Data & Research October 5, 2018

Millennials Not Confident About Making Investing Decisions

They are also not interested in robo advisers, preferring to work with financial professionals in person.

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Millennials are uncertain about making investing decisions and show little interest in robo advisers, despite having come of age in a digital world. In fact, they prefer working face to face with a financial professional, according to a research report, “Uncertain Futures: Seven Myths About Millennials and Investing,” from the CFA Institute, in partnership with the FINRA Investor Education Foundation.

“This study dismisses many of the assumptions that are commonly held about Millennials and why many of them are not investing,” says Gerri Walsh, president of the FINRA Investor Education Foundation. “These findings help us better understand the needs and wants of Millennials to further investor education efforts that will engage Millennials in the financial markets.”

The first myth is that Millennials have lofty financial goals. Truth be told, Millennial investors and non-investors expect to retire at the standard age of 65. Non-investing Millennials are focused on surviving month to month. Millennials with taxable accounts have financial goals mirroring Gen Xers and Baby Boomers, such as saving enough to retire when they want and to live comfortably in retirement.

The second myth is that income and debt are key barriers to investing. While those are factors that keep some Millennials from investing, 39% of Millennials without taxable investment accounts say they are also not knowledgeable about investing.

The third myth is that Millennials are overconfident about investing. Only 21% of non-investing Millennials and Millennials with only retirement accounts are very or extremely confident about making investment decisions. For Millennials with taxable accounts, this is true for 47%.

The fourth myth is that Millennials are skeptical of the financial services industry and financial professionals. In fact, 72% of Millennials working with a financial professional are very or extremely satisfied with the service they are receiving. Only 15% of Millennials not working with a financial professional say that it is due to lack of trust.

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Fifthly, it is believed that Millennials think they need a large amount of money in order to be able to work with a financial professional. But, the survey found, 20% think there is no minimum needed, and 60% think they would be able to work with a financial professional if they had $10,000 or less to invest.

The sixth myth is that Millennials gravitate to electronic communication and robo advisers. The truth is that 58% of Millennials prefer to work with a financial professional in person, on par with the 60% of Baby Boomers and 58% of Gen Xers who share that sentiment. Only 16% of Millennials show a strong interest in working with a robo adviser.

Lastly, it is believed that Millennials share the same investing attitudes and behaviors. Urban Millennials are 50% more likely than rural Millennials to own taxable accounts, and 33% of male Millennials are extremely or very confident in their ability to make financial decisions, compared to only 23% of female Millennials. Furthermore, 28% of white Millennials have taxable accounts, compared with 20% of African-American Millennials.

“Millennials are expected to inherit more than $40 trillion in the coming decades,” says Bjorn Forfang, deputy CEO of CFA Institute. “By providing insights into investment preferences and concerns, this research can help financial professionals engage and better serve the needs of the next generation of investors.”

Compliance October 5, 2018

Congress Actively Taking Up HSA Legislation

Speaking at PLANSPONSOR's 2018 HSA Conference, Shad Fagerland, of counsel at Ivins, Phillips & Barker, discussed two bills, passed by the House, that would expand the use and benefits of health savings accounts (HSAs).

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Providing background for the reason health savings accounts (HSAs) were created, Shad Fagerland, of counsel at Ivins, Phillips & Barker, in Washington, D.C., told attendees of the 2018 PLANSPONSOR HSA Conference in New York City that the accounts were meant to solve the problem of overinsurance.

“Too many routine medical procedures were covered by insurance,” he explained. “Consumers were insulated from the true cost of care, and overconsumption and inefficiency led health care costs to rise rapidly.”

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In 1996, legislators created the Archer Medical Savings Account, which Fagerland said were similar to HSAs but limited to small employers. HSAs as we know them today were created by legislation passed in 2003.

To be eligible for HSA ownership, an individual must be covered by a high-deductible health plan (HDHP) and must not have other disqualifying coverage. Distributions from HSAs are tax-free if used for qualified medical expenses (QMEs), but are taxable—including a 20% penalty—if used for something other than qualified medical expenses. The 20% penalty no longer applies after the HSA holder reaches age 65.

Fagerland said there are pivot points for potential legislative or regulatory changes for HSAs to be expanded and made more beneficial. What constitutes an HDHP and/or what constitutes disqualifying coverage can be changed to expand who can contribute to an HSA. The maximum contribution amount allowed for HSAs can be increased. Rollover provisions can be expanded. Fagerland said now rollovers are allowed from an individual retirement account (IRA) to an HSA, but only once per individual and only up to the maximum contribution limit. Finally, the definition of QMEs could be expanded, and the penalty for non-QME distributions could be reduced or eliminated.

According to Fagerland, last year, as Congress was trying to repeal the Affordable Care Act (ACA), many bills had HSA provisions addressing some of these pivot points, but these all failed.

This year, Congress is actively taking up HSA legislation. Fagerland said the bills are popular and mostly bipartisan.

Fagerland discussed H.R. 6199, the Restoring Access to Medication and Modernizing HSAs Act, which passed the House in July, but has not yet been taken up by the Senate. The bill allows for over-the-counter medications to be considered QMEs without prescriptions, provides for rollovers of flexible spending account (FSA) and health reimbursement account (HRA) balances into HSAs, allows HDHPs to cover up to $250 (self-only) and $500 (family) annually for non-preventive services that currently may not be covered pre-deductible, and modifies the treatment of direct primary care (DPC) service arrangements so that such arrangements are not treated as a health plan that would disqualify an individual from contributing to an HSA. This is not an exhaustive list of H.R. 6199’s provisions.

Also passed by the House in July was H.R. 6311, the Increasing Access to Lower Premium Plans and Expanding HSAs Act. According to Fagerland, changes in that bill include:

  • Maximum contributions of $6,550 for self-only and $13,100 for family. Fagerland said he doesn’t feel this will be passed or thinks it will have to be negotiated because Congressmen think HSAs are a bucket only for the rich;
  • Both spouses can make catch-up contributions to HSAs;
  • Individuals can carry forward FSA balances up to three times the annual limit; and
  • Medicare Part A is not disqualifying coverage.

Again, this is not an exhaustive list of H.R. 6311’s provisions.

Fagerland also said H.R. 6813, introduced in September, would treat qualified home care expenses as QMEs.

Regarding regulatory changes, Fagerland said there is not a lot out recently and not a lot on the horizon. However, he reminded conference attendees that a change in tax legislation earlier this year modified the way the IRS calculates cost-of-living adjustments (COLA) for HSA limits.

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