Calif. to shut adviser-sold 529 after failing to find manager

California is closing its adviser-sold Section 529 college savings plan and folding its $283 million in assets into the state's much larger direct-sold plan, after failing to find a company to manage the adviser-sold plan. TIAA-CREF in June won the right to manage California's $3.83 billion direct-sold 529 plan, taking it over from Fidelity Investments, which didn't bid. TIAA-CREF takes over the plan Nov. 7.

LOWER FEES

The biggest benefit for people who have adviser-sold accounts will be a reduction in fees of between 24 and 148 basis points, depending on the fund lineup and their investment choices, said Joe DeAnda, a spokesman for California's treasurer. Fees now range from 86 basis points to 166 basis points, depending on assets and the types of portfolios. The transfer is set for the spring. “We were not able to find a manager that could deliver a competitive plan for our account holders, and we felt the best option was to transfer them to our direct-sold plan,” Mr. DeAnda said. “We'll work hard with our incoming program manager, TIAA-CREF, to ensure this is a seamless transition.” The state's move reflects the decision by more people to use cheaper direct-sold 529 plans to save for college. In many cases, financial advisers are sending their clients to those plans because some have better state tax benefits and they cost less. Assets in adviser-sold 529 plans increased 25% in the past year to $76.45 billion, though the percentage of the sector's assets fell to 51% of the total, from 52% a year ago, according to the College Savings Plans Network.

DIRECT ASSETS ON RISE

Assets in direct-sold 529 plans increased by 30% to $72.85 billion, with plan assets representing 49% of the sector, up from 48% a year ago, according to CSPN, a nonprofit association affiliated with the National Association of State Treasurers. Another state, Montana, shut down its adviser-sold plan and moved the assets to a direct plan last December when it made program changes, including a switch in managers, said Paul Curley, a Financial Research Corp. analyst. “It would appear the states need to provide more incentives for the firms to become program managers in the adviser-sold space,” he said. Email Liz Skinner at [email protected]