Assets held in Section 529 college savings plans that are sold directly to consumers are accumulating faster than for those plans sold through financial advisers — and experts say advisers are the reason why.
Assets held in Section 529 college savings plans that are sold directly to consumers are accumulating faster than for those plans sold through financial advisers — and experts say advisers are the reason why.
A total of $169.7 billion has been saved in the 108 different 529 plans that were available around the nation as of June 30, an increase of 26% from the same time a year ago, according to data from the College Savings Plans Network. That total includes $20 billion in prepaid plans that are only sold through the organizations that sponsor them.
Assets in adviser-sold 529 plans increased 25% in the past year to $76.45 billion, although the percentage of the sector's assets fell to 51% of the total, from 52% a year ago. Assets in direct-sold 529 plans increased by 30% to $72.85 billion, and these plan assets now represent 49% of the sector, up from 48% a year ago, according to the CSPN, a non-profit association affiliated with the National Association of State Treasurers.
Other data also show a shift of popularity towards direct-sold plans, but it's not because advisers aren't supporting the college savings vehicles.
“Asset growth in the adviser-sold channel has not kept pace with growth experienced in the direct-sold channel due to an increasing number of advisers selling direct plans,” said Paul Curley, a Financial Research Corp. analyst who recently completed a survey of 380 advisers about 529 college savings plans.
In fact, 72% of the advisers interviewed in July 2011 said they now sell or recommend direct 529 savings plans for clients, compared with 62% in 2009, FRC research showed.
Fees, which are generally higher in adviser-sold plans, are an important issue for advisers who want to keep costs down for clients, Mr. Curley said. But other important features include an in-state tax incentive for the client and reduced fees for state residents; direct plans also have a broad range of investment options available, he said.
Fee-based advisers and registered investment advisers are especially inclined to use the direct-sold Virginia 529 plan, said Mary Morris, chief executive of the Virginia College Savings Plan, which administers the state's four 529 college savings plans. That state has the largest 529 college savings program in the country with more than 2.1 million accounts and assets of nearly $36 billion.
The increase in the number of new account has been higher in Virginia's direct-sold plan recently, Ms. Morris said, but that's largely because the adviser-sold plan is so large, she added.
Virginia's CollegeAmerica adviser-sold plan has $31 billion in assets and its direct plan has $1.8 billion as of June 30.
