Hard Knocks: Only 10% Of Advisors Give 529 Portfolios High Marks

Wednesday, March 07, 2012 11:17
Hard Knocks: Only 10% Of Advisors Give 529 Portfolios High Marks

Tags: 529

Special-purpose 529 education accounts have gotten a lot of play in the consumer media over the years, but these products are still sold a lot more aggressively than they're bought -- and they're not even sold all that much.

This Website Is For Financial Professionals Only


Finally, someone is saying what a lot of advisors have been thinking about 529 plans: the underlying investments just aren't great.


It turns out that 90% of RIAs that a group of private colleges surveyed have issues with the way these state-run plans are set up.


Half are unhappy with the way these plans' managers pick the investment options. There just aren't enough choices and the ones that are available tend to be less than great.


Meanwhile, 34% worry that a portfolio built out of the available options will be too exposed to market volatility over the relatively short 18- to 22-year lifecycle of the typical 529 account.


Advisors want to like these vehicles. Consumers have been conditioned to like these vehicles by over a decade of financial reporters touting them as the next big thing and the solution to out-of-control tuition inflation.


But if nobody can get excited about the portfolios -- much less the fees -- then the 529 marketplace will continue to drift, no matter how exotic the state-by-state marketplace is or how great the tax benefits can be.



Comments (2)

Ah, excuse me but "short" is not a good discriptor for an 18-22 year time horizon. That horizon often matches most actual retirement portfolio horizons. Someone retiring at 65 would have an age 83 to 87 time frame based on this horizon.

I wonder how many RIAs (interviewed for the study) actually know anything about 529 plans and the investments available from the different state plans. Vanguard, DFA and TRP all participate as does TIAA-CREF and Fidelity in various state plans. There are many ways to allocate funds among the available choices unless one choses the age related allocations which are set. Perhaps the only problem is that by regulation one is only allowed to reallocate once a year.
mitchellkeil , March 07, 2012
I was thinking of an 30- to 40-year accumulation period -- compared to which anything short of an institutional horizon looks "short" -- but if anything your example brings up a great point.

The hypothetical retiree will need current income over a long time frame and is usually advised to scale back on risk. The parents of the hypothetical future college student can wait out a bad patch in the market, but once high school is over, the portfolio needs to cover fixed family contribution expectations for a few years.

I don't recall any planning-oriented analysis on how the two portfolios will need to evolve differently. If any advisors have done the math, would love to hear.

Agreed that the providers have improved enormously over the years. Probably time for the 90% to take another look.
ScottMartin , March 08, 2012

Write comment

You must be logged in to post a comment. Please register if you do not have an account yet.