Some 529 college savings plan fees likely hit bottom

Some states now offering plans with such low fees they're barely profitable for managers, expert says

Mar 5, 2014 @ 12:39 pm

By Liz Skinner

The fees investors pay in their Section 529 college savings plans may have hit bottom in certain states.

Over the past decade, states renegotiating the management of their 529 plans have demanded a reduction in administrative and investment fees associated with the tax-advantaged plans. Some states are now offering plans with such low fees that they are barely profitable for program managers, Andrea Feirstein, managing director of AKF Consulting, said at the College Savings Foundation national conference in Savannah, Ga., on Wednesday.

Those plans include the direct-sold programs offered in New York, South Carolina and California, she said. Utah's plan also has very low fees, though it is unique in that the state administers the program itself. New York's plan is managed by Upromise and The Vanguard Group, South Carolina's plan is managed by Columbia Management Investment Distributors and California's plan is managed by TIAA-CREF.

"Fees there can't go any lower because there would be no room for the program manager to make any money," Ms. Feirstein said.

With direct-sold plans, the fees charged are very important to the states because the media and organizations like Morningstar Inc. regularly compare plans based on fees, she said.

(Also: Regulator pushes for more fee disclosure from 529 plans)

It's not as big a focus when comparing adviser-sold 529 plans because it's expected that there would be a premium paid for the adviser's services — and advisers typically demand a lot of investment choices, she said.

Paul Curley, Strategic Insight's director of college plan research, said he could see fees of some plans decrease as they boost assets because the cost of running the plans falls as assets increase. And assets industrywide are on the rise.

Last year, total assets in 529 plans jumped 21%, to end 2013 with about $191 billion, according to Strategic Insight.

(See all 529 plans ranked by total net assets)

Deborah Goodkin, First National Bank of Omaha's managing director of college savings plans, said program managers often can charge lower fees if the investment choices offered by the plan are all or mostly all from that provider.

But most advisers look for 529 plans that offer many different investment managers so they can choose investments they think are top of the line, she said.

In the Nebraska Education Savings Trust adviser-sold plan run by First National, advisers particularly like the inclusion of iShares and Vanguard exchange-traded funds, Ms. Goodkin said. The bank took over that plan in 2010 and cut costs by 55%, she said.

Ms. Feirstein said not all state plans had lowered fees enough.

"That's not to say there aren't plans that could catch up," she said.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

When can advisers expect an SEC fiduciary rule proposal and other regs this year?

Managing editor Christina Nelson and senior reporter Mark Schoeff Jr. discuss regulations of consequence to financial advisers in 2018, and their likely timing.

Recommended Video

Path to growth

Latest news & opinion

Fidelity charging new fee on Vanguard assets held in 401(k) plans

The 0.05% fee is ostensibly a response to Vanguard's distribution model, but may also make the company's funds less attractive due to higher cost.

UBS adviser count continues to decline

Firm to merge U.S., global wealth management units on Feb. 1

TD Ameritrade launches all-night trading for ETFs

Twelve funds now can be traded after-hours, but the list will grow, company says.

Cutting through the red tape of adviser regulation is tricky

Don't expect a simple rollback of rules under the Trump administration in 2018 — instead, regulators are on pace to bolster financial adviser oversight.

Bond investors have more to worry about than a government shutdown

Inflation worries, international rates pushing Treasuries yields higher.

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