FutureAdvisor is now offering free college savings plans on its online advice platform.
The company said that beginning Tuesday, plans available include 529s and Coverdell Educational Savings Accounts. Consumers can also set up Unified Transfers to Minors Accounts and Unified Gifts to Minors Accounts, two other vehicles often used for college savings.
The company is betting that by providing the service free of charge, it will gain new clients on its platform.
FutureAdvisor's entrance into the college savings market is believed to be a first for robo-advisers, which are known more for targeting young investors with automated portfolios. That may be due in part to how complex the college savings market is, and how tough it is to squeeze out savings.
“We haven't seen an onslaught of options for robo-advisers because it's complicated; it's not that straightforward,” said Andrea Feirstein, managing director of AKF Consulting Group, who focuses on the college savings market. “There are so many considerations when choosing a plan.”
Investors looking to begin college savings accounts will answer a set of questions from the robo-adviser, including how old the child is and what kind of education the parent would like to save for. It also asks what the parent would like to do if the child does not go to college.
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From there, the program will provide recommendations on which type of account should be used and how much money should be saved. The program will also remind investors to make contributions and rebalance portfolios if necessary.
“We know there is a clear need in the marketplace,” Bo Lu, chief executive of FutureAdvisor, said. “Most of our clients never had a financial adviser before.”
Mr. Lu said that FutureAdvisor will have to educate investors about the college savings market.
“This is yet another way we are using technology to introduce true wealth management to the masses,” he said.
Ms. Feirstein expressed some skepticism as to whether investors will want to use the online service for college savings.
“Maybe a whole new generation is comfortable they can get an answer they
trust just by inputting it in a computer,” she said. “But when people make financial decisions that have ramifications for their children, I guess I'm still old fashioned. You want to pick up the phone and talk to someone.”
Robert Farrington, who focuses on student loan debt on his website, The College Investor, said the college savings market should be automated, similar to the retirement market.
“One of the things that improved savings for retirement was the automated plans,” Mr. Farrington said. “It would be great to see more of that taking place in the college savings space.”
