Financial advisers who go beyond what is typical in terms of helping with college planning are finding that clients reward them later with assets
Financial advisers who go beyond what is typical in terms of helping with college planning are finding that clients reward them later with assets.
Certainly, many advisers help clients figure out how to pay for higher education for their children or grandchildren, using standard tools such as Section 529 college savings plans, trusts and Coverdell education savings accounts. But some are taking college savings strategies much further, helping clients pay for their kids' education in the most tax-efficient manner by using stock options or deferred-compensation plans.
Other advisers who specialize in college planning help clients complete financial aid forms, identify schools that are likely to accept and even welcome (in the form of financial assistance) particular students and assist with the appeals process if an aid decision doesn't go the student's way.
“This is the most rewarding thing I've ever had the pleasure to do,” said David Karp, president of Complete College Solutions. The advisory firm guides parents through the college application process, as well as helps them plan how to pay for higher education.
Many parents are desperate for help, having watched the value of their investments fall as the cost of a college education continues to rise sharply.
Last year, in-state tuition and fees at four-year public colleges and universities increased 7.9% to $7,605. At four-year private institutions, it went up 4.5% from the 2009-10 school year, to $27,293, according to the College Board. When parents hear these numbers and contemplate the amount they'll have to pay per year, per child, many can't imagine how they will do it, advisers said.
A financial planner for 36 years, Mr. Karp has specialized in college planning for the past 15 years, getting into the niche after figuring out how he would pay for his own four children to attend college, three of them at the same time. Friends soon started asking for similar help, and he began charging a fee for college planning services, separate from financial planning.
Today, at least half his business is working with families exclusively on college planning, he said. Impressed and appreciative, many clients then seek broader financial advice from the firm, Mr. Karp said.
After graduation, some of the students he helped have looked to Mr. Karp's firm for further financial advice, he said.
WINNING CLIENTS
Meldrum Financial founder and managing partner Harvey H. Meldrum estimates that two-thirds of the clients he helps with college planning end up hiring him as their financial adviser. He charges a fee for college-planning services, while his advisory clients pay commissions.
The firm, which has about $20 million in assets under management, has produced a 10% to 15% increase in income each year, other than 2008 and 2009, said Mr. Meldrum, who markets his college planning services and works with clients from all over the world, some through Skype video chats and e-mail.
In addition to filling out financial aid forms for clients, Mr. Meldrum develops a payment strategy that allows clients to use as little of their savings as possible.
“We show them the best strategies when it comes to borrowing,” he said.
Meldrum Financial advises clients not to use cash from retirement assets to pay for college, Mr. Meldrum said. Most people never pay themselves back, and the cost of taking money out of such accounts is too great, he said.
“I always tell them, there's no financial aid for retirement,” he said.
'A TRUST RELATIONSHIP'
Like Mr. Meldrum, most advisers charge a fee for college planning, but some find that they don't even need to do that to reap the benefits of the time they spend helping clients with college planning.
“We're building a trust relationship with the clients we help with college planning, so it's easy to move into financial planning with them after that,” said Kurt Supe, an adviser with Creative Financial Designs Inc.
The firm manages $450 million in assets, most of which has come through the college-planning channel, he said.
“We don't charge for the plans because we get plenty of business through them,” Mr. Supe said. “It's not just about asset gathering; it's client gathering.”
Financial Management Group Inc. offers college-planning services to high-net-worth clients as part of the financial-planning fee based on assets under management. In addition to developing a financial strategy for paying for college, the firm works with families to help students land in the right school, said adviser Rob Lemmons. The firm manages about $200 million in assets.
Advisers from Mr. Lemmons' firm meet with the prospective college student during their sophomore or junior year of high school to talk about which colleges or majors interest them and to encourage both parents and student to be open in thinking about college choices. The goal is to have the student stay at the same school and graduate after four years, avoiding the need to pay for extra time to finish an undergraduate degree, Mr. Lemmons said.
The clients with whom he works don't qualify for needs-based financial aid, but he has all families fill out the forms anyway. Mr. Lemmons said that he has helped several students boost the amount of merit financial assistance that they receive from colleges through the financial aid appeals process.
“The whole college process is especially positive if the parents and kids are open and haven't come in set on going to a particular school,” Mr. Lemmons said.
Some firms that help families through the college-planning and application process develop the expertise in-house and some hire college guidance counselors to work with their clients. Others outsource the college-planning piece but pull it into the family's overall financial plan.
Stratagee Corp. can prepare a college-planning strategy for an adviser to present to a client. The firm also sells software that advisers can use to help clients evaluate which colleges might accept their student.
The goal is for the adviser to have enough knowledge that the college conversation doesn't end with the client just saying, “I already have a 529 plan,” said Troy Onink, Stratagee's chief executive.
Email Liz Skinner at lskinner@investmentnews.com
