Saving Clients Money
"Reminder about the holistic
aspects of a wealth management practice"
Reminder from WSJ article – A Wall Street Journal article last week,
titled “Ten Ways You’re Probably Leaving Money on the Table” reminded me of the
holistic aspects of delivering a wealth management service. None of these ten money saving/growing
options mean a big sum of money upfront for advisors, but they can help their
clients’ wealth management programs in a meaningful way.
A mutual benefit for clients and
advisors – In addition to helping clients with the full range of holistic benefits
of a wealth management service, advisors end up with more loyal clients. This higher level of client loyalty
translates to a higher share of our clients’ assets – we know that HNW and UHNW
clients have multiple advisors – and more referrals from these clients.
More clients can have this triple
tax advantage – One of the outgrowths of the Affordable Care Act
(“Obamacare”) is that more people are in HDHP’s, High Deductible Heathcare
Plans. How high a deductible? In 2014 it is $1,250 for an individual plan,
and $2,500 for a family plan. The
solution – one of the ones mentioned in the WSJ article – for these plans are
HSA’s, Health Savings Accounts. “For
those who qualify, these plans, which are individual, custodial accounts, offer
the benefits of flexible spending plans plus the huge additional advantage of
long-term investing ,” says Clay Malcolm, a director of New Direction IRA. Clay Malcolm also said, “HSA’s have the
triple tax advantage: contributions to the allowable level are tax deductible, or
can be done cafeteria style if offered by an employer; the income and capital
gains grow tax-free within the plan; and the distributions are tax free, as
long as they are for qualified medical expenses.”
Wait, this HSA account can start
adding up to real money! – For 2014, the contribution limit for HSA accounts is $3,300 for an individual
HDHP and $6,550 for a family plan. There
is also a $1,000 per year catch-up provision if you are more than 55 years old. Unlike a flexible spending account, an HSA stays
in existence (and can keep growing over the years) as long as there are funds
and assets in the account; HSAs are not “use it or lose it”. This can add up to real money!
Distribution Strategy – Deciding
on when to take a distribution is a key part of making the most out of an
IRA. An account holder can take a
distribution for any qualified medical expense that is incurred after the HSA
has been opened. And that distribution
can occur at any time. In fact, a person
isn’t required to take money out of their HSA to pay for qualified
out-of-pocket medical expenses. By your
clients keeping their pre-tax (fully deductible) contributions in their HSA
accounts, they grow tax free for as long as it remains in those account. And, if the account holder never needs to use
the HSA to pay for medical costs, after they turn 65, they can take
distributions for any reason and pay tax on those distributions just like a
traditional IRA.
There are a wide range of
investment possibilities for an HSA – A review of HSA providers show that,”
most of them limit the investment choices within HSA accounts, even though
there are few actual investment restrictions on these accounts,” says Bill
Humphrey, CEO of New Direction IRA. Bill
Humphrey further says, “with our HSA accounts, advisors’ clients can invest in
almost anything, a wider array of publicly traded securities as well as
non-traditional investments like real estate, private equity, and precious
metals.”
To qualify for HSA accounts –
There only are three requirements for starting an HSA account: need to be covered
by a qualified HDHP; cannot be covered by another healthcare plan (with some
exceptions); cannot be enrolled in
medicare; and cannot be claimed as a dependent.
Some fun stats on the HSA market
– All of these stats are as of January 2013, and are provided by the Health
Savings Alliance, a non-profit association.
There are 15.5 million people in HSA/HDHPs. Forty-nine (49) percent of all HSA/HDHP enrollees
in the individual market (including dependents covered under family plans) were
age 40 or over; 51 percent were under age 40. States with the highest
levels of HSA/HDHP enrollment were Illinois (903,000 enrollees), Texas (889,364
enrollees), California (808,019 enrollees), Ohio (686,616 enrollees), and
Michigan (577,208 enrollees).
