Fees, investment options sink four college savings plans in Morningstar rankings

Overall, firm finds fees coming down and investment choices improving

Oct 16, 2012 @ 11:30 am

By Liz Skinner

High fees and subpar options led Morningstar Inc. to give college savings plans from Kansas, Minnesota and Rhode Island negative ratings in its annual audit.

The four plans that Morningstar gave a negative rating to are Kansas' Schwab 529 College Savings Plan, Minnesota's College Savings Plan, and both the adviser-sold and direct-sold Rhode Island CollegeBoundfund plans.

“The negative plans have something that will prevent those plans from delivering a good shareholder experience,” said Laura Lutton, Morningstar's fund-of-funds research director.

The concern is high costs for two of the plans: Kansas' Section 529 program, managed by American Century Investment Management Inc., and Minnesota's plan, managed by TIAA-CREF Tuition Financing Inc. The Rhode Island plans, managed by AllianceBernstein LP, were dinged because of their investment options, Ms. Lutton said.

Stacey Belford, vice president of 529 sales at American Century, said the expenses of the underlying fund in the Kansas plan are greater because it's an actively managed fund with investments from multiple managers, including Schwab, American Century, Pimco and Metropolitan West.

In addition, most investors in the plan come through Charles Schwab advisers, so even though it's a direct-sold plan, “it really is more similar to an adviser-sold plan that doesn't have a load on it.”

The investment research firm also identified four gold-rated plans, four silver-rated, 19 bronze-rated and 33 neutral programs.

RELATED ITEM The 8 top-rated 529 plans »

Ms. Lutton said overall, the industry has continued to decrease expenses and offer more and better investment choices, including an increase in exchange-traded funds.

“Over the past 12 months, we continued to see 529 plans push for lower fees and higher-quality investment options, and both of these trends directly benefit college savers,” she said.

This is the first year that Morningstar has ranked 529 plans using this scale, which the company uses for mutual funds, and plans to put in place for all the investment products it rates. Last year, no plans received Morningstar's lowest rating.

Morningstar reviewed 64 of the nation's largest 529 college savings plans, representing 95% of the $162 billion that has been saved in these plans. Funds from these accounts grow and can be used without owing taxes as long as they are used for college expenses such as tuition, fees, books, etc.

TIAA-CREF and AllianceBernstein did not return a call seeking comment.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Why some retirement plan advisers think Fidelity is invading their turf

InvestmentNews editor Frederick P. Gabriel Jr. and reporter Greg Iacurci talk about this week's cover story that looks at whether Fidelity Investments is stepping on the toes of retirement plan advisers.

Latest news & opinion

Broker protocol: Indecision over recruiting agreement is rampant

Ruckus over recruiting agreement has even wirehouse lifers wondering if it's time

Cetera reportedly exploring $1.5 billion sale

The company confirmed it's talking to investment bankers to 'explore how to best optimize [its] capital structure at lower costs.'

SEC Chairman Jay Clayton outlines goals for a new fiduciary standard

Rule should provide clarity on role of adviser, enhanced investor protection and regulatory coordination.

Advisers bemoan LPL's technology platform change

Those in a private LinkedIn chat room were sounding off about fears the independent broker-dealer will require a move to ClientWorks before it is fully ready.

Speculation mounts on whether others will follow UBS' latest move to prevent brokers from leaving

UBS brokers must sign a 12-month non-solicit agreement if they want their 2017 bonuses.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print