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Gauging Your Clients' Health

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In our December column (“The Value of Client Education”), we discussed the importance of knowing your clients and understanding their needs. This month, we reiterate this important message with a focus on an issue that could have major consequences for clients: rising healthcare costs. While younger to middle-aged clients in good health may not see health costs as a financial planning issue, recent federal legislation has created a type of “medical IRA,” called the Health Savings Account, that permits individuals and families to save tax-free for future medical expenses. As our latest Rydex AdvisorBenchmarking survey shows, healthcare costs are a prime concern for older clients, and forward-thinking advisors can use this information to help younger clients alleviate those concerns.

Our online and telephone survey of 450 registered investment advisor firms, conducted in November 2004, reveals a gap between retiree clients’ needs and the services provided by their advisors. Advisors say that while 87% of their retiree clients are either very or somewhat concerned about rising health care costs (see Chart 1 below); less than 2% of advisors considered health care expenses to be an important topic of discussion (Chart 2); and they spend only a fraction of their time (3%) discussing the topic.

*(Advisor answers tabulated as “Other” in Chart2 ranged from market performance to stock performance to specific security performance to specific needs cited by clients.)

The HSA Learning Curve

In today’s increasingly competitive business environment, 46% of advisors agree that offering additional products and services would help to grow their businesses. One area advisors may want to consider is health savings accounts (HSAs). Created by Federal legislation enacted in December 2003, HSAs were designed to help companies and individuals save money on their medical costs.

HSAs are tax-sheltered investment accounts for medical expenses, available to participants in qualified high-deductible health insurance plans. Because high-deductible plans have lower premiums, HSAs help control current healthcare costs. Contributions and distributions for qualified medical expenses are tax-free, as are investment gains on funds that accumulate in the accounts, which are owned by the individual and are portable. HSAs start out small, because annual contributions cannot exceed the amount of the deductible (a minimum $1,000 for individuals or $2,000 for families in 2005) or the Internal Revenue Service cap ($2,650 for individuals or $5,250 for families in 2005), whichever is less. However, unused funds can be rolled over from year to year and saved for future health-care costs or retirement, and HSAs have the potential to accumulate significant assets over time.

However, less than half of the advisors (42%) we surveyed in the fall of 2004 think that HSAs are right for the majority of their clients, and 11.4% think HSAs are too new to discuss with clients. In fact, less than one-third of advisors (30.04%) have discussed HSAs with their clients, even though rising healthcare costs continue to be a hot topic. Health insurance premiums jumped 11.2 % in 2004, growing five times faster than inflation and five times faster than U.S. workers’ salary, according to a September 10 report in The San Francisco Chronicle.

HSAs are still not well known or understood by clients; targeting and educating those qualified may be a way for you to broaden your product offerings and satisfy the long-term financial goals of your clients. An advisor who participated in the survey–James Dailey of Team Financial Services in Harrisburg, Pennsylvania–argues that when a financial product is more complicated, “it creates more barriers for clients–it’s almost a culture shock.” Dailey says his firm educates client about the benefits of HSAs since they are already looking for healthcare solutions and are often unaware the solution even exists.

Other advisors might do well to follow Dailey’s lead.


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