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Putnam Still Making Amends with Investors


Hit last October with charges of fraud in the mutual fund investigations, Putnam Investments has been losing close to $3 billion in assets a month as investors cut and run. In an effort to shore up its reputation, the Boston mutual-fund giant has already cut fees on many of its mutual funds. But with regulators taking a closer look at 529 plans, Putnam Investments has now decided to voluntarily cut fees and broaden disclosure on its 529 plan.

Putnam's 529 plan has been less pinched by asset outflows than some of Putnam's mutual funds, said Elaine Sullivan, director of educational savings at Putnam Investments. Today there is $3 billion under management in CollegeAdvantage, a figure that has grown over the past six months, she said. While this is primarily because of a strong stock market, it was also boosted by some asset inflows, Sullivan said, though she declined to provide details on inflows.

Putnam is not the first 529 plan provider to cut fees, and it probably won't be the last. Strong Funds and Alliance Capital Management, also implicated in the mutual fund scandal, recently cut fees on their 529 plans as well, and others are likely to follow suit.

"I think it will go beyond plans that have faced regulatory scrutiny," said Joseph Hurley, the college savings expert who runs SavingforCollege.com, a Web site devoted to 529 plans. "But it's not like it's brand new. The states have put an emphasis on fees in their selection of vendors in many situations, probably in the majority of situations, even going back to the change in New York State, from TIAA-CREF to Upromise and Vanguard," he said.

One financial adviser who sells 529s to clients agreed. "It's a competitive environment out there," said Kevin R. Worthley, a certified college planning specialist with Retirement Planning Co. in Providence, R.I. "Nobody wants to be at the top of the heap in terms of fees, so they may lower them, scandal or no scandal."

Putnam's fee cuts will probably have the greatest impact on investors with small portfolios that buy the plan direct-sold, an option only available to Ohio residents. The fund group is lowering the annual maintenance fee on its Putