Study gives 529 plan marketing a failing grade

The college savings market will more than double in the next five years, but Section 529 plans still have much further to go to gain a meaningful share of the market, according to a study released today by Financial Research Corp. By 2014, assets earmarked as college savings should reach $937 billion, but 529 plans will represent only $247 billion, or about 25%, of that total, according to Bridget Bearden, the author of the study and a college savings research analyst at FRC. Currently, 529 plans make up about 24% of the $487 billion college savings market. “When comparing the size of the college savings market relative to the moderate penetration of 529 plans, it is clear that this product has further opportunity for expansion,” Ms. Bearden said in statement. “In order for program managers to capitalize on this opportunity, they must truly understand their target market, offer the right product features, and distribute their product effectively.” The state-sponsored college savings plans could gain market share by offering investment options that are perceived as more stable and by appealing to the cost-sensitivity of potential savers, she suggested. Improvements that FRC expects this year will go a long way toward boosting 529 popularity, the survey suggested. Among those improvements are: rewards programs, online capabilities, better fees and expenses, and better investment options. Wholesalers can improve the way they appeal to advisers, since the study found that 40% of adviser-influenced 529 account owners are enrolling in direct plans, bypassing traditional adviser-sold plans. “Our financial adviser and program manager survey results revealed a significant disconnect in the value wholesalers deliver in the college savings arena,” stated Ms. Bearden in the release. “We believe this challenge can be overcome by taking different approaches, such as focusing on the cost-sensitivity of savers.” The study findings were based on data collected from three FRC surveys — a nationally representative group of consumers, financial advisers, and program managers — as well as interviews FRC conducted with industry executives, state officials and advocacy groups.