Net sales of 529 plans reach all-time high

NEW YORK — The Section 529 college savings plan industry is on a roll. Net sales of 529 plans rose to an all-time high of $5.2 billion during the first quarter of 2007, according to the most recent data available from Boston-based Financial Research Corp. Though that figure represented a mere 2% increase over that of the year-earlier period, an informal sampling of program managers by InvestmentNews found that sales of adviser-sold plans increased by between 10% and 40% from the level in the first quarter of 2006. What’s more, 529 plans sponsored by Colorado and West Virginia both reached impressive asset milestones this month. West Virginia’s SMART529 College Savings Program surpassed $1 billion in assets under management, while CollegeInvest, which oversees three 529 plans for Colorado, surpassed $3 billion. Overall, assets in 529 plans rose to $97 billion at the end of the first quarter, according to FRC, a 29% increase over the $75 billion in assets a year earlier. Confluence of factors Program managers and state administrators cite a confluence of factors fueling the growth in sales, including increased awareness about the cost of college education and favorable publicity about the plans in the media. In addition, passage of the Pension Protection Act last summer significantly boosted the popularity of 529 college savings plans by making federal tax benefits permanent.
“Passing the Pension Protection Act was obviously a major hurdle,” said Jeremy Leber, director of 529 Plans for Stamford, Conn.-based Allianz Global Investors Distributors LLC, “but for advisers, I think there has been more of an emphasis on a total wealth management solution for clients, as well as the fact that clients have become much more aware of the rising cost of college.” Allianz, which sells South Dakota’s CollegeAccess 529 plan through a national network of advisers, saw sales rise approximately 40%, during the first quarter compared with the year-earlier period, according to Mr. Leber. He and officials of the other managers in the sampling declined to quantify 529 plan sales. Reaching a selling agreement last year with advisers working for firms such as New York-based Morgan Stanley and Smith Barney, a unit of Citigroup Inc. in New York, also helped account for the sharp increase, Mr. Leber noted. The South Dakota plan had $580 million in assets as of March 30. High college costs also were cited as a major reason for the nearly 10% increase in first-quarter sales of the John Hancock Freedom 529 College Savings Plan compared with the year-earlier period, according to Diana Scott, senior vice president at John Hancock Financial Services Inc. in Boston and general manager for the Alaska-sponsored plan. The adviser-sold plan has $2.1 billion in assets. “We’re seeing that parents recognized they hadn’t started saving for college early enough and haven’t saved enough,” said Ms. Scott, citing a survey the plan released this month. “They wish they had known how expensive college really is.” Tuition and fee charges at four-year private colleges averaged $22,218 in 2006-07, up 6% from the previous school year, according to the Washington-based College Board. Those costs averaged $5,836 at a four-year public college for the current school year, the board reported, a 6.3% increase from the previous school year. For financial advisers and clients who were ambivalent about 529 plans, passage of the Pension Protection Act has “opened up a lot of doors,” said Jennifer Robinson, chief marketing officer at CollegeInvest. “It has allowed advisers to sell with more confidence,” she added. In fact, more than 25% of financial advisers who currently don’t sell 529 plans are planning to begin selling the product as a result of the tax breaks being made permanent, while 33% of advisers who now are selling the plans expect to increase their sales volume as a result of the change, according to a new survey released earlier this month by MFS Investment Management Inc. in Boston. “The Pension Protection Act hasn’t been a silver bullet, but it has been very encouraging,” said Bruce Harrington, vice president and director of product management for 529 savings plans at MFS. “The survey showed that 93% of advisers now say they are focusing on college planning, and over two-thirds are selling 529 plans.” A rising stock market also has been good for sales, said Mr. Harrington, who oversees more than $1 billion in college savings assets in 11 states. Net sales for Oregon’s MFS 529 Savings Plan, which has nearly $380 million in assets, rose 15% in the first quarter compared with the year-earlier period. Michael Conrath, vice president of college savings plans for New York-based AllianceBernstein Investments Inc., also credited the Pension Protection Act with being a catalyst to promote awareness of 529 plans. “We’re seeing clients becoming more proactive and asking about the plans,” he explained. “At the same time, advisers are more tuned in. It’s the best of both worlds.” ‘Phenomenal vehicles’ Though agreeing that the Pension Protection Act has been helpful in boosting 529 sales, advisers said that it is not indispensable. “I always thought they were phenomenal vehicles,” said Paul Donas, a certified financial planner in New York affiliated with the Boston-based John Hancock Financial Network. “The new law is certainly a positive, but tax laws are only as permanent as the whims of the next president and Congress.” Publicity accompanying the Pension Protection Act has made clients more familiar with 529 plans, said Ed Stuart, a certified financial planner and wealth manager for RegentAtlantic Capital LLC in Chatham, N.J., although he added that “there is still a fair amount of confusion with so many plans out there.”