fed keeps raising rates, Reilly said, declining to hazard a guess on just when that may occur.

"It has to be enough of a movement for clients and advisors to think it makes a difference," Reilly said. "For people that have either smaller clients or clients that have smaller pools of cash, it's like a checking account … But once you start getting meaningful dollars — you know, at 1%, you have $100,000. Well, so what? It's not that much money monthly. When it gets to 5%, it gets to be meaningful enough. And if you have a million dollars in cash, it begins to be really meaningful."