Educating Is Important With 529s

Generally speaking, 529 college savings programs are either direct-sold through state-sponsored investment providers or sold by advisers with a broker/dealer (B/D), who earn a commission on either an A- or a C-share, says Glenn Sulzer, senior analyst with Wolters Kluwer Legal & Regulatory U.S.

“The revenue opportunities for retirement plan professionals may be limited to broker/dealers and to institutional providers, rather than registered investment advisers [RIAs],” Sulzer says.

However, a number of RIA retirement plan advisers have added 529 plans to the services they provide, to reinforce their relationships with sponsors and participants. These RIAs are compensated for advising on these plans either through their one-on-one advice fee or perhaps through a financial wellness fee.

“Adding 529s can enhance retirement plan advisers’ engagement with both the sponsor and participants,” says Peg Creonte, senior vice president of business development for Ascensus’ government savings division. “Saving for college is a priority for families, and, with their tax advantages, 529 plans can be a valuable tool.”

Still, before adding 529s to their practice, advisers should know that they probably will need to educate participants about what those plans are, says Russ Tipper, senior vice president, Capital Group, home of American Funds. Pointing to a survey that Edward Jones conducted last May, he notes that only 29% of Americans correctly identified 529s as an education savings tool.

“Clearly, there’s a lack of awareness among families, who don’t even know that 529s exist,” Creonte concurs. “We have a long way to go.”

This knowledge gap prompted Ascensus to partner with many of the states that sponsor 529s, as well as investment firms that offer the plans, to launch a 529 awareness campaign on PBS this year, Creonte says.

Richard Brothers Financial Advisors has offered 529 plans to its retirement plan participants for the past 20 years and has seen as many as 70% of participants invest in them, says Randy Richard, the firm’s president. His practice charges nothing extra to advise about the plans, he says. “The 529 discussion is really important [to have with parents] and is something I feel passionate about.”

RIA firm Essex Financial got into the 529 game eight years ago. James Sullivan, vice president, says advising on the plans, for which he increases his fee by 50 basis points (bps), “is more of a value-add than a true revenue generator. I do it to help solidify the relationship with the plan and the participants rather than as opportunistic cross-selling.”