The expected reduction in front-end sales charges by large mutual fund companies may help stimulate sagging sales for Section 529 college savings plans.
“If they change the pricing for existing mutual funds, it would directly translate to their 529 share classes,” said Joe Hurley, president and chief executive of Savingforcollege.com LLC of Pittsford, N.Y.
Lowering upfront loads that can run as high as 5% should result in increased sales, according to industry analysts.
“I would expect a reduction in upfront sales charges to boost sales. It could help advisers reach all ranges of the middle class instead of just the upper end they tend to reach now,” said Bridget Bearden, research analyst for Financial Research Corp. of Boston.
“If people see fees going down, it brings good news to the forefront and encourages them to save,” said Mary Anne Busse, an industry consultant and managing director of Great Disclosure LLC of Royal Oak, Mich. “It should have a positive impact on the marketplace.”
The 529 industry can use all the help it can get.
As of March 31, assets in such plans totaled $85.9 billion, marking a 22% decrease from $109.8 billion a year earlier, according to FRC.
Any boost to adviser-sold plans would be especially welcome because adviser-sold plans make up about 80% of the market.
In fact, four of the 529 industry's 10 largest programs are adviser-sold, led by Virginia's $18 billion CollegeAmerica plan, managed by Los Angles-based American Funds.
Financial advisers may not be thrilled if a reduced sales charge means a lower commission, some industry observers noted.
But Ms. Busse thinks that the impact would be minimal because the cut already would be “flushed out” as part of a broader trend in the mutual fund industry.
And Ms. Bearden said that if advisers were unhappy with adviser-sold plans, they could sell direct-sold plans to clients on a fee basis as part of a financial plan.
CONTINUING TREND
Fees for direct-sold plans have already been dropping around the country.
Last week,
The Vanguard Group Inc. of Malvern, Pa., cut costs for all 19 investment options in Nevada's Vanguard 529 College Savings Plan. Expenses dropped to a range of 0.44% to 0.66%, from a range of 0.65% to 0.7%.
The decline in fees for direct-sold programs is likely to continue, driven by competitive pressure and upcoming proposal requests, Mr. Hurley said.
“There will be more declines, but not at the pace we've seen in the past,” he said. “Fees are already low; it's hard to go much lower.”
E-mail Charles Paikert at [email protected].
