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529 Plan Features May Benefit Insurers


As the landscape of college savings plans changes, insurance carriers have begun to stake a stronger claim in the battle for 529 plan assets and some industry observers say insurance firms are better equipped to sell the products than traditional fund complexes.

In the past year insurance carriers have stepped up their presence in that market. Hartford Life will launch its plan early next year, following on the heels of its competitors Manulife Financial and American Skandia.

According to Bob Cassato, president of Manulife Wood Logan, 529 plans and insurance products marry well in a product line, giving insurance wholesalers a leg up on fund wholesalers. "The 529 plan is a better fit for an annuity salesman than a mutual fund wholesaler," said Cassato. "It's the taxation aspect of it that puts it in the wheelhouse of the annuity wholesaler. Also, we do a lot more education than the mutual fund guys."

Lisa Baird, consultant at Cerulli Associates, disagreed. "I don't entirely agree with that. The underlying product looks like a mutual fund. The tax aspects to take a little bit of time to understand, but anyone who can understand 401(k)s can learn it pretty quickly," argued Baird.

Baird further pointed out that, for brokers, the bottom line of the 529 plan is not as sweet. "They're pretty different from an annuity, and the commission schedule in general is not as beneficial to the agent as many of the annuity compensation schedules are," she said.

Product Similarities

Nevertheless, Cassato is not alone in his opinion. "There are certain characteristics of 529 taxation that are similar to annuities: the calculations of earning on distributions and certain penalties are not too dissimilar from annuities," said Joseph Hurley, president of SavingforCollege.com, a Web site offering education to consumers and financial advisers on the various state plans.

Insurers may reap greater benefits and be more effective at selling 529 plans because of this marketing synergy, Hurley said.

"I wouldn't be surprised because from what I know that's a very substantial sales force, through the annuity channel," Hurley said. Cassato agreed, citing 529 plans as a major growth area for his firm in the coming year.

Baird said that states that have focused on the intermediary rather than direct distribution have gathered assets more quickly. In particularly, she cited Maine's plan through Merrill Lynch and Rhode Island's deal with Alliance Capital.