Compliance May 23, 2018

SEC Lays Out Valuable Features of HSAs

Although an SEC bulletin is directed at employees invested in HSAs, its description of useful HSA features depending on how investors use HSAs can be informative to plan sponsor clients.

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The Securities and Exchange Commission’s (SEC)’s Office of Investor Education and Advocacy has issued an Investor Bulletin regarding health savings accounts (HSAs).

Although the bulletin is directed at employees invested in HSAs, its description of useful HSA features depending on how investors use HSAs can be informative to employers.

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The SEC says if investors plan to use the money in their HSA soon, different account features may be useful than if they plan to invest the money for the future.

According to the bulletin, if employees use their HSA primarily as a spending vehicle for current medical bills, ease of access may be helpful. It notes that some HSAs allow investors to pay for qualifying expenses directly using a linked debit card or online bill payment system. However, others may require investors to pay for eligible expenses out of their own pocket and request reimbursement.

In addition, it is important to look at fees. Some HSAs charge a monthly account maintenance fee, while others may have no account maintenance fee, or may waive the fee if the account has a sufficiently high balance. Also, some HSAs pay interest on money investors don’t spend immediately or invest.

If employees use their HSA as an investment vehicle for future health care costs, an important feature is the opportunity to invest. The SEC says investment options offered by HSAs may vary widely. Some HSAs offer a large number of varied investment products. Others may offer only a few options.

If employees invest their HSA assets, fees typically include underlying fund fees and transaction fees in addition to account maintenance fees. Other fees may apply as well. Over time, fees can impact the performance of the investment portfolio, so it is important to understand the total cost of the HSA and any investments.
The Markets May 23, 2018

Advisers See Investor Reaction to Market Volatility as a Challenge

Besides providing investment advice, 88% of advisers think they need to guide clients through emotional decisions.

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Nearly half of financial professionals (46%)—wirehouse advisers, registered investment advisers (RIAs) and independent broker-dealers—say their clients are reacting emotionally to the recent market volatility, according to a survey by Natixis Investment Managers. Eighty-two percent say that the prolonged bull market has made investors complacent about risk, and they fear that investors will panic in the face of continued volatility.

While these financial professionals have the goal of growing their assets by 14% over the next 12 months, they see a number of roadblocks that could dampen investment returns: geopolitical events (68%), interest rate increases (66%), rising volatility (57%), asset bubbles (54%) the low yield environment (47%), unwinding of quantitative easing (46%) and regulation (43%).

Seventy-four percent say that an increase in central bank short-term interest rates will make the bond market volatile and adversely impact the housing market (74%), the credit market (65%), overall market volatility (61%) and stock values (52%).

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Asked about risks to portfolios, the financial professionals cite interest rate hikes (59%), asset-price volatility spikes (55%) and inflation (40%). Seventy-four percent think the crypto-currency bubble will burst in 2018 and that bubbles exist as well in the bond market (25%), real estate (24%), the tech sector (21%) and the stock market (18%).

“After an exceptional year in 2017, volatility is back, and investors are feeling as uncertain as the markets,” says David Giunta, CEO of the U.S. and Canada at Natixis Investment Managers. “Our research shows investors often make decisions based on emotions, so it’s more important than ever for advisers to fortify close relationships with their clients to help them put their emotions aside, and consider active portfolio design approaches that could be better suited to weather today’s markets.”

Eighty-three percent of the advisers say in light of the market volatility, active management is favored; sixty-six percent of the assets they manage are devoted to active management, and 34% to passive. However, within three years, they expect 57% of the assets they manage to be actively managed, and 43% to be passively managed. Seventy-three percent say passive strategies are used for their lower costs, but 74% do not think investors are aware of the risks of passive investing. In fact, 73% say investors have a false sense of security about passive investing.

Eighty percent are recommending alternative investments—including real estate/REITS (50%), real assets (29%), commodities (28%), infrastructure (27%) and hedge fund strategies (24%).

For diversification, advisers are turning to multi-alternative choices (47%) and global tactical asset allocation (47%). To provide stable income, their choices are option writing (29%) and real estate (20%). To manage volatility risk, they are using market-neutral funds (32%) and long-short equity funds (25%). To hedge against inflation, 12% of advisers are investing in real estate and managed futures. To mitigate risk, their top choices are market-neutral funds (32%), long-short equity funds (20%) and long-short credit (19%).

Besides providing investment advice, 88% of advisers think they need to guide clients through emotional decisions, provide ongoing financial education (71%), provide guidance on identifying and achieving life goals (70%), navigate life events (66%) and help them mediate family financial affairs (41%).

CoreData Research conducted the survey of 2,775 financial professionals in 16 countries for Natixis. In the U.S., 300 financial professionals were surveyed.

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