Robo Advisors Are Coming for Your HSA Dollars

Earlier this summer, Optum Bank and Betterment, a top robo-advisor service, released a joint statement revealing details of a brewing partnership. This fall, Optum Bank’s HSA customers will have the opportunity to take advantage of the Betterment's tax optimization technology, automated rebalancing, asset location strategies and financial advice.

The partnership provides Betterment an opportunity to reach more than 3 million customers who have $9 billion saved in Optum Bank HSA accounts. It’s a potentially massive market for this robo to tap into. HSA assets totaled an estimated $53.8 billion at the end of 2018 and are expected to rise to $75 billion by the end of 2020, according to Devenir. The portion of those assets invested is expected to rise to​ $16.7 billion from $10.2 billion. As HSA assets grow, we believe more HSA administrators will partner with robo advisors to offer investments.

Prior to the Betterment and Optum partnership announcement, HealthEquity was the only HSA administrator offering anything resembling a robo-advisor service. But now, there are two robo-advisor offerings available to HSA investors. Let’s take a close look at Advisor, currently available through HealthEquity and Betterment, available through Optum Bank.

What is a Robo-Advisor?🤖

A robo-advisor is a web-based platform where the client inputs their age, financial data and risk tolerance levels. Then through a series of proprietary algorithms, the robo advisor creates a suggested portfolio. Some robo advisor’s go a step further and actually allocate the funds, rebalance the portfolio periodically and do other fancy things. Typically, the fee is less than that charged by a human advisor. Investors have been using robo-advisors to manage their IRA's, 401Ks, and individual taxable accounts for a few years now.

How to Evaluate a Robo Advisor

• Fees - Management fees + weighted average expense ratio of portfolio = total cost of service. The lower the total fees, the better.
• Minimums to invest - The lower the minimum, the better.
• Investments - Seek a robo advisor that uses low cost index funds. Also, look for a robo advisor that gives you the option to pick your own funds if you are an experienced investor.
• Features - Look for an auto-rebalance feature, quality financial planning tools, an easy-to-use website and tax loss harvesting (CA and NJ residents).

Advisor is a web-based automated investment advisor accessed through the HealthEquity member portal. Based on your personal risk preferences, Advisor provides advice on which funds to choose, how to diversify your money amongst those funds, and will even implement the suggested portfolio for you, all while providing ongoing oversight and maintenance to your portfolio. Advisor offers two service options:

GPS - Provides recommendations for fund selection and allocation based upon your personal risk profile.

• Recommended quarterly re-balancing

• Recommended fund & asset class rotation

• Implement advice button

• 0.05% per month on the average daily invested balance (0.60% annually). This fee is capped at a maximum of $15.00 per month + _._ _% average weighted expense ratio fee of portfolio.

Auto-pilot - A full-service option that automatically manages your investments for you.

• Automatic quarterly re-balancing

• Mutual fund rotation

• Asset class rotation based on your personal risk profile

• 0.05% per month on the average daily invested balance (0.60% annually). This fee is capped at a maximum of $15.00 per month + _._ _% average weighted expense ratio fee of portfolio.

Minimums

• No minimum to access Advisor once investment threshold ($500) is met.

Investments

• Great lineup of low-cost Vanguard index funds

Pros ( + )

• Great lineup of low-cost Vanguard index funds

• Automatic diversification, rebalancing, and dividend reinvestment

• Portfolios customized by risk tolerance and goal

• Fully integrated into HealthEquity's HSA platform

Cons ( - )

• Service fee is on the high end

Betterment was one of the very first robo advisors in the world of automated investing. The company manages more than $16.4 billion for 200,000+ clients. Betterment offers two investment options: Digital and Premium. We think the HSA offering will look similar to their digital plan.

Digital

• $0 minimum balance

• Low-cost, globally diversified investment portfolios

• Automatic rebalancing

• Advanced tax-saving strategies

• 0.25% + _._ _% (Average weighted expense ratio fee of portfolio. Betterment’s recommended portfolios have average expense ratios of 0.07% to 0.15%)

Premium

• $100,000 Minimum balance

• All of the benefits of the Digital plan

• In-depth advice on investments outside of Betterment

• 0.40% (AUM) + _._ _% (Average weighted expense ratio fee of portfolio. Betterment’s recommended portfolios have average expense ratios of 0.07% to 0.15%)

Minimums

• Digital - Once the Optum Bank investment threshold ($2,000) is met, there is no minimum set by Betterment.

• Premium - Once the Optum Bank investment threshold ($2,000) is met, $100,000 is the minimum set by Betterment.

Investments

• The Betterment portfolio is invested in low-cost, highly liquid, index-tracking ETFs in up to 12 different asset classes, optimized for your selected asset allocation.

• Investors with a balance of $100,000 or more can also elect to use Flexible Portfolios, which allow users to customize the weights of each asset class in their portfolio. Flexible Portfolio users cannot, however, add specific ETFs to their portfolio or invest in other types of assets, like individual stocks or bonds.

Pros ( + ) of Betterment Digital Plan

• Great lineup of low-cost index funds

• Automatic diversification, rebalancing, and dividend reinvestment, tax loss harvesting

• Portfolios customized by risk tolerance and goal

• Interest on idle cash is 2.20%.

Cons ( - ) of Betterment Digital Plan

• Cannot build custom portfolio

DriveHSA Gives HSA Administrators the Tools to Create Own Robo-Advisor

DriveWealth, a financial services API developer, has teamed with robo-advisor developer Bambu to provide an end-to-end robo-advisory platform for the wealth management industry. The API suite of DriveWealth offers the platform onboarding, ordering, funding and reporting of US stock markets, and can integrate with any mobile platform. Bambu provides the robo-advisor software which is capable of automating the processes of financial planning, saving and investing. Together the companies can offer an end-to-end solution to support a consumer’s investment portfolio.

A Great Resource for Investors Looking to Compare Robo Advisors

A resource that investors should use in the analysis of robo advisors is Backend Benchmarking. They essentially do what we do on this site, but for robo advisors. They bring transparency to the robo advisor space to help investors make informed decisions when investing in these products. They produce a quarterly report that monitors the most well-known robo advisors and also the news coming out of the digital advice space.