Barclays Global Investors this week formally unveiled a 529 college savings plan based on it iShares family of exchange-traded funds, adding a new wrinkle in the evolution of ETFs and putting a new twist into the stagnate 529 market.

   While some existing 529 plans use ETFs as an investment option, the iShares 529 Plan is the first offering built solely around an ETF platform--in this case, iShares ETFs. The 20 available plans are designed to be sold exclusively through fee-based financial advisors and are administered by Upromise Investments, a registered broker-dealer that manages and administers 529 plans.

   The plans are available in three portfolio categories: year-of-enrollment; asset allocation and custom designed. The year-of-enrollment plans are a lot like target-date funds in that allocation mixes are based on the amount of time before a child enters college. For example, the 2009 portfolio is heavy on the fixed income, with smaller amounts in U.S. and international equities and a tiny amount in real estate. On the other hand, the 2024 portfolio is predominately allocated toward U.S. and international equities, along with a bigger chunk of real estate and a very small slice of fixed income. As college age approaches, the 2024 porftfolio will automatically shift into a more conservative mix.

   The asset allocation portfolios are divided into aggressive, moderate, conservative and fixed-income offerings. And the custom portfolios comprise nine different ETFs from among equity, real estate and fixed-income funds that can be combined various ways into an individualized portfolio.

   Due to tax laws and administrative requirements, only a fraction of the 163 total iShares ETFs are currently available in Barclay's 529 plan. "We fully expect to expand on that," says Robert Nestor, head of iShares product development.

   The plan is sponsored by Arkansas, where in-state residents making contributions to the plan get a state income tax deduction up to $5,000 ($10,000 for married couples).

   Nestor says fees for the iShare plans range from 50 to 110 basis points. That includes 15 to 75 basis points for fund expenses, 30 basis points for Upromise administration costs, and another 5 basis points for Arkansas.

   According to Financial Research Corp., 67% of all 529 plans are sold through advisors. In general, these types of plans have higher fees than plans sold directly through the sponsoring states.

   "Most advisor-sold plans use actively-managed mutual funds," says Joe Hurley, founder of the website, a clearinghouse for college savings programs. "You don't find a lot of index funds within advisor-sold plans."

   Hurley says the all-ETF 529 plan could become a big niche considering how popular ETFs have been in the overall marketplace. "You have to go through advisors to get it," he notes. "It gives fee-based advisors a product that's tailored to their way of doing business."

  Barclays' move into the realm of college savings products marks another attempt by the fast-growing ETF industry to expand its reach. So far, ETFs haven't made big inroads into the retirement planning space because excessive trading costs associated with monthly 401(k) contributions negates their otherwise low-cost advantages.

   Meanwhile, the 529 market has stalled of late despite the generous tax breaks they provide people saving for college. Financial Research Corp. reported that assets in 529 plans declined during this year's first quarter, marking the first time that's happened since the company began tracking 529s in 2001.