September 4, 2012 / 3:53 PM / 5 years ago

YOUR PRACTICE-Going back to school on college saving planning

* College saving plans often a hassle for advisers

* Advising on college planning can help build your business

* At the least, you can ward off competitors

By Jennifer Hoyt Cummings

Sept 4 (Reuters) - It’s back-to-school season, and for many financial advisers that means teaching clients about college savings planning.

Many advisers say college savings investment vehicles, like 529 plans, are more work than they’re worth. That’s because the accounts generally have small balances, complicated tax implications and a lot of paperwork.

But with the cost of college ever rising, advisers are getting more questions from clients about 529 plans, whose assets h i t an all-time high of $158.3 billion last March, according to Boston-based Financial Research Corp.

“It’s become essential to offer them, because if you don‘t, you’re not a comprehensive financial adviser,” said Bryan Stephens, a New York-based certified financial planner with UBS Wealth Management.

While 529 plans may not be big money makers, they can help you build your business and broaden your network. Every new 529 beneficiary has parents, grandparents and other relatives who may want to contribute to that account. Advisers also can use the plans, which have generous gift-tax benefits, as an estate planning vehicle.

Smart advisers “see that 529s aren’t just for the young couple that has a new baby,” said Derek DeLorenzo, vice president of client relationship management for Upromise Investments, a leading administrator of 529 plans.

At the very least, you can ward off competitors.

“I use it as a defensive move to make sure the client looks to me as the adviser of first resort,” said Jeff D‘Italia, an investment adviser at Philadelphia-based Firstrust Financial Resources.


There are several different investment vehicles for college savings, but 529 plans are by far the most popular because of their flexibility.

The plans, created in 1996 and named after Section 529 of the Internal Revenue Code, are free of federal tax when the money is used for qualified education expenses. The plans are generally open to people of any income level and typically have low minimum contribution amounts.

What’s more, if the student ends up getting a scholarship or not going to college, it’s easy t o transfer the account to a different beneficiary, like a younger sibling.

Advisers who want to brush up on their 529 planning skills can start by seeing what kind of training their home office provides. Merrill Lynch Wealth Management, Wells Fargo Advisors and Edward Jones, for instance, all offer their advisers training on college savings planning.

Another good initial step is to become an expert on your state’s 529 rules and tax implications. Your state’s plan providers will have comprehensive information. American Funds, Vanguard, AllianceBernstein and Fidelity are a few of the nation’s biggest 529 plan providers.

There are also good primers from places like the College Savings Foundation, Upromise’s, the College Savings Plan Network and, which is hosting a 529 conference and boot camp in October.

When talking to clients, help them strike a balance between saving for education and their retirement.

Stephens, of UBS, said his priority is to make sure his clients’ retirement plans are bulletproof before they concentrate on college savings.

“You can finance an education but you can’t finance a retirement plan,” he said.

The clients may need to be prepared to make trade-offs - like sending their kids to public school so they don’t have to push back retiring, said Rob Cirrotti, director of retirement and long-term savings at Pershing LLC.


For now, getting clients into 529 plans is a big hassle for advisers because states contract with specific 529 program managers. (Investors aren’t forced to use their state plan, but there are often tax benefits to doing so.)

Because advisers are restricted to certain providers, they can’t just open and manage the accounts on their brokerage platform, as they can, say, with a Roth IRA. So when an adviser wants to make a change to their clients’ account, like increase the contribution amount, they have to work through an intermediary at the 529 plan provider.

Nearly a quarter of advisers polled by the Financial Research Corp. said they just send their clients to direct-sold plans instead of adviser-sold products. For many of them, the commission just isn’t worth all the paperwork.

The industry is trying to make things easier.

In June the clearing firm Pershing LLC announced that it would start enabling advisers to open, fund and manage 529 plans directly on their brokerage platforms.

Currently Pershing’s service has only integrated CollegeAmerica, a Virginia-based 529 plan administered by American Funds, but the company is working with BlackRock and other providers to expand the platform.

The industry still has a long way to go to streamlining 529 planning, but advisers can’t expect clients to wait around.

“This may be the case where the clients are a little ahead of us,” said Greg Dosmann, a principal at Edward Jones who specializes in college and retirement savings.

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