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529 E-ditorials

00-12: The brokers are coming!
Joe Hurley
Monday, May 29th 2000

Recent selling agreements between 529 plan managers and unaffiliated brokers signal a new trend in the distribution of 529 plan “product”. Securities Management and Research, one of two program managers for the Arizona Family College Savings Plan, and Minnesota Life, a group of insurance and investment companies have signed a contract enabling registered sales agents with Minnesota Life’s brokerage subsidiaries to open accounts in the SMR/Arizona plan and earn commissions. The recently opened Wyoming 529 savings plan, managed by Mercury Asset Management (a subsidiary of Merrill Lynch), has arranged for A.G. Edwards to serve as national distributor. More selling agreements will be announced in the future involving 529 savings plans in other states.

We have already seen the acceleration in the nationwide marketing of state 529 plans through program managers such as Fidelity, Merrill Lynch, Salomon Smith Barney, and College Savings Bank. The significance of this newest development is that distribution channels for 529 plans will be further widened by the entry of brokers who are not directly involved in the management of the plans and who in the past had not been able to sell 529 accounts on commission. While these trends may be disturbing to some who feel that state programs should stick to their own backyards, they are really just a natural progression and an affirmation of the significance of 529 plans as a terrific tool for families everywhere in planning for their kids’ college educations.

We are generally supportive of this development, as long as brokers and financial planners involved in the sale of 529 plans gain the knowledge and back-up resources to advise their clients in a thorough and accurate manner. All the choices and special tax rules that families now face in developing a college funding strategy has made the process very confusing. Investment advisers and planners, whether they sell on commission or charge a fee for their services, can be extremely valuable in helping a family sort through these options and developing a sound strategy.

There is no question that an expanded broker force will be successful in introducing the advantages of 529 plans to many families who would otherwise not become familiar with them. Brochures, advertisements, and toll-free numbers can only go so far in attracting participants to these plans. When it comes to investing, many people rely on their broker or other investment professional. In many cases it will only be when the adviser talks with the client about 529 plans that sufficient interest will be created.

Increasing overall participation in 529 plans is a good thing. It helps keep the programs strong and encourages new features and benefits. It also strengthens the position of 529 plans in Washington when new laws are proposed affecting their tax and asset protection features.

Outside of Maine, where any licensed broker or agent may have the opportunity to sell its 529 plan, the distribution of 529 plans is still fairly limited. But many brokers and commission-based financial planners are expressing a great deal of interest in 529 plans, and will be very interested in any opportunity to enter into selling agreements with the program managers that will be offering them.

» 05-4: The 529 marshals have arrived - 08/30/05
» Our 5.29th-year anniversary - 06/29/05
» 05-2: 529s and the new Bankruptcy Act - 04/28/05
» 05-1: Reform or Deform? - 02/27/05
» 04-6: Perspectives on the 529 debate - 12/28/04
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