"This is an opportunity for the financial advisor to bring this up along with retirement savings," Spazafumo says. "Retirement planning and college funding are inextricably tied from a parent's point of view. For advisors, it should just be part of the conversation."
American Funds is bullish on advisor-sold 529 plans. Its CollegeAmerica 529 college plan is offered by Virginia 529, an independent agency of the state of Virginia.
The plan, which is sold in all 50 states, is offered only through financial advisors. In September, American Funds launched its first college target-date fund. This addition gives the company's $33 billion CollegeAmerica 529 Savings Plan similar options as other 529 plans.
The goal, says Spazafumo, is to streamline and simplify the 529 setup and monitoring process for financial advisors. "We really want to bring the 529 plan business back to that financial advisor distribution channel ratio it was a handful of years ago," she says. "There are a couple of speed bumps that we are really working hard to eliminate by offering omnibus accounting, college target date funds and a streamlined instruction kit for advisors."
Omnibus accounting provides a simpler and easier process for advisors to set up a 529 plan, according to Savingforcollege.com. For instance, when American Funds launched CollegeAmerica, it enabled financial advisors to use Pershing LLC's platform to open 529 accounts. Under the arrangement, advisors can also take those assets and combine them in a client's portfolio with any other of the client's accounts.
FRC analyst Curley predicts other firms may follow the same route. "Since California, we've seen the entrance of SSgA, J.P. Morgan and now ING," he says.
He's referring to California's ScholarShare college savings plan, which was shut down in October 2011 and then taken over by TIAA-CREF in November. Since the plan's collapse, financial firms have begun to enter the 529 plan market in the state.
"I think that product providers are becoming more selective and business savvy in the evaluation of the opportunities that are in the marketplace," Curley says.
"This cross section of businesses is actually a very good sign. It's not just one particular type of firm looking to enter. It's really going to help the industry grow."
AKF's Feirstein believes that fee-based advisors and registered advisors are becoming more involved in the 529 plan selling process, but simply going through the direct distribution channel.
"It's for the simple reason that very few of the programs today actually offer a share class that is specific to fee-based advisors, Feirstein says. "Union Bank does it; their one would be the Illinois Bright Directions Plan, the Alabama Plan; the Virginia-American Funds does it. It's a low-cost investment. They typically won't have an annual servicing fee, they won't have the trail. It's sold pretty much at the NAV-but that's just a handful of programs that do that.
"You have 529 plans out there in the country that are being marketed to the RIA community and to fee-based advisors. And they're putting in place systems that will give the fee-based advisor the access to the account, the access to information, the ability to make changes to the account. So they're making it easier for these guys, and these are the guys that people are turning to."
To build upon these 529 plan distribution inroads, financial advisors must take a more active role in promoting the plans, industry observers say.