FRC Identifies Growth Opportunity in 529 Plan Market

While the 529 market is growing, the Financial Research Corporation (FRC) found that a large number of adviser-influenced account owners bypass traditional adviser-sold plans.

According to the study, 40% of adviser‐influenced 529 account owners are enrolling in direct‐plans. “Our financial adviser and program manager survey results revealed a significant disconnect in the value wholesalers deliver in the college savings arena,” said Bridget Bearden, study author and college savings research analyst at FRC, in a press release. “We believe this challenge can be overcome by taking different approaches, such as focusing on the cost‐sensitivity of savers.”

The FRC report projects that the college savings market will more than double in size over the next five years, approaching $1 trillion by 2014.

The FRC expects 529 savings plans to represent $247 billion of the overall $937 billion in college savings plan assets by 2014. “[I]t is clear that this product has further opportunity for expansion. And 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,” Bearden said.

FRC found two trends taking off right now in the 529 world: lowering the all-in cost of the plan for investors and adding ultra‐conservative investment options, even bank products, to the platform. Forty percent of direct-sold plans expect to improve fees and expenses in the next year, while 60% of direct-sold plans and 44% of adviser-sold plans expect to improve investment options.

“We expect these trends to last several years and to have significant appeal to fee‐sensitive and risk‐averse consumers,” Bearden noted.

“Evaluating the College Savings Market Opportunity,” can be ordered at