The HSA Report Card
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The HSA Report Card Blog

Robo Advisors Are Coming for Your HSA Dollars

 
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I've been waiting to write about robo advisor’s and HSAs for quite some time and I think this is a good time to dwelve into this fascinating and evolving topic. Let’s go over some of the basics for those unfamiliar with robo advisor’s. A robo advisor is a web-based platform where the client inputs their age, financial data and risk tolerance levels. Then through a series of proprietary algorithms, the robo advisor creates a suggested portfolio. Some robo advisor’s go a step further and actually allocate the funds, rebalance the portfolio periodically and do other fancy things. Typically, the fee is less than that charged by a human advisor. Investors have been using robo advisors to manage their IRA's, 401Ks, and individual taxable accounts for a few years now.

In the HSA space, HealthEquity has been the only administrator to venture into the robo advisor game. They offer Advisor, which offers personalized, web-based advice using a participants age, profile and personal preferences. Advisor offers two service options:

  1. Auto-pilot is a full-service option that automatically manages a participants investments for them.

  2. GPS gives participants recommendations for fund selection and allocation based upon their personal risk profile.

HealthEquity is currently the only HSA administrator offering investment guidance to its members, but robo advisors are coming for your HSA dollars. In fact, Optum Bank and Betterment, a top robo advisor service, recently released a joint statement revealing details of a partnership. This fall, Optum Bank’s HSA customers will have the opportunity to access Betterment’s technology and financial advice. As HSA assets grow, we believe more and more partnerships like this will take place.

Let’s take a close look at the HealthEquity and Optum Bank offerings. Before we analyze the digital advice offerings of these two respective administrators, lets talk about what you should look for in a robo advisor.

  • Fees - Management fees + weighted average expense ratio of portfolio = total cost of service. The lower the total fees, the better.

  • Minimums to invest - The lower the minimum the better. Look for a robo advisor with low minimums to invest.

  • Investments - Seek a robo advisor that uses low cost index funds. Also, look for a robo advisor that gives you the option to pick your own funds if you are an experienced investor.

  • Features - Features to look for include auto-rebalance, quality financial planning tools, an easy-to-use website and tax loss harvesting (CA and NJ residents). The most important this is that you go with a robo advisor that meets your particular needs.

  • Interest on non-invested cash - You want a robo advisor with a high-yield cash account for that money that is not being invested.

Now that we've laid out the criteria for assessing a robo advisor let’s look at Advisor, currently available through HealthEquity and Betterment, which will be available through Optum Bank this fall.

 
 

Advisor is HealthEquity's web-based automated investment advisor. Advisor offers two service options:

GPS - Provides recommendations for fund selection and allocation based upon your personal risk profile.

  • Recommended quarterly re-balancing
  • Recommended fund & asset class rotation
  • Implement advice button

Auto-pilot - Is a full-service option that automatically manages your investments for you.

  • Automatic quarterly re-balancing
  • Mutual fund rotation
  • Asset class rotation based on your personal risk profile

Fees

GPS - (0.60% AUM) + _._ _% average weighted expense ratio fee of portfolio

Auto-pilot - (0.96% AUM) + _._ _% average weighted expense ratio fee of portfolio

Minimum to Access Advisor

No minimum to access Advisor once investment threshold is met.

Investments

Great lineup of low-cost Vanguard index funds

Pros

  • Great lineup of low-cost Vanguard index funds
  • Automatic diversification, rebalancing, and dividend reinvestment
  • Portfolios customized by risk tolerance and goal
  • Fully integrated into HealthEquity's HSA platform

Cons

  • Service fee is on the high end
 

Betterment was one of the very first robo advisors in the world of automated investing. The company manages more than $16.4 billion AUM (Assets Under Management) in 2019, and have well over 200,000 clients. Betterment offers two investment options: Digital and Premium.

Costs

Digital - 0.25% (AUM) + _._ _% (Average weighted expense ratio fee of portfolio. Betterment’s recommended portfolios have average expense ratios of 0.07% to 0.15%)

Premium - 0.40% (AUM) + _._ _% (Average weighted expense ratio fee of portfolio. Betterment’s recommended portfolios have average expense ratios of 0.07% to 0.15%)

Minimums

Digital - Once the Optum Bank investment threshold is met, there is no minimum set by Betterment.

Premium - Once the Optum Bank investment threshold is met, $100,000 is the minimum set by Betterment.

