Morningstar recently issued its annual analyst ratings for college savings plans, upgrading eight plans and downgrading nine among the plans that represent 97% of assets invested in 529 plans. In California, where we administer the state’s ScholarShare 529 college savings plan, the annual ratings prompt us to reflect on our plan and identify opportunities to help college savers maximize their college savings.
While many advisers overlook college savings for a variety of reasons, our research suggests that prioritizing college savings represents an opportunity for advisers to grow their business. Clients with school-aged kids may be making mistakes without your guidance, and prioritizing college savings with your clients may be more important than you realize.
Clients want you to be doing more
Many clients aren’t working with their advisers on college savings, which may be the reason many of them are making at least one critical savings mistake. In California, we asked 379 clients of financial advisers to share their views of college savings. The results suggest clients need your guidance:
• 44% are keeping their college savings in taxable accounts and paying avoidable taxes.
• 39% plan on using retirement savings to fund college expenses, which can significantly limit the potential for financial aid awards.
• 31% report losing sleep worrying about how their child will pay for college.
These same clients say their adviser is not helping them tackle the college savings challenge:
• 70% said their adviser is not doing a great job on college savings.
• 76% are not counting on their adviser to help them reach their college savings goals.
• 65% don’t consult with their adviser about college savings investments.
Traditionally sticky assets, and easy to administer
Helping your clients with college savings can provide several benefits to your practice. For example, college savings assets are traditionally “sticky” and long term in nature. In California, nearly half of ScholarShare 529 beneficiaries are age 11 or younger, which means you may have a significant time horizon for managing college savings assets.
In addition, many 529 plans provide benefits and features that make it easy for you to help your clients save. Many offer low-cost passive and active alternatives, and open-architecture investment options based on criteria that advisers rank highly. This limits the need for ongoing management with prepackaged portfolios. In addition, 529 plans allow assets to grow free of state and federal taxes, which means your clients can potentially keep more of their returns by avoiding unnecessary taxes.
Integrating college savings into your practice
If you’re not already prioritizing college savings conversations with your clients, there are several ways to begin doing so. First, start making college savings part of your discovery conversations with new clients and a discussion point in your annual check-ins with existing clients.
Using milestone events can help open the conversations as well. For example, add 529 Day (May 29) and College Savings Month (September) to your calendar every year. And when the holidays approach, consider suggesting that clients contribute extra funds to a loved one's 529 plan for the holiday season.
Finally, look for opportunities to engage multiple generations in college savings. Grandparents and other family members can contribute, and there are added estate planning benefits that come into play when multiple generations contribute as well.
Helping your clients maximize their college savings is an opportunity to showcase your value as a trusted adviser overseeing all aspects of their financial picture. Incorporating college savings into your practice can help you grow your business now and in the future.
Julio Martinez is executive director of the ScholarShare Investment Board, which administers California’s ScholarShare 529 college savings plan.
Consolidation continues in US wealth management industry.
Tech company democratizes access to US trading infrastructure.
RBC Wealth Management's latest move in New York adds an elite eight-member team to its recently opened Westchester office.
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.
The giant alt investments platform's latest financing led by T. Rowe Price and SurgoCap Partners, along with State Street, UBS, and BNY, will fuel additional growth on multiple fronts.
Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.
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.
