529-plan rating idea Morningstar-crossed?

Morningstar Inc. is bringing its well-known rating expertise to 529 plans next month, but some advisers aren’t impressed.

Choosing the right college-savings plan can be tricky. In addition to finding the right investment mix, investors have to be aware of the tax consequences of choosing one plan over another.

For example, investors could be giving up a major tax benefit if they choose a plan from a state in which they don’t reside.

The Chicago fund-rating company, however, plans to roll out in mid-October an adviser-targeted online service designed to make picking the right 529 plan easier.

Morningstar already offers free information on 529 plans on both its adviser- and retail-oriented websites that tells investors the basics about 529 plans. But the new service will delve into the specifics of the savings plans and give advisers the tools they need to compare them, says Tricia Rothschild, a senior product manager at Morningstar.

The service will include a tax-benefits calculator to help determine the tax advantages of one plan over another, as well as research reports with essential data on the plans.

In addition, the service will include tools that allow advisers to narrow their list of investment options by identifying plans that meet clients’ specific needs and tools that determine the likelihood clients will meet college-savings goals with a specific plan.

It will also offer tools that strengthen adviser presentations by illustrating how their recommended savings plans would have fared historically. Ms. Rothschild says that the service will cost $495 annually, but it will initially be offered to advisers at a 20% discount, making the price $395.

Questions raised

Advisers aren’t entirely sold on Morningstar’s plan.

Patrick Hanratty, managing director of Capital Advisors Ltd., a Cleveland company with $150 million under management, says he won’t sign up for the service because most 529 plans haven’t been around long enough to build track records.

“I think it’s a good concept, and we’re going to need it down the road,” Mr. Hanratty says. “But there’s no history that tells me the performance in the Washington plan is any better than the performance in the Pennsylvania plan.”

Richard Schroeder, executive vice president of Schroeder Braxton & Vogt Inc. in Amherst, N.Y., which has $80 million under management, is even more critical.

He questions the usefulness of comparisons, saying the decision to invest in a college-savings plan rests more with where an investor gets the tax benefit, and that is almost always with the plan offered by the investor’s home state.

Ms. Rothschild, however, says that most of the reaction has been positive. The service isn’t up yet, and Morningstar has already signed up 100 advisers, she says.