Is My Cash Safe?
People should be more concerned with the return of their principal than the return on their principal.
– Will Rogers
In light of recent events surrounding the collapse of Silicon Valley and Signature Banks, and concerns around First Republic and the banking system as a whole, we have received questions from clients wondering: Should I pull my money from my regional bank and move it to a bigger bank? What protection do we have from Fidelity? Are there are any steps I should take to further safeguard my liquid assets?
Investors know that stocks and bonds involve risk— inflation, recessions, rising interest rates, bear markets, etc.—but most of us do not worry about our cash deposited in local or national banks. Those funds usually involve very little risk and that is why bank accounts do not pay as much interest, if they pay anything at all.
We know this is a scary time for many and we want you to know that at Blue Trust we are guided by our core values of excellence and integrity, take our fiduciary responsibility very seriously, and put our clients’ best interest first. In light of that, we want to highlight three solutions that we believe provide security for your assets.
Fidelity Investments
Our primary custodian is Fidelity Investments, which is one of the world’s largest providers of financial services. With assets under administration of $10.3 trillion, including discretionary assets of $3.9 trillion, Fidelity serves more than 40 million people, manages employee benefit programs for nearly 23,000 businesses, and supports more than 13,500 financial advisory and brokerage firms.[i] Their diverse businesses and independence give them insight into the entire market and the stability to safeguard your assets. It is also important to remember that Fidelity employs a conservative strategy and only executes trades at the direction of retail and institutional brokerage clients. Additionally, Fidelity does not provide investment banking services such as using firm capital for investment opportunities, raising capital, or advising and managing mergers and acquisitions. Click here to read more about the brokerage industry rules and regulations to which Fidelity is subject, and the additional processes, procedures, and safeguards that Fidelity employs to optimize client asset protection.[ii]
Many people have wondered what happens if the financial institution that’s holding your investments goes out of business or is the victim of fraud or cyber theft. While rare, these events are not out of the realm of possibility. Here are some safeguards in place to mitigate these risks:
- Reputable Custodian. Fidelity has a strong net capital position (more than SEC requirements), has a rigorous system of internal controls, and carries additional insurance in excess of SIPC limits.
- Customer Protection. The SEC prohibits brokerage firms from using customer assets for any other purpose, such as for financing their own business. If the broker-dealer fails, customer assets are protected from creditors’ claims.
- Fully Disclosed Positions. At Blue Trust, our clients’ assets are fully disclosed, meaning each client’s assets are held at our custodian in their name, so if the financial institution fails, our clients’ assets will remain segregated, easily identifiable, and can be transferred to another financial institution.
- SIPC Insurance. When broker-dealers fail, client securities are normally unimpacted. However, in the rare event that securities go missing, the Securities Investor Protection Corporation (SIPC) will cover up to $500,000 of your assets ($250,000 of cash).
Flourish Cash
Flourish Cash provides you with one account that accomplishes what would otherwise require accounts at many different banks. Behind the scenes, the cash in your Flourish Cash account is automatically transferred to one or more of their FDIC-member Program Banks, who are able to offer a competitive rate. Because Flourish Cash partners with multiple banks, you’re eligible to receive higher FDIC insurance coverage than any individual bank account, all while receiving a single monthly account statement and one annual tax document.
Features of Flourish Cash:
- Flourish Cash links online to your current checking or savings account. Once set up, you can move money back and forth between the accounts (transfers typically settle next business day).
- No fees, minimums, or transfer limits.
- FDIC Coverage: $1m for institutions, $1.25m for individuals, and $2.5m for joint owners. Opening multiple accounts with different ownership categories can increase household FDIC coverage up to $5m.
Click here to learn more about Flourish Cash or contact your Blue Trust advisor to see if this solution is right for you.
Bond Ladders
While bank deposits and money market funds are foundational, in some cases it makes sense to supplement these tools through a direct purchase of individual treasuries. Often, these securities are bought at varying maturities to create cash flows that line up with anticipated future spending needs; this approach is known as “laddering”. There are several advantages to bond ladders, including:
- Capital Preservation. Investors can set up their portfolio to maximize safety through treasuries.
- Customization. We can tailor maturity dates, credit qualities, and sectors to match your financial needs. Municipal securities may also be used to minimize tax liabilities.
- Fixed Yields. Bonds can fluctuate in value as market yields change, but if you hold securities in a bond ladder to maturity, then you will know exactly what yield you will receive (barring any defaults).
Fixed-income ladders are sometimes more complex to set up and maintain, which is why we can assist you in building and executing a bond ladder that fits your specific needs.
While we do not believe there is reason to be overly fearful, it has been a long week for the financial industry. As events unfold, our investment team and advisors will continue to monitor the situation, the markets, and the economy. If you have additional questions, please reach out to your Blue Trust advisor or contact us at 800.987.2987 or email blog@bluetrust.com.