It amazes me that the
financial planning profession puts so little emphasis on understanding and delivering advice centered on saving and paying for college.
With the cost of attending a local state university at more than $100,000 for four years, and the most expensive colleges at more than $240,000, planners should be proactive in providing college funding advice to their clients. Not so.
More and more, I get e-mail from planners with “My client went to a college aid night” as the subject line, and they are reaching out to me because they don't know if the information the client received is any good.
Even more frequently, I am contacted by financial advisers saying their client went to see a college planner. This begs the question, why aren't clients getting college planning advice from their advisers?
Identifying the best way to save for college isn't that difficult. For most clients, a Section 529 college savings plan is the right choice.
Where the
financial planning industry drops the ball is when the client's children are about to go to college, a time commonly referred to as late-stage college funding. This is when the client's child starts visiting colleges, then applies for admission, gets accepted and receives a financial aid award letter.
This is a transition point for the client because they are moving from accumulating assets to pay for college to paying for it. Most of them won't have enough saved to pay for four years of college, so they need to use a combination of savings, investments, discretionary income and, with luck, grants and scholarships.
THE "QUIET PERIOD'
Looking at the planning profession as a whole, this transition point should be referred to as the “quiet period,” because clients rarely get any direction on college admissions, financial aid, tax aid (tax credits and tax-saving strategies) and personal finance (arranging finances to pay for college). This should be the “value period” when planners shine, but so often, their heads are in the sand.
So clients, realizing how expensive college is and not knowing what to expect, seek advice elsewhere, such as the Internet, where an overwhelming amount of information is available. To create shortcuts, clients ask friends, family and co-workers for advice, and while well-intended, it is almost always out of context for the client's situation.
Still in the quiet period, clients press on and attend financial aid nights at local libraries and high schools, usually led by the financial aid director of a local college or by a competitor who focuses on college planning. The fox is now in the hen house, and the hens are likely some of an adviser's best clients.
RETIREMENT EFFECTS
Ah, but I focus on retirement planning, you say. Well, college planning is retirement planning. What clients spend on college, they won't have for retirement. And how they pay for college will have ripple effects well into retirement.
It is also true that college is a toll booth on the road to retirement. A stretch of that road has a bunch of exits for colleges. The length of that stretch of road depends on how many kids the client has and whether those children will overlap attending college.
What the planning profession does is fall asleep in the client's car — yet the client keeps on driving until out of the windshield all they see are a bunch of college exits with question marks by them.
They have no idea which exits their child can be accepted at — or if they can afford the toll — so they pull off at rest areas and ask directions from strangers while advisers sleep.
Wake up and seize the opportunity.
Advisers are their clients' guides. Help them identify which exits they can afford ahead of time so they can cruise through the E-ZPass lane, pay the toll wisely and stay up to speed for retirement.
Troy Onink (troy.onink@stratagee .com) is the chief executive of Stratagee.com, which provides college planning approaches to families and their financial advisers, and licenses college planning software to advisers.
