Pershing platform offers 529s

Jun 10, 2012 @ 12:01 am

By Liz Skinner

America's largest clearing firm is making it easier for financial advisers to open and manage Section 529 college savings plans.

Pershing LLC said last week that advisers will be able to use its platform for 529 plans in the same way that they use it for other client investments.

Virginia's CollegeAmerica plan, which is administered by American Funds, will be the first to be made available on the Pershing platform. Virginia's adviser-sold plan has $33 billion in assets and is the nation's largest 529 plan.

Pershing plans to add other state plans in the coming months.

Pershing's move is expected to boost the adviser-sold 529 market, which now has about $78.6 billion of the total $158 billion in assets in all 529 plans, according to Financial Research Corp. About 10 million people have 529 plan accounts.

“Pershing's offering has the potential to greatly expand the use and sales of 529 college savings plans in the adviser-sold channel,” FRC analyst Paul Curley said. “Making it easier to do 529 business with industry-leading technologies such as [the one] Pershing is introducing can't help but generate greater sales and net assets for adviser-sold 529 plans in the future.”

Advisers had asked Pershing for omnibus accounting capabilities to be able to help clients with college savings without having to go through what is now a paper-intensive and time-consuming process to open and manage the accounts, said Rob Cirrotti, director of retirement at Pershing, which is a unit of The Bank of New York Mellon Corp.

“Advisers will no longer need to handle 529 plan accounts outside of their investment platform,” he said. “With Pershing's new solution, investment professionals can now operate more efficiently, and manage these investments alongside the other assets and investments of their clients.”

Advisers already are focused on urging Americans to save more for college. The average amount in new adviser-sold accounts rose 11% in the first quarter, while the average new-account size of direct-sold 529 plans shrank by about a third, from a year earlier, according to the College Savings Foundation.

The average size of new adviser-sold accounts opened during the first quarter was $5,356, up from $4,829 a year earlier, according to the foundation. New direct-sold accounts averaged $3,883 in the most recent quarter, compared with $5,804 a year earlier.

“The data indicate growth and the expansion of understanding by advisers that college savings is part of a holistic financial plan,” Mr. Curley said. “Direct-sold plans are targeting a broader set of investors that have a smaller level of initial account balance.”

With 529s, participants choose from certain investment portfolios, and the funds grow tax-free as long they are spent on higher education.

The falling average of new direct-sold accounts is likely a result of family financial pressures and economic insecurity, said Andrea Feirstein, managing director of AKF Consulting Group, which analyzes trends in the nation's 529 market.

“My gut is that those numbers will improve later in the year, as long as the economy shows a little more strength than it is currently showing,” she said.

Ms. Feirstein said she thinks that overall activity in 529 investments will grow as more program managers take steps similar to that of Pershing to make college plans easier to manage with other client assets.

Dave Hanson, branch manager of the Benjamin F. Edwards & Co. office in Wheaton, Ill., is one of the advisers who told Pershing that it would help if he could open 529 plan accounts through its system.

“If money flows through Pershing, we'll see a clearer picture of where it's going and when it's invested,” he said.


Having the clients' 529 accounts included with their other investments also helps advisers show that they are following the Financial Industry Regulatory Authority Inc.'s “know your client” rule, Mr. Hanson said.

“Finra doesn't like having outside accounts,” he said.

Last year, Edward Jones made the CollegeAmerica plan available to its brokers through an omnibus system, and the firm's education specialist, Lauren Monks, said that it has been a success.

“We've seen a significant impact on sales in American Funds ac-counts,” she said earlier this year. “Overall, there's been about a 30% increase in 529 business.”

Jones plans to add 529 plans to its system this year and even more in 2013, Ms. Monks said.

American Funds spokesman Chuck Freadhoff said that advisers told his firm that having all their clients' records in one spot would help them to work more efficiently.

The process of setting up the systems to allow for accounts on other platforms, however, is labor-intensive and requires firms to follow rules from Finra, the Municipal Securities Rulemaking Board and the Securities and Exchange Commission, he said.

“There is just more to it when you start keeping records elsewhere,” Mr. Freadhoff said.

Pershing competitor Apex Clearing Solutions LLC didn't return calls asking whether it, too, will add 529 plans to its platforms.

National Financial Services LLC spokesman John Eidson wrote in an e-mail that clients always have the opportunity to buy 529 plans directly from a mutual fund company.


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