529 Plans & Financial Advisers: Should You Use Them?

There are many valid reasons parents and grandparents decide to open 529 plans through financial advisers even if it’s more expensive.

There are many valid reasons parents decide to open 529 plans through financial advisers even if it’s more expensive.

529 plans are most often the “go-to” savings plan for families to save for college. That’s why we’ve discussed this topic many times on the College Smart Radio show and in our blogs. 529 plans can be complicated and overwhelming for parents to understand. This blog will discuss why you should consider getting a financial adviser to help you choose the right 529 plan for your family.

Many articles you read about 529 plans suggest that you enroll in one “directly” rather than going through an investment broker or financial adviser. The primary reason is that 529 plans purchased through a financial adviser generally are more expensive than their direct-sold counterparts. Buying through a financial advisor may also have you paying a hefty sales charge and the annual costs in advisor-sold 529 plans are typically higher as well. But not everyone is listening to that advice. The most recent data survey by Financial Research Corporation found that more than 50% of all assets in 529 plans at the end of 2009 resided in adviser-sold plans. In fact, the largest adviser-sold 529 plan, Virginia’s College America, is three times larger than the largest direct-sold 529 plan, New York’s. What’s more, three of the five largest 529 savings plans are adviser sold.

Can all these families buying their 529 plans through a financial adviser be wrong? The answer is no. There are many valid reasons parents and grandparents decide to open 529 plans through financial advisers even if it’s more expensive. Here are 4 reasons why buying a 529 plan through a financial adviser is a good plan.

You Need Help in Selecting a 529 Plan

With well over 100 Section 529 prepaid-tuition and college-savings plans in existence, you could easily get confused in searching out a plan on your own. Oftentimes, confusion leads to inaction, and you may simply never get around to pulling the switch and opening a 529 account. The job of a financial adviser is to understand your financial goals and make a recommendation to you. If this is what it takes to get you started on building a college fund, you will likely be much better off, even after expenses, than just letting your savings sit in a fully taxable bank savings account or money market fund.

You Currently Depend On a Financial Adviser

You may already be working with a financial adviser for retirement, estate planning and general investing purposes. If you are happy with that arrangement, and don’t mind paying commissions on investments for those needs, why would you not trust your adviser to handle your college savings? For many individuals, planning for college must be coordinated with retirement and estate planning. The knowledge and resources a financial adviser can offer in helping you to plan your financial future is very valuable. Of course, this assumes that the adviser upon whom you rely has the requisite knowledge and experience. Not all do.

You May Not Have to Pay High Sales Charges

A 529 plan recommended by a financial adviser can come in as many as five different “share classes,” each with a different expense structure. Your financial adviser can explain the fee structure of all the available classes and recommend the appropriate class in your particular case.

You Are Considering Active Investment Management

In the race to offer the lowest-cost program, many states are using only passively managed index funds in their direct-sold 529 plans. Adviser-sold 529 plans can use lower-cost passively managed funds or higher-cost actively managed mutual funds as underlying investments. Some investors, and their advisers, are happy to stick with the low-cost index fund options featured in many direct-sold 529 plans, while others feel they will do better trying to “beat the market” with actively managed funds. You need to figure out what type of investor you are in order to choose.

The bottom line is a financial adviser can help you navigate the complex world of 529 plans. Remember you have many options out there to choose from and sometimes a little help can go a long way. For more information on 529 plans, check out the U.S. Securities and Exchange Commission website at http://www.sec.gov/investor/pubs/intro529.htm.

Remember that any assets in Section 529 accounts are considered to be a parent asset in the FAFSA calculation for EFC (Effective Family Contribution). Make sure you know whether your student will qualify for financial aid before choosing which savings vehicle that will work best for your family. Contact Beatrice Schultz to learn more.

I discussed the topic of “529 Plans – What You Should Know About Utilizing Section 529 Plans to Save For College.”  Listen to this broadcast on YouTube here.

Photo Credit: Lyssah

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