Robo takes first steps into crowdfunding for college savings accounts

FutureAdvisor, the retail robo-adviser that BlackRock Inc. acquired last week, not only manages college savings plans, now they help clients raise assets for the accounts via crowdfunding, too.

With FutureGift, investors start a “campaign” with a child’s name and information before sending a link to family and friends in advance of gift-giving occasions such as birthdays and holidays. The goal is to solicit contributions to the child’s 529 college-savings account and build up a solid fund to pay for education down the road.

This isn’t the first of its kind — there are services like GradSave.com and GiftofCollege.com that help parents, other relatives and friends to raise funds for their little ones’ future education — but it is the first time that a robo-adviser has offered such a service.

“It would be the middle-income household families that would need the most help, and that’s exactly the type of families the robos would help,” said Paul Curley, director of college savings research at Strategic Insight.

It may also re-introduce families to 529 plans, since according to a Strategic Insight consumer survey, fewer investors are using these types of plans. In 2015, 26.7% of respondents said they were investing via a 529 plan, down from 32.9% in 2014 and 29.5% in 2013. There has been an uptick in saving for college, however: 73.9% of respondents said that they are saving for college in 2015, down from 75% in 2014 but up from the 69.5% who responded in 2013.

Along with its new program to raise funds for 529 funds, FutureAdvisor has made it a point to become involved in managing college savings for its clients. In addition to managing 529 plans, it offers online access to various education savings plans, such as Coverdell Educational Savings Accounts, Unified Transfers to Minors Accounts and Unified Gifts to Minors Accounts, all for free.

Other college fundraising services do not manage the assets they collect. Instead, they help families create contribution pages and gather the money to be deposited into an already established 529 plan. Some, like GradSave.com, do not have a fee, and others, like GiftedPath.com, charge the gift-giver a fee for the transaction.

Steven Stanganelli, a financial planner at Clear View Wealth Advisors, said that the ability to crowdfund for a college savings account will be attractive to many investors, especially since families need more innovative ways to save for education as it gets more and more expensive.

“More people are going to start thinking outside of the box,” Mr. Stanganelli said. “Crowdfunding is a great tool, and you’ve seen some people do great things with it.”

But, he added, 529 plans will be a harder sell since they could affect needs-based financial aid. That’s only something a human adviser would be able to point out, he said.

“They aren’t offering the nuanced guidance and advice that an experienced professional could help them with, such as how this could adversely impact financial aid for a student who might otherwise be qualified,” he said.

Financial advisers will need to step in to provide more specific recommendations at the appropriate time, agreed Rose Swanger, principal at Advise Finance.

“You can set it and forget about it when kids are young,” Ms. Swanger said. “When the kids are getting older, you can’t use the same strategy.

“It is better to have a combination of the help you need, robos at the beginning and advisers toward the end,” she said.