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Carson Group building Photo courtesy the Carson Group

Carson Group Eyes Banking

The firm is equipping its advisors to compete for what one firm calls a $10 trillion opportunity.

Advisors at Carson Group’s Excell conference in Chicago were cheering the news of a white-labeled, high-interest cash solution, called Galileo Money+, offered by Galileo Processing last week. The tool, which marked a culmination of nine months of discussion between the two firms, went into beta last week and is expected to be available to Carson Group investors in the third quarter of 2019. Carson is Galileo's first Money+ client.

Those Carson Group investors enrolled in the cash product will have access to two FDIC-insured demand deposit accounts, called a “Spending Account” and a “Reserve Account,” which are pegged to the Effective Federal Reserve Fund Rate (EFFR) and currently earn interest rates of 1.24% APY and 2.20% APY, respectively. The accounts are custodied by Bancorp Bank, insured up to $2.5 million per Social Security Number, and come with a 20-basis point fee, the latter being split evenly between the bank and Galileo.

The Money+ accounts have been designed and structured by Galileo in such a way that advisors could charge up to 1.00% on the accounts, although Carson has yet to finalize “how or if [Carson Group] advisors will generate revenue” from the product, according to Andrew Rogers, advisor solutions manager at the firm. With interest rates rising, cash management has been a hot topic of late. Even automated investment services like Wealthfront and Betterment are offering solutions to investors.

Other cash management solutions, like the advisor-focused enterprise option offered by MaxMyInterest, and used by firms like Dynasty Partners, charge customers just two basis points per quarter and currently offer a 2.71% APY max yield on cash and an average of 2.46% APY yield. MaxMyInterest works by sweeping cash across bank accounts held in the end-investor’s name, offering an aggregated FDIC-insurance of up to $1.5 million per individual.

MaxMyInterest doesn’t track whether, or how much, advisors charge clients for cash that touches the tool, said CEO Gary Zimmerman. “Max is not a ‘cash product’ but rather is just plain cash, held directly by each client in his or her own bank accounts. Couldn't be simpler,” he added. “Most advisors tell us they don't bill on cash; but, given how much alpha they are delivering to clients, they could certainly justify it.”

While Max may offer a higher interest rate, Carson Group did its due diligence and “selected the right platform for Carson,” said Teri Shepherd, the firm’s chief operating officer. Part of the Money+ platform is a customized, firm-branded debit card that advisors can provide to their clients, according to Aaron Dillon, managing director of Money+.

Other white-labeled features of Money+ include an app that comes in customized skins for each wealth management firm using the platform, as well as a white-labeled call center that is able to identify which wealth management firm the end-client is using based on information like the client’s email address. Money+ also includes standard banking features like no-fee online bill pay, a network of no-fee ATMs and no-fee ACH transfers, as well as no monthly service fees. Investors will not have access to physical bank branches.

For independent advisors, it’s a chance to go toe-to-toe with the big banks, said Dillon. “All of the major banks now have both wealth management and financial advisors in the bank branch. Financial advisors are working with the bankers at those institutions to try to bring in wealth management business to the bank,” he explained. “Here's an opportunity for that story to flip—where the independent advisor can now go after the banking client.”

For Galileo, Money+ may also be the missing transition the firm has been looking for to get clients on its Galileo Security Solution (GSS) API. The GSS tool is first cousin to a hybrid debit-credit product built by the company for Interactive Brokers, which allowed investors to draw cash and then make a securities-backed loan from his or her investment account. Galileo is still looking for a partner for its GSS tool, which would essentially allow investors to make a card-based transaction against invested securities, staying invested in the securities until the moment of using the card.

Regardless of whether Money+ leads to new opportunities for Galileo, or whether advisors even end up charging for the cash held in the tool, it still “empowers financial advisors to compete for the $10 trillion in low- or no-interest U.S. bank deposits,” according to the firm. “It’s a huge asset opportunity,” Dillon said. Bringing over banking deposits could lead to discussions about moving some assets into short- or intermediate-duration bond funds, for example, which could fit into an advisor’s AUM-based fee model. “For many advisers, there's a very real opportunity for them to double the amount of assets that they have under their umbrella by offering bank accounts.”

While Carson is first to offer this specific solution, Galileo said other firms are in hot pursuit. Although declining to name them (citing ongoing contract discussions) Dillon said two other firms view a Money+ offering as a “competitive advantage,” but have not yet committed to a partnership.

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