In line with most of the financial services space, fees continue to drop for those saving for college through state-sponsored 529 plans.
Morningstar’s annual review of 529 plans, which ranks and grades the plans based on multiple criteria, showed an average plan fee of 45 basis points, down slightly from 48 basis points last year.
The report notes that to keep pace with the broader industry trend toward fee compression, college savings plans are making greater use of low-cost index funds and exchange-traded funds to cut costs.
In this year’s overall ranking of plans, Michigan and Utah received gold ratings, retaining their top grades from 2021.
The Michigan plan earned high marks for moving to a target enrollment structure in 2020 that gradually shifts participants from stocks to bonds, according to the report.
At the same time, the state pushed for improvements in the underlying lineup, and the plan now features highly rated Vanguard, iShares, Schwab and TIAA-CREF funds. This move also resulted in lower fees for the series, and the plan continues to be among the cheapest in the industry.
Utah’s my529 plan is the only plan that has received a gold medal every year since Morningstar debuted its ratings in 2012.
Utah moved from an age-based to a target enrollment structure in 2021, and it incorporated insights from participant data and asset allocation research into this new glide-path design, benefiting set-it-and-forget-it savers, according to the report.
"A higher standard has developed in the 529 industry as more plans adopt smoother glidepaths, trim fees, and implement robust processes for selecting underlying holdings," said Patricia Oey, senior manager research analyst at Morningstar.
“Some plans have fallen behind as they continue to use riskier structures with steep transitions from stocks to bonds near enrollment or offer overly conservative glidepaths in which investors are less likely to keep pace with the rising costs of higher education,” Oey added.
Notably, the assessment saw Vanguard-managed plans that employ an age-based structure receive a process rating downgrade as they feature these less attractive traits, Oey said.
The analysis of 54 plans, representing 93% of the $386 billion in total 529 plan investments, saw 34 plans receive a recommended rating of gold, silver, or bronze.
To be included in the Morningstar Medalist list, plans had to outperform and exhibit some combination of the following features: a well-researched asset allocation approach, a robust process for selecting underlying investments, a well-resourced and experienced investment team, stable and engaged state oversight, and low fees.
Of the 12 plans receiving silver ratings, Illinois’ Bright Start Direct-Sold College Savings was downgraded to silver from gold because of recent turnover in the state treasurer’s office, and the Wisconsin Edvest 529 Plan was upgraded to silver from bronze following improvements to the target enrollment lineup and fee cuts.
Among the list of 20 plans earning a bronze medal, four were upgraded from neutral: Indiana’s CollegeChoice 529 Direct Savings Plan improved its investment diversification; College Savings Iowa 529 Plan and Illinois’ Bright Directions Advisor-Guided 529 College Savings Program cut fees; and Nebraska’s Bloomwell 529 Education Savings Plan increased confidence in its offering.
Relationships are key to our business but advisors are often slow to engage in specific activities designed to foster them.
Whichever path you go down, act now while you're still in control.
Pro-bitcoin professionals, however, say the cryptocurrency has ushered in change.
“LPL has evolved significantly over the last decade and still wants to scale up,” says one industry executive.
Survey findings from the Nationwide Retirement Institute offers pearls of planning wisdom from 60- to 65-year-olds, as well as insights into concerns.
Streamline your outreach with Aidentified's AI-driven solutions
This season’s market volatility: Positioning for rate relief, income growth and the AI rebound
