Aug 2, 2011
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With investor sales volume returning to the 529 industry, financial advisors have an opportunity to grow their business. However, they are missing out: Asset growth within the advisor-sold channel has not kept pace with the growth experienced by the direct-sold channel.
The 529 college savings plan industry has grown to over $146 billion, a 65% leap since the 2008 market volatility. Investors have made saving for college a top priority ― the industry has experienced a 75% increase in net sales over the past two years.
This has been the case despite the combination of an increased rate of saving relative to 2008 and a substantial total inflow. The advisor-sold channel accounted for 59% of the 529 savings plan industry assets in 2007, but it only made up 51% at the end of 2010. Bottom line: while the overall industry has been growing, the advisor-sold channel has been less effective in capitalizing on this trend.
The questions then become:
- Which vehicles are being used to fulfill the needs of the client?
- Which areas are available to advisors for further market penetration?
- Will the trend of lagging advisor usage continue?
Our survey of Advisor Perspective readers and financial advisors, conducted in June, provided some key insights into these questions.
Advisor Vehicles Used for Client’s College Savings Needs, 2011
Source: Financial Research Corp.
Survey question: “What type of vehicles do you use for your client’s college savings needs? (Please check all that apply)”
Analyst Notes: ”Other” methods include zero coupon municipal bonds, individual stocks, individual bonds and Traditional IRAs.
Vehicle |
B/D Advisors |
RIAs |
All Advisors |
529 savings plans |
94% |
92% |
93% |
529 prepaid plans |
10% |
17% |
11% |
Coverdell ESAs |
32% |
25% |
31% |
Roth IRAs |
36% |
33% |
37% |
Trust (UGMA/UTMA) |
42% |
49% |
43% |
Non-529 mutual funds or ETFs |
32% |
48% |
37% |
Insurance Product with Cash Value |
23% |
10% |
23% |
Cash or other banking product |
13% |
17% |
15% |
Other |
5% |
5% |
6% |
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