Investments

The Betterment portfolio is invested in low-cost, highly liquid, index-tracking ETFs in up to 12 different asset classes, optimized for your selected asset allocation.

Investors with a balance of $100,000 or more can also elect to use Flexible Portfolios, which allow users to customize the weights of each asset class in their portfolio. Flexible Portfolio users cannot, however, add specific ETFs to their portfolio or invest in other types of assets, like individual stocks or bonds.

Pros

  • Great lineup of low-cost index funds
  • Automatic diversification, rebalancing, and dividend reinvestment, tax loss, harvesting
  • Portfolios customized by risk tolerance and goal
  • Interest on idle cash is 2.20%.

Cons

  • Cannot build custom portfolio

This fall two robo advisor offerings will be available to HSA investors, but we expect more to get into the space. The most obvious candidates to get into this growing space are the brokerage houses that already directly or indirectly custody HSA assets. This includes Fidelity, Charles Schwab and TD Ameritrade. Let’s take a quick look at the automated services provided by Fidelity, Schwab and TD Ameritrade.

Once you tell Fidelity about yourself, the Fidelity Go team will suggest an investment strategy and handle day-to-day management of your account, including trading and investing your contributions. Fidelity Go is a strong, low-cost choice for investors who don’t need access to a human advisor.

Fees

  • $0 Investment Fee
  • 0.35% Advisory Fee
  • 0.00% Expense Ratio Fee

Minimum

No minimum to access Fidelity Go

Investments

Fidelity Go uses index funds, primarily its own, to build portfolios that a human investment management team monitors and rebalances. The portfolio is composed of a combination of mutual funds that generally hold domestic stocks, foreign stocks, bonds, or short-term investments. These funds charge no fees or expenses.

Pros

  • Nice lineup of no cost index funds
  • Automatic diversification, rebalancing, and dividend reinvestment
  • Portfolios customized by risk tolerance and goal

Cons

  • No access to human advisors
  • Can't customize portfolio
 

Schwab robo advisor is one of the very few completely free robo advisors on the market. Schwab Intelligent Portfolios stands out from other robo advisors because they do not charge any management, advisroy or transaction fees.

Costs

Intelligent Portfolio - Free! Only have to pay the ETF expense ratio fees. Average weighted expense ratio fee is 0.19% - 0.21%

Premium Portfolio -Premium is $300 initial planning fee (30/ month subscription)

Minimums

Minimum to use the Intelligent Portfolio is $5,000

Minimum to use the Premium Portfolio is $25,000

Investments

Lineup consists of low cost Schwab ETFs. Has been criticized for the high cash allocation (10%). The premium option offers portfolio customization options. Portfolios can be comprised of up to 20 different ETFs taken from a choice of 54, which represent 20 different asset classes and 11 different fund families – Portfolio management is strictly automated.

Pros

  • Free
  • Great lineup of low-cost index funds
  • Automatic diversification, rebalancing, and dividend reinvestment, tax loss harvesting

Cons

  • No tax loss harvesting
  • $5,000 minimum
 

Essential Portfolios is the ground-floor offering in TD's lineup of three managed portfolio options, which include Selective Portfolios and Personalized Portfolios. As the name implies, Essential Portfolios focuses on providing just the essentials -- a diversified portfolio built with just seven exchange-traded funds (ETFs).

Costs

Essential Portfolios: 0.30% annual advisory fee + _._ _% Average weighted expense ratio fee of portfolio.

Minimums

Essential Portfolios: $5,000

Investments

Essential Portfolios: 5 goal oriented Morningstar-built low cost index portfolios — mainly from iShares and Vanguard — have extremely low expense ratios. The weighted average expense ratio on the five core portfolios offered ranges from 0.07% to 0.08%.

Pros

  • Low investment expense ratios
  • Automatic diversification, rebalancing, and dividend reinvestment
  • Portfolios customized by risk tolerance and goal
  • Competitive management fee
  • Free tax loss harvesting

Cons

  • Little flexibility
  • Small portfolios
  • No custom build option
 
 

A resource that investors should use in the analysis of robo advisors is Backend Benchmarking. They essentially do what we do on this site, but for robo advisors. They bring transparency to the robo advisor space to help investors make informed decisions when investing in these products. They produce a quarterly report that monitors the most well-known robo advisors and also the news coming out of the digital advice space.

 
Noe Padilla