FAN Article - Saving Clients Money

 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).  

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