E-Mail this Article

Passive investments now available in adviser-sold 529 plans

Mar 24, 2014 @ 8:50 am

By Liz Skinner

529s, college savings plan, rhode island, alliancebernstein
+ Zoom

Advisers have a new, cheaper portfolio option for clients who invest in Rhode Island's $7 billion college savings plan.

Starting Monday, the adviser-sold Section 529 college savings plan CollegeBoundFund offers an age-based investment that tracks Morningstar Inc.'s 529 College Savings Moderate Index. This is one of few passively managed options in a college plan sold through advisers.

“It allows investors and advisers to make a trade-off between the lower-cost option or the opportunity that can come from the actively managed portfolio,” said Vadim Zlotnikov, co-head of multiasset solutions for AllianceBernstein, which manages the 529 plan.

(See the top 10 529 plans.)

He said the new passive option will be 27 to 38 basis points cheaper than the actively managed alternative. An adviser will have to weigh the price difference against his or her confidence level that the actively managed portfolios can deliver superior returns, he said.

One notable feature of actively managed portfolios is that they account for market volatility during the final years before a student needs the money for college, while the passive investment doesn't include such volatility management, Mr. Zlotnikov said.

CollegeBoundFund is the first 529 plan to have an investment that tracks the Morningstar index series, which was introduced at the end of last year.

(Who's saving in 529 plans now?)

At that time, Morningstar introduced three glide path indexes: aggressive, moderate and conservative. All three seek to be a type of yardstick for comparing 529 plan performance with independent measures.

“Each index underlying the 529 index series provides diversified asset-class exposure to global equities, bonds, Treasury inflation-protected securities and cash by using existing Morningstar indexes as asset allocation building blocks,” Sanjay Arya, head of Morningstar Indexes, said in a statement Monday.

Get Daily News & Intel

Breaking news and in-depth coverage of essential topics delivered straight to your inbox.



The information entered on this page will not be used to send unsolicited e-mail, and will not be sold to a 3rd party.

REMINDER: This service is for personal use only. For commercial reprints, Web links and e-mailings please contact our Reprint Sales Manager at (732) 723-0569.

X

Subscribe and SAVE over 72%

View our best offer
Subscribe to Print