Health savings accounts are getting more popular, and it's no surprise asset managers and retirement plan record keepers are debuting products to jump on the bandwagon.
These firms not only gain first-mover advantage among peers but also appeal to advisers looking to simplify services for retirement-plan clients by bundling 401(k) and HSA administration. But there's an additional benefit: using their platforms to distribute proprietary investment funds.
"Anytime there's a new account, especially one growing as fast as HSAs are, I think there's opportunity for providers to do [that]," said Matt Cosgriff, head of the retirement plan solutions group at BerganKDV Wealth Management.
The early days of 401(k) plans saw a similar evolution, as record keepers populated investment lineups almost exclusively with their own mutual funds and employers were largely unaware of their duty to monitor 401(k) investments. This gave providers a healthy revenue stream from both administration and asset management.
HSAs don't appear to rely as heavily on in-house funds, advisers said. Vanguard Group, for example, offers a platform populated solely with Vanguard funds but also gives employers the choice of using the same funds as in their 401(k) plans.
Voya Investment Management provides the fund manager selection and oversight of its platform, which includes both Voya-managed funds and those of other asset managers. A spokeswoman declined to identify the proportion of Voya funds to others.
The dynamic is similar for Empower and Fidelity — both offer investments managed by affiliated investment firms (Putnam Investments, in the case of Empower) as well as access to other firms' products.
Unlike with 401(k) plans, employers generally do not have a fiduciary duty under the Employee Retirement Income Security Act of 1974 for HSA investments. Absent that liability, advisers said, employers may not feel the need to review HSA investments as closely. And many advisers who would otherwise help with fund selection remain on the sidelines, trying to assess how to fit HSA consulting into their broader business model, advisers said.
Most providers are developing more open-architecture platforms allowing employers to choose from a broad universe of mutual funds — similar to how 401(k) plans have evolved — in addition to platforms that allow employers to "mirror" HSA funds with those in their 401(k) plan, said Matt Clarkin, president of Access Point HSA.
But the threat of lawsuits, which have proliferated in the 401(k) realm, seems to have kept some employers from amending their HSA investment lineups. Paul Sommerstad, a senior consultant at Blue Prairie Group, said he's found this dynamic among some larger clients who are hesitant to customize a vendor's pre-set fund menu.
"Some clients are hyper-conscious of litigation," he said.
Health savings accounts, which are triple-tax-advantaged accounts, have grown more popular as a greater share of employers have shifted to high-deductible health plans. (HSAs may only be used in conjunction with a high-deductible plan.) HSA assets are projected to reach $75 billion by the end of 2020, up from $10 billion a decade earlier, according to Devenir, a consulting firm.
The majority of money in health savings accounts is held in a checking-like account and isn't invested in mutual funds for long-term saving. Devenir estimates that only 20% of the $54 billion held in HSAs at the end of 2018 was invested, but projects that share to increase to 22% by the end of 2020.
Providers often require a minimum amount of money — maybe $1,000 or $2,000 — be held in an HSA before allowing participants to invest in funds. That varies from firm to firm. Fidelity, for example, recently removed its minimum-balance restriction on investing.