Jon Kessler: Why don’t you talk about the competition piece, and I’ll hit the service fee discussion.
James Lucania: Perfect. Yeah. So, the competition has evolved a little bit, partly because there’s been some consolidation, as you mentioned. I mean, a lot of these companies that we used to see is pretty good competitors, whether it be wage or some of the more recent ones we’ve added are now part of the HealthEquity family, which is pretty awesome. And so that being said, I mean, we do have some powerful competitors out there, but it’s kind of the same message. If somebody is buying their healthcare services from a large health plan out there that is one of our competitors, then that large health plan will push pretty hard. We do win in that environment because I think people know that HealthEquity has got this kind of single focus on the parent healthcare consumers, and that’s kind of what’s carried us now for 20 years, right, being that kind of independent, single focused provider that can really nail the HSAs and the CDBs and with the bundle and things like that.
We have the same competitive threat on the retirement side. But that’s where I think we — more the level of playing field is with our partnerships, right? Because we’ve got great — I mean, the health plan partnership with, I think, is pretty storied in HealthEquity land, and you all know that the success we’ve been able to have and take care of those health plan partners and they bring us a lot of even a broader footprint than you might get if you’re a large health plan and you can kind of fish within your own pond, but we get to fish in many plants. And then on the retirement side, we’ve got our partners there, too. So look, I don’t think it’s evolved much I’d love to see if Jon sees it differently, but it’s kind of the same thing. It’s just that it has been consolidating, and we’ve been, I think, up in our game on some of the things we’re doing, like I mentioned earlier around our product settings like that.
Jon Kessler: Yeah. I mean, I love what’s going on with the product. There’s some really cool stuff that we’re talking about with clients and working on and rolling out and that just is — I mean, it’s not rocket science, but is about helping consumers do the right things with these products and also helping employers understand what’s actually going on within their base, not just in finance, but on the health side, are people using the free stuff that they’re supposed to be using in these plans preventive, et cetera. So, I do think relative to what our competitors do or the bulk of our competitors, we do more of it, and we do more of it without dictating what the rest of your ecosystem is. And that’s always been where we succeed, and I think we’ll continue to see.
As far as pricing — we are — as I think Jim commented in the prepared remarks, but certainly, we’re always going to be in an environment where the effective custodial yields continue to expand, and obviously, balance continue to grow. If you think about it from the employer’s perspective or whatnot, one way to the first place you look in terms of sort of across elasticity is you look at the fees that you actually pay. And so, we’ve done a number of things over time. I can quite successfully to stabilize that. But we have — as Jim commented earlier, right, if you look at the current quarter, right, you’ve got roughly speaking, you can do the math, you’ve got on — if you look at total accounts on a unit basis, right, you’ve got, give or take, 5% lower year-over-year.
About half of that is mix and half of it is actual fee reduction. The mix stuff will come and go. Will we sell more HRAs versus FFCAs next year, I don’t know. But the fee component is there, and we’re going to roll with that. So, I don’t — I think we’re trying to be, I think, conservative in what we’re assuming there is certainly realistic, because we don’t really want to be losing business over fees. We want to be treating people fairly on fees, recognizing that, particularly with our core product. There’s a lot of ways to make money. At the same time, I think as you then I’ll stop, as you may recall, in some of our ancillary products, where as a result of the wage is not WageWorks and such, we felt like profitability wasn’t really there.
COBRA being the example. We had a very large project over the course of — but still the impact of which is still rolling out and will help us a little bit next year, but nonetheless, to raise fees. So, we’re not afraid to do it. We just want to do what makes sense. And where it makes sense is in areas like that, it makes sense for us to be competitive when it comes to HSA. Last thing I’d say that gives us some level of stability here. But again, I don’t think unit fees are like rising substantially. The stability is the diversity of our distribution. And what that does is it produces a client base that has enterprise where things are extremely competitive, as I’ve said before, because they come with assets and therefore, you can underwrite that versus your smaller employers and the like, where you can’t do that.
And so, there’s going to be more of a fee base. And then, of course, you have retail. And so that level of diversity of distribution and of account and so forth, that actually also lends to stability in that service line. So, I guess that’s a long way of saying our guidance reflects a little bit of conservatism there, consistent with kind of the numbers we’re reporting here in terms of price impact, maybe not so much mix impact. But fundamentally, I think if you look at a big picture, it’s a relatively modest price to pay for the benefits of what we see as ultimately a product that’s obviously becoming more profitable, and you can see that in terms of what we’re tapping the bottom line.
Richard Putnam: Thanks Mark.
Operator: The next question comes from Jack Wallace with Guggenheim. Please go ahead.
Jon Kessler: Hi, Jack.
Jack Wallace: Hey, how’s it going? Congrats team Purple, another great quarter.
Jon Kessler: Thank you.
Jack Wallace: I’ve got a couple of model monkey questions for you. I just wanted to make sure we’re clearing up the yield understanding here. First one on when cash gets deployed, is it on a five-year duration? Or is it three years or three years the duration to the book on average?
Jon Kessler: You want to hit this one, Jim?
James Lucania: Yeah. I mean, you should — the answer is historically, it’s been, yes, all of the above, 3, 4, 5-year contracts, but I think you should generally be modeling five years as our baseline investment product.
Jack Wallace: Thanks. That’s helpful.
James Lucania: Using five-year treasury as your baseline REIT.
Jack Wallace: Excellent. And then for the fourth quarter this year, it looks like there’s an implied sequential step down in the daily cash AUM yield. Is that just related to some of the cash that’s exposed to the front end of the curve? Or is there something else going on there? Just thinking about also the comment earlier about a third of the AUM that gets repriced, so to speak, in December. I would think that would have a positive impact versus a negative.
