During the recent PLANSPONSOR 2021 HSA Review virtual conference, held October 13, two advisory industry experts discussed how retirement plan advisers can provide value to clients by helping employees make the most of their health savings accounts (HSAs) and investments—as well as how to partner with providers.
The speakers—Chad Goerner, senior vice president and corporate retirement director at Princeton Financial Partners/RBC Wealth Management; and Carl Hall, co-founder and chief investment officer (CIO) at Lodestar Wealth—agreed advisers cannot afford to ignore the growing HSA market, especially if they see it as part of their value proposition to provide holistic services to their plan sponsor and participant clients.
Recounted below are some highlights from the discussion, which addressed both the challenges and opportunities HSA services present for advisers.
Goerner on the Prevalence of HSAs at This Juncture
“We are definitely seeing an expansion of HSAs at a rate that can only be described as quick, especially relative to other comparable savings programs. This coincides with the growth in high-deductible health plans [HDHPs]. I have some data on hand that shows that, as of 2011, roughly a quarter of health plans in the U.S. were HDHPs, and by 2018 that had already grown to 40%, and it continues to increase.
“We are probably today somewhere in the ballpark of exceeding 50% of employers offering an HDHP. The question is, from an HSA perspective, are participants actually utilizing this feature? Are they using some of the additional features of HSAs to plan for long-term health care needs?
“The growth in HSAs, keep in mind, is not coming because people really love HDHPs. There is a whole health care ecosystem that is leading us in this direction. And that is a challenge for advisers. Depending on the socioeconomic makeup of a company, you may see more and more use of an HSA as a traditional money-in, money-out vehicle. We are still only seeing the beginning of the HSA being used in coordination with a 401(k) or 403(b) as a supplemental retirement savings vehicle.”
Hall on Advisers’ Engagement With HSA Services
“The uptake of HSAs has been rapid among some client sectors, and the advisory community is starting to catch up pretty quick. If you think about the adviser community in general, as a profession, we are always looking for new ways to add value.
“This stands in contrast, arguably, with the health care sector, which frankly tends to lack transparency and lack competition. The adviser community is very well positioned to add value on the HSA side. We look at this marketplace as low-hanging fruit in terms of being able to add value to the traditional services we bring to the table.
“The point about transparency and health care hangs over so much of this. The ability for advisers to bring the skill set of comparing options and making a call about what the best choice is for a person—that doesn’t exist as much in health care today as it could, and advisers can bring this skill set to the table, especially when you talk about the fiduciary background that we as an industry possess.
“If we play our cards right, there is an opportunity to disintermediate the traditional health care marketplace.”
Goerner on HSAs Growing to Resemble 401(k) Plans
“Seeing HSAs converge into a similar service model as a 401(k) plan is certainly something that could happen. Most Americans today have some degree of understanding about why a 401(k) is potentially important to their retirement. I think our goal as advisers moving forward—as HSAs accumulate more assets—it’s going to be important for us to also deliver the same type of service model we would deliver on the retirement plan side.
“Stepping back, there is just no way that that topic of health care and the topic of paying for health care is going to decrease in importance. On the one hand, we are experiencing a major wave of Baby Boomers entering retirement and having to address their health care needs. And, on the other hand, we have younger generations who are grappling with the fact that they are going to have to use things like DC [defined contribution] plans and HSAs to fund their own financial futures on an individual basis outside of traditional pensions.
“Someone that retires in 2021 is going to spend hundreds of thousands of dollars on health care during their retirement.”
Goerner on How His Firm Services HSAs
“We actually look at HSAs from a few different vantage points in terms of our practice. First, we do advise several HSA providers on their investment menu structure, and we do investment monitoring and things like that. At the employer level, we also advise on menu construction for HSAs, as well.
“Additionally, for the portion of our practice that focuses on financial planning, we have incorporated HSAs as a specific vehicle in the financial plan to really help focus clients on the need to save for health care in retirement.”
Hall on How His Firm Services HSAs
“For us, it really starts with very high-level education. We interact less with the actual product providers compared with Chad’s firm.
“I’m still kind of shocked that, today, when most people mention that they have an HSA, they aren’t even aware of the fact that you can invest it. So that is an important tip for listeners: Don’t take for granted the magnitude of value you can add by answering participants’ top two or three questions. Really, it’s bringing to someone’s attention that you can invest these assets as well.
“I liken the HSA to the Ginsu knife—it just keeps getting better and better. From the tax treatment of these accounts to the flexibility of the HSA being able to roll over year to year, it’s just such a powerful savings and investing vehicle. Our real job is to make people understand how capable the HSA can be when it comes to their pursuing their short- and long-term savings goals.
“The HSA is also ideal for asset location considerations. You can have an asset class owned in an HSA that might not be appropriate elsewhere. You can, basically, jam the HSA with tax-inefficient asset classes, whether it’s high-yield fixed income or something else. “
Goerner on the Challenges of Servicing HSAs
“HSAs are a really great investment vehicle, and they are a great tool, and, at the same time, we have seen a tremendous amount of assets flow into them. But they also have a really long way to go before they reach the level of 401(k) plans, both in terms of asset size and in terms of the fundamental understanding of employers and employees. This will remain a challenge for advisers.
“Improving awareness will help us to better provide the services that are needed to make HSAs a solution that meets peoples’ retirement needs and supports their broader financial planning. A good understanding of HSA utilization can help inform a good strategy for how you approach your clients and new organizations in terms of education and construction of investment menus for HSA products.”
Hall on the Challenges of Servicing HSAs
“The average balance size is a lot smaller than the typical 401(k). The HSA investment account is tailor-made for a really great robo-strategy. It would be really great if a technology solution could come to market that would embrace the servicing of HSAs in a way that retirement plan advisers are familiar with.
“Something else to understand is that there are almost two audiences for this overall discussion—the employees that are going to be spending down the HSA year-over-year versus those who are investing for the long term. For the first group, the adviser’s deliverable is going to be focused on educating on transparency—helping people to understand they can pay $900 for a CAT scan versus $3,800 for a CAT scan, if they shop around. You don’t want to be tone deaf and inadvertently have everyone contribute all of their HSA dollars to an illiquid investment.
“The second group of long-term HSA investors will be served in a different way that is much more aligned with the services an adviser brings to the typical 401(k) plan client.”