HNW Investors Seek Better College Savings Strategies

There’s plenty of opportunity for advisers to help high-net-worth (HNW) investors save for college funds, according to Phoenix.

Not only has the market downturn made high-net-worth individuals (HNWIs) less confident in their ability to accumulate adequate retirement savings (see “HNWs Less Optimistic about Future“), but they are also less confident in the ability to which their 529 plans will fulfill their college savings objectives. An annual Phoenix survey of HNW investors found half of 529 plan holders (45%) said they are only “somewhat confident” or “not at all confident” their plans will meet their original objectives.

Of the 1,735 polled households, only 13% of respondents reported having one or more 529 plans. Phoenix said that’s not surprising as most in the HNW market do not have young children—however, even those with children younger than 18, less than one-third (31%) use 529s.

Market Affect

As a result of the market pressure on their 529 plans, 57% of respondents with children under 18 are thinking about and/or actively seeking alternative strategies, according to the survey. The alternative strategies include: financial aid (29%), setting sights on a less expensive school (26%), seeking help from relatives (25%), or delaying college enrollment (21%). The vast majority of other 529 plan holders (83%) report not having made or even thought about these other college funding strategies.

Twenty-two percent of all high-net-worth 529 plan holders indicated that they have made changes to their plans within the past year. Changes were more common among those with children under 18 (37%), the survey found. Phoenix said additional exchanges will likely be fueled by the IRS’ decision to allow, for 2009 only, two investment portfolio changes per plan instead of one.

The most common change respondents have made or contemplate making is moving money to a more conservative asset allocation position (68% have moved), followed by moving money to a guaranteed investment (31% have moved), according to Phoenix. However, interestingly, more than one quarter (28%) making changes are moving to more aggressive asset allocation positions.

Phoenix noted there will likely be more adjustments in the future. Of those who haven’t yet made changes to 529 plans, 28% said they are thinking about making changes due to market volatility.

Similar to how providers are looking to add guarantees to target-date funds, providers are interested in providing guarantees to 529 plans, although no such product exists yet. Most survey respondents (80%) said they were at least somewhat interested in that sort of product.