Robo Advisors Are Coming for Your HSA Dollars
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:
Auto-pilot is a full-service option that automatically manages a participants investments for them.
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.
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.
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.