The Pro 529 Evaluator Helps You Stay Compliant with Regulations

Kathryn FlynnBy Kathryn Flynn | 

Financial professionals who sell 529 plans are required to act in their clients’ best interests and must adhere to the rules of the Municipal Securities Rulemaking Board (MSRB). The Pro 529 Evaluator is a tool designed to help financial professionals confidently recommend 529 plans while staying compliant with rules and regulations.

529 plan fees under FINRA scrutiny

After discovering that some firms failed to reasonably supervise recommendations of 529 plans and other multi-share class products, the Financial Industry Regulatory Authority (FINRA) launched its 529 Plan Share Class Initiative in 2019. The initiative allowed firms to self-report violations and fix the issue without being subject to fines. Common violations included:

  • Failure to keep records of 529 plan transactions
  • Failure to capture information relevant to the suitability determination
  • Failure to have a process or procedures in place to review 529 plan transactions for suitability
  • Failure to provide training or guidance to registered representatives to review 529 plan transactions for suitability

Since the initiative, brokers should be asking more questions of their clients and considering pricing before recommending 529 plan portfolios and share classes. Generally, Class A shares are most suitable for investors with a longer investment time horizon, and Class C shares are recommended for investors with less time to save, such as when a 529 plan beneficiary is in high school or will be using the 529 plan to pay for K-12 tuition.

Brokers and RIAs must act in clients’ best interests

The SEC recently adopted new rules that enhance and reaffirm the current suitability and fiduciary standards to which broker-dealers and registered investment advisors (RIAs) are currently held. The largest component of the SEC’s reform package is Regulation Best Interest, which requires brokers to act in their clients’ best interest when recommending 529 plans and other securities. To comply with the new standard, broker dealers must:

  • Disclose, in writing, material facts about the scope and terms of the relationship with the client.
  • Exercise reasonable diligence, care and skill when making recommendations to clients.
  • Disclose or eliminate conflicts of interest, including sales quotas, bonuses and non-cash compensation based on the sale of securities.

How the Pro 529 Evaluator Can Help You Stay Compliant

There are over a thousand 529 plan investment options available and finding the right fit for a client can be challenging. With the Pro 529 Evaluator, you can compare features of up to three different 529 plan portfolios side-by-side. This gives you a clear view of which 529 plan can help your client save the most for college.

Advisors may compare investment options from different 529 plans, compare investment options within a single 529 plan or compare the costs of different share classes within the same investment option.

Compare 529 plan features

The Pro 529 Evaluator compares important features to help you make an informed recommendation, including:

  • Investment options
  • Fees and expenses
  • Historical investment performance
  • Minimum and maximum contributions

Features where one 529 plan investment option has an advantage over another, such as a lower expense ratio, are highlighted.

Personalized 529 plan savings projections

The tool takes the analysis one step further on the next tab, by allowing you to input information about the client and any potential state income tax benefits. Over 30 states offer a state income tax deduction or credit for 529 plan contributions, but sometimes an out-of-state 529 plan with lower fees is a better option.

Typically, low fees are more important for families with a longer time horizon, and as the beneficiary enters high school a state income tax benefit becomes more valuable.

Projected savings over the life of each 529 plan and its different share classes are illustrated, including any additional savings from state income tax benefits. The tool also compares each option’s estimated fees with the tax savings, to help you determine which option can help your clients save the most money for college.

The Pro 529 Evaluator helps you make informed decisions when recommending 529 plans for clients. Each client’s personalized report can be downloaded and saved as a pdf file, allowing you to document and share your reasons for each 529 plan recommendation.

The Pro 529 Plan Evaluator is available to Savingforcollege.com’s Gold and Platinum subscribers.