Why Rising Interest Rates Mean Opportunities for Advisors and Clients

Interest rates are rising, and that means cash is once again assuming a larger role in the income that investors receive after years of near zero returns.

Earlier this month, the Fed raised interest rates -- another step in a trend that economists expect will continue through the end of the year at least.

Higher rates from the Fed typically mean rates on all kinds of fixed-income investments increase -- as well as on savings accounts. This affects advisors’ clients who hold cash as a form of dry powder, allowing them to pursue other investments as attractive opportunities arise.

Advisors are also looking at cash as a way to highlight their role as fiduciaries. Cash is the universal asset class -- every client holds it -- and it presents an opportunity for advisors to prove their value to clients without adding any risk to the portfolio.

How can financial advisors help clients who hold cash as we move into a period of rising rates? CD ladders are a traditional option, but if rates rise more quickly than expected, investors will miss out on the ability to earn more.

Importantly, advisors often overlook the much higher rates of online banks as a key piece of their strategy. These banks are FDIC-insured, just like any brick-and-mortar bank, so clients’ money is safely government-guaranteed, as long as accounts are kept below the insurance limits ($250,000 per depositor, per account type, per institution).