Giving 529 Plans A Try

Art by Yinfan Huang

In an industry becoming increasingly “siloed,” as one retirement plan adviser observed, he and many others have discovered the value of, well, going against the grain. They have found that adding one or more tangentially related plans or services, even if not lucrative at first, can solidify their client relationships, and their firm’s competitiveness.

For years, Brett Shofner, president of Work Plan Retire in Delray, Florida, had heard participants ask how to save for both retirement and their children’s schooling. “I thought, ‘That’s not my area of expertise.’” But eventually he realized the extent of people’s need. His firm began offering 529 plans six years ago, upping their efforts over the last few, he says.

Shofner sees 529s as just one piece in a holistic greater-than-the-sum-of-its-parts approach whereby he can add value for the sponsor and help participants save more for their retirement life. How to pay for their children’s college, their own health care and day-to-day living—“they’re all related for these people and becoming increasingly intertwined,” he says.

The take-up for 529 plans has been strong. Paul Curley, director of college savings research at Strategic Insight in Boston, parent of PLANADVISER, reports that 13.2 million people had invested over $300 billion in 529s as of last year’s third quarter. His research finds that “41% of college-saving parents would certainly or very likely open a 529 plan if only their employer were to offer one.” Employee interest aside, in 2016, just 10.3% of plan sponsors provided a 529, creating “a low-lift opportunity” for advisers, Curley notes.

For a plan sponsor, adding a 529 is easy and inexpensive, says Shofner. Participant contributions can be payroll deducted, further simplifying sponsor involvement. Another plus: Offering such benefits shows the sponsor cares for its employees—and takes its fiduciary role seriously, he says.

The adviser’s benefits are less direct. The work can be substantial—mainly educating participants, meeting with them one on one; Shofner advises sending a simple explanation of the plan before any meetings. Further, the chance for immediate profitability is slim, he admits.

For these reasons, many advisers shy away from 529s, as he once did. “It seemed like a lot of work for very little benefit,” he says. But “the profit is more ‘big picture.’” Offering expertise with 529 plans could be the difference between keeping or losing a good plan sponsor client, or winning or losing a new one, he stresses. 

Strategic Insight’s adviser surveys concur. Sixty-eight percent of retirement plan advisers report that selling 529s helps them retain clients, and 42% that the plans help them attract clients. Advisers also called the assets “extremely sticky” and said compensation aligns with other products.

Sticky assets or not, balances are low—Shofner and Curley both cite around $20,000. Shofner attributes that average to the relative newness of the plans. “I would expect those balances to grow a lot more,” he says.

 In sum, he says, “Advisers who want to remain siloed are missing an opportunity. [529s are] not that hard to figure out. Do your due diligence, add them on as a service. Your clients will feel very rewarded by it.”