529 plans an easier sell for advisers as equity markets shine

College savings assets up 20% in 2013: Morningstar

May 29, 2014 @ 12:24 pm

By Liz Skinner

Americans continue to invest their college savings dollars through tax-advantaged Section 529 plans, with assets nearing $200 billion at the close of 2013, a 20% boost from the year before, according to Morningstar Inc.

Equity market gains, of course, “stoked” the increase in assets under management last year, said Kathryn Spica, Morningstar senior analyst for fund-of-funds strategies.

Major equity indices advanced in the 20% to 30% range last year, while the Barclays U.S. Aggregate Bond Index fell about 2% in 2013. Investors in college savings plans typically choose portfolios with multiple asset classes.

(Don't miss: Ranking the top 10 529 plans)

“In 2013, as well as in previous years, the categories attracting the most flows are diversified among stocks, bonds and cash,” Ms. Spica said.

Named after the tax code provision that created them, 529 plans are funded with post-tax dollars but grow tax-free as long as the money is used to pay college-related expenses. Most states also offer their own residents a state tax deduction for investing in their plan.

Of the 84 plans analyzed in the Morningstar study, about $102 billion is held in direct-sold accounts and $98 billion is in adviser-sold plans. Both types of accounts showed about equal growth in 2013, thus ending the recent trend of having more money flowing into the plans that investors access themselves.

“When the markets are up, it's very easy for advisers to proactively market additional ways for people to save and invest,” said Andrea Feirstein, managing director of AKF Consulting. “The positive flow is a statement that financial professionals are now willing and able to proactively market a good story.”

The two categories of bonds that saw net outflows in 2013 were U.S. Government and intermediate bond investments. The reason for the outflows could be concern about interest rates rising, or simply that families may be using funds in these investments to pay for college expenses, the analysis said.

(More: Nitty-gritty of claiming college tax credits)

The category of investment with the highest amount of new asset flows was “static conservative allocation,” which received $890 million last year, Morningstar said. With static options, the manager invests in a set mix of equity, bond, real estate and other assets over the life of the account.

Age-based investment options, which move to a more conservative allocation as the student nears college age, have changed since Morningstar started keeping track of the 529-plan market in 2010, the investment rating firm said. The glide path today has less equity exposure during the earliest years and slightly more equity exposure during the middle years, Morningstar said. The typical age-based options begin with 80% in stocks and over time trim that exposure to 10% by the time the student is ready to enter college.

Morningstar rated individual plans back in October.

Virginia's adviser-sold CollegeAmerica plan remains the nation's largest 529 plan with more than $44 billion in assets. It's distributed through the plan's program manager American Funds.

Assets in 529 plans grew 25% in 2012, another year with double digit equity market gains and positive results from bond markets, too.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

What is causing the fever for RIA deals?

Deputy editor Bob Hordt and senior columnist Jeff Benjamin discuss factors adding fuel to the M&A fire in the independent advice space.

Latest news & opinion

Merger mania: Why consolidation in the RIA space is about to explode

The pace is expected to pick up as big firms seek to get even bigger and older advisers look to cash out.

Voya Financial Advisors exposes more sensitive adviser information on its website

List of top advisers at the firm comes after Social Security numbers were put at risk.

Securities America hit with lawsuit seeking $18 million in damages

Firm is dealing with the fallout from a rogue broker it fired a year ago.

Brian Block continues his legal fight to stay out of prison

A judge denied Mr. Block's motion for a new trial, but he wants another day in court.

10 social media stars you're not following yet, but should be

Some of the great people using social media to discuss wealth management and financial advice who might not be on your radar.

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