Buyer Beware #3 – Fund Management

Some more help on finding the right HSA for you in my series on items you should look for when choosing an HSA provider…

Fund Management

When you open an account with an HSA provider, you need to be certain that the funds are being deposited into a secure and reliable account.  The last thing you need is an HSA provider poorly managing your money.  As I have said before, beware of those companies looking to make a quick buck with little respect for the interpretation bulletins issued by Canada Revenue Agency.

Health and Welfare Trust (HWT)

A Health and Welfare Trust must always be set-up in a custodial trust account in the name of the owner.  Some HSA providers operate their own trusts while others use a third-party (like CIBC Mellon, TD, etc..).  These trusts must be managed by third-party trustees and the funds may only be released from these accounts with the approval of the trustee for eligible medical expenses.   When evaluating an HSA provider, feel free to ask them where the trust is established.  If they operate their own trust or use a third-party, do some investigating on the account and their practices.  This can be done through the Office of the Superintendent of Financial Institutions (OSFI).  If the trust company is legitimate, they will be regulated by OSFI and their Web site offers great resources to determine the stability of the trust company being used.

Private Health Services Plans (PHSP)

PHSPs are most often managed using dedicated bank accounts.  A good PHSP provider should have a dedicated bank account established with a Tier 1 institution exclusively for the funds held for a client’s PHSP.  They should never be deposited into a firm’s operating account.  A few years back, I heard of a major HSA provider in Canada depositing PHSP funds into their operating account (i.e. the same account used to pay their own business expenses).  I was shocked to hear this!  Always ask your provider where the funds reside!

General Policies/Procedures

Whether you have a Health and Welfare Trust or a Private Health Services Plan, your provider should always have a statement of financial responsibility available for you on demand.  This statement should be signed by the firm’s Director of Finance or CFO and provide information on where the funds are held, how the accounts are structured, and the processes and procedures they use to ensure your deposits are managed in a responsible manner.  The statement may also provide the name of their auditor and their general accounting procedures.

In summary, remember to consider fund management as an important evaluation tool in choosing an HSA provider.  If they are reluctant to disclose the procedures and suppliers….buyer beware!!