Direct-sold 529s could put brokers at risk: MSRB

Board looking at whether suitability applies; rule change would get industry 'up in arms'
MAY 13, 2013
Brokers who advise clients to invest in a direct-sold college saving plan may be making a formal recommendation that must be suitable for the client and be supervised by the broker-dealer, a municipal securities regulator said. New research showing a growth in the number of advisers recommending direct-sold 529 college savings plans over adviser-sold plans that would provide them a commission has the Municipal Securities Rulemaking Board considering new guidance for brokers on their obligations, said Lawrence Sandor, deputy general counsel of the board. “We want to make sure that if registered representatives are recommending a direct-sold plan, then they have the same obligation as they would with an adviser-sold plan offered by the dealer,” Mr. Sandor said at the annual conference of the College Savings Foundation in Scottsdale, Ariz. About 60% of all financial advisers send clients to direct-sold plans, according to survey results released Feb. 11 by Financial Research Corp. The survey of 293 advisers is the first to quantify how advisers are contributing to an increase in assets flowing into direct-sold plans. It would be a large change and create additional burdens for brokers and their firms if they had to consider steering a client to a direct-sold plan a formal recommendation, experts said. It could even cause brokers to look at other college savings vehicles over the popular 529 plans, they said. “The industry will be up in arms if the MSRB comes up with something new on this without further evidence,” said Andrea Feirstein, managing director of AKF Consulting Group. Rules of the MSRB don't extend to registered investment advisers, who are even more likely to send clients to direct-sold plans. About 84% of RIAs send clients to direct plans, the FRC research found. In an unrelated proposal, the MSRB will ask the Securities and Exchange Commission in the next week to allow it to require Section 529 college savings plans to report information about the fees, costs, assets, withdrawal rates and other data to the board on a semiannual basis, Mr. Sandor said. Information about plan performance would be required annually under the proposal. The earliest that this new requirement on college plans could take effect after SEC approval is April 2014, he said.

Latest News

Investor anxiety hits six-year high amid market turmoil, Allianz finds
Investor anxiety hits six-year high amid market turmoil, Allianz finds

New survey reveals heightened investor concern over market volatility, retirement readiness, and the impact of tariffs on living costs.

Stifel star broker, Chuck Roberts, leaves firm under cloud of investor complaints
Stifel star broker, Chuck Roberts, leaves firm under cloud of investor complaints

Stifel – so far - is on the hook for more than $166 million in damages, legal fees and settlements in investor complaints involving Roberts, a 35-year industry veteran.

RIA moves: The Mather Group, Brand Asset Management announce deals
RIA moves: The Mather Group, Brand Asset Management announce deals

Consolidation continues in US wealth management industry.

US broker-dealer fintech aims for global footprint as it acquires international firm
US broker-dealer fintech aims for global footprint as it acquires international firm

Tech company democratizes access to US trading infrastructure.

Advisor moves: RBC swipes $1.7B UBS team, Baird duo departs for LPL's Linsco channel
Advisor moves: RBC swipes $1.7B UBS team, Baird duo departs for LPL's Linsco channel

RBC Wealth Management's latest move in New York adds an elite eight-member team to its recently opened Westchester office.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.