529 industry deals with low awareness

Nov 5, 2007 @ 12:01 am

By Charles Paikert

The Section 529 college savings plan industry is divided over how to raise public awareness of the product. Following a series of studies showing that at least half of all American parents are unfamiliar with the tax-advantaged investment vehicles, some proponents of 529 plans are advocating the use of grass-roots marketing efforts to promote the plans. Others are pushing for a national marketing strategy. "We are well aware of the fact that awareness of 529 plans is not where we as an industry wish it to be," said Jackie Williams, chairwoman of the Lexington, Ky.-based College Savings Plan Network, an organization for state administrators. In fact, organizing a national campaign is a "high priority" for CSPN, said Ms. Williams, who is also executive director of the Columbus-based Ohio Tuition Trust Authority. In addition to hiring a national marketing and public relations firm to explore ways to approach an awareness campaign, she said, CSPN is also looking for a corporate partner — not necessarily in the financial services industry — to help promote and fund the campaign. "We have allocated some re-sources" toward a national campaign, Ms. Williams said, "but it's an enormous expense to undertake." That may be the case, but it may be money well spent. Fifty-six percent of 1,400 parents recently surveyed were not familiar with 529 college savings plans, according to a new study by Newton, Mass.-based Upromise Investments Inc., one of the leading program managers in the industry. Just 12% of those surveyed had started a 529 plan, the survey showed. This followed two studies re-leased this fall by the Washington-based College Savings Foundation, an industry trade group, and Futuretrust, a Philadelphia-based company that offers a credit-card-linked college savings program, which revealed similar findings (InvestmentNews, Oct. 1). Low levels of consumer awareness and participation are "incredibly scary," said Liz Robinson, Upromise's vice president of marketing, speaking Oct. 25 at a 529 conference in Las Vegas sponsored by Pittsford, N.Y.-based Savingforcollege.com. However, the numbers "may not be as stark as they seem," said Jeff Coghan, director of SMART529 programs for The Hartford [Conn.] Financial Services Group Inc. He cited a Hartford study done earlier this year that showed that nine out of 10 parents in households with $75,000 or more in income and who also had a financial adviser were aware of 529 plans. "We do need to raise awareness," Mr. Coghan said. "But the question is: What is the number we should be shooting for?" Overall, assets in 529 plans rose to $127 billion at the end of the third quarter, a 31% increase over $97 billion a year earlier, according to CSPN. States have a "huge opportunity ... to broaden awareness of the programs," Ms. Robinson told attendees at the conference. "The key is peer-to-peer communication. We need to drive the message into the community and get into schools and [parent-teacher associations]." Scott Gates, director of Kansas' Learning Quest 529 Program in Topeka, agrees. "You always hear how products are sold and not bought," he said at the conference. "Well, a 30-second TV or radio spot does not sell 529s. You have to get out and pound the pavement and talk to people about them." In fact, Mr. Gates said, he felt so strongly about the concept that when he renegotiated Kansas' program manager contract with Kansas City, Mo.-based American Century Investments this year, he insisted the company provide a field rep who would be responsible for meeting financial advisers around the state face-to-face. "It's working out great," Mr. Gates said. "You have to be on the ground. People want to kick the tires." During the first nine months of the year, net sales by Kansas' Learning Quest 529 Program in Topeka totaled $273 million, a 15% increase from $237 million during the comparable period in 2006. Speaking at a panel of state treasurers at the 529 conference in Las Vegas, Iowa Treasurer Mike Fitzgerald reported similar success in his state with booths at the annual state fair and county fairs promoting Iowa's 529 program.

"More than a million people go to our state fair," he said. "They sign up for scholarships at the booth, and we get their names and addresses, and send them information about 529s. It's very effective for us."

Illinois treasurer Alexi Giannoulias told attendees that he has tried to leverage "the power of the office" to get the 529 message out on a grass-roots level.

For example, he said, he recently convinced the transit authority in suburban Chicago to run ads for the state's Bright Start College Savings Program in Springfield on its buses at no cost to the state.

In addition, he said, Fallen Heroes, a new program that awards Bright Start scholarships to children of servicemen and women who have died in Iraq, has generated considerable publicity for the 529 plan throughout the state.

Mr. Giannoulias also said he likes the idea of a national marketing campaign, which was hotly debated at the conference.

The recent studies showing low awareness of 529 plans should serve as a catalyst for a much-needed national marketing plan, said Peter Mazareas, a prominent industry consultant and chief executive of Nahant, Mass.-based Strategic Advancement Group Inc.

Mr. Mazareas, who is also treasurer of the College Savings Foundation, said his organization could not initiate such a campaign but would help fund it.

He hoped the College Savings Plan Network, an association of state officials who run 529 programs, would take the lead.

But John Heywood, principal of The Vanguard Group Inc. of Malvern, Pa., one of the industry's largest investment managers, with more than $20 billion in 529 plan assets in 20 states, said that he sees no indication that state treasurers would be willing to contribute funds to a national campaign.

On the contrary, he said, the results seen by Vanguard and the states with which it works when using grass-roots marketing have been "as powerful, if not more so, than any national campaign."

A suggestion to make May 29 a national 529 Day was particularly well received by attendees at the conference.

The debate over how to raise awareness of 529 college savings plans comes a little more than a year after the passage of the landmark Pension Protection Act of 2006, which made federal tax breaks for such plans permanent. In fact, many program managers and state officials in September unveiled marketing campaigns emphasizing the benefits of 529 plans in light of upcoming changes in the "kiddie tax" (InvestmentNews, Sept. 10).

Charles Paikert can be reached at cpaikert@crain.com.


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