As the 529 college savings plan market continues to grow in response to escalating tuition costs, the number of financial advisors personally handling them has been steadily shrinking. More clients are getting these plans through direct sales or the retail channel, experts say.
Roughly one-third of parents surveyed own a 529 college savings plan, up from 24% last year, according to the College Savings Foundation's 2012 survey of parents, released in August. At the same time, financial advisors' share of the 529 plan distribution pie has gone from 60% to 65% between 2008 and 2010 to now slightly less than 50%. Direct-channel distribution now accounts for 50% of overall 529 plan sales.
Industry experts say the shift to more direct distribution has come about because of more cost-conscious consumers and the availability of "do-it-yourself" retail kits that allow them to set up these funds easily. Also, because of their typically small account balances, such funds are less remunerative for financial advisors to handle.
"Some advisors say the 529 is a small-balance, small-ticket item," says Paul Curley, director of college-savings research at Boston-based Financial Research Corporation. Advisors are more often instead telling their clients to use the direct channel.
Chip Roame, a managing partner at Tiburon Strategic Advisors in Belvedere-Tiburon, Calif., says many accounts start with a few thousand dollars and then languish at around $30,000 to $40,000.
"There's difficulty in justifying a wrap fee on index funds or other low-cost buy-and-hold funds," Roame says. "I don't see it as a ripe financial advisor market; it's more as an accommodation similar to kids' accounts for a wealthy client."
Roame says most 529 plans contained high-priced investment vehicles until around 2008, but since then, many states have closed their 529 plans since private financial firms subsequently were unwilling to bid to take over the plans. He predicts the 529 market will move closer toward self-service.
But other industry experts say that escalating college tuition costs still present an ideal opportunity for advisors, since more parents will seek professional college planning advice.
"College costs aren't going down," says Matt Golden, vice president of college planning for Boston-based Fidelity Investments, who says that 529 plans are still a viable business for advisors because they're still a viable product for clients.
"Independent financial advisors aren't going away at all," says Andrea Feirstein, founder and managing director of New York-based AKF Consulting Group, which monitors the college savings market. She says 529 plans fit into advisors' "whole-cloth holistic approach."
"People are turning to them more than they have in the past," she says. "Parental awareness of 529 plans is now around 35% to 40%; two years ago, it was about 25%."
Kristen Spazafumo, vice president and senior manager of 529 plans at Los Angeles-based American Funds, says the larger the 529 plan pool grows the better.