Financial advisers bullish on 529 plans

Nearly 90% of financial advisers who took part in a recent survey said that they recommend Section 529 college savings plans to their clients.

Out of 216 advisers surveyed by InvestmentNews for the College Savings Foundation, 88% said that they recommend 529 plans to clients, and when they do, they tend to consider both in-state plans and out-of-state plans.

The results of the survey were presented at the foundation’s annual conference last week in Miami Beach, Fla.

Among those who don’t recommend the plans, 90% said that it is mainly because they prefer other investment options. Almost 60% of the advisers who don’t recommend the plans said that it is because they don’t like the available investment options.

Most advisers surveyed (79%), however, said that they are well-informed about 529 plans. Those who said that they weren’t as well-informed would like more information about the differences among the state plans and how 529 plans fit into an overall financial plan.

They want to know more about using 529s as an estate-planning tool, how 529s affect financial aid, and the relationship of 529 plans to HOPE Scholarships and lifetime learning credits.

One conference attendee said that advisers have to take the initiative to learn about 529 plans in order to do the best job possible for clients. Antoinette Chandler, a senior vice president at Morgan Stanley Smith Barney and a member of the ScholarShare Investment Board, recommended that advisers research available 529 plans, come up with a list of favorites and provide clients with a choice of three possibilities.

“Financial advisers have a lot of power,” she said during the conference.

“It is absolutely our job to educate and deliver a very clear and concise message to clients. Clients don’t want to do the work, but that’s why they’re coming to you,” Ms. Chandler said.

Those in the 529 plan industry are pinning their hopes on advisers to help boost sales.

According to the results of another survey, this one by the CSF of 49 of the industry participants who attended the conference, the best way to market 529 plans is through advisers.

So far, advisers have been an important driver for 529 plans, which now hold more than $115.4 billion across the United States, according to Morningstar Inc.

Looking forward, industry experts said that they think that given a higher tax environment, 529 plans will become even more popular and, hopefully, even more highly recommended by advisers.

“529 plans will become more important for any family, in any tax bracket, looking to save for college,” said Peter Mazareas, chairman of the College Savings Foundation and consultant to AllianceBernstein Investments Inc.

Virtually all of those surveyed by the foundation said they are either “very optimistic” or “somewhat optimistic” about the long-term prospects for 529 plans.

And even in the short term, 59% of conference attendants surveyed said that they are “somewhat optimistic” about the growth of 529 assets and accounts, while 20% are “very optimistic.”

Those who are less sanguine are still licking their wounds after the financial crisis, which hit 529 plans hard.

Early last year, the Financial Industry Regulatory Authority Inc. also issued an alert to reps and broker-dealer executives asking them to think twice before selling 529 plans, claiming it was “concerned that investors may be shortchanging themselves by investing in 529 college savings plans with high fees, plans that currently do not offer them state tax benefits, or both.”

However, the economic environment is less of a concern this year than it was last year, the CSF survey suggests. Other important concerns for industry participants include poor consumer awareness of 529 plans, their small size overall, relative to some other investment choices, and the plans’ operational complexity.

E-mail Hilary Johnson at [email protected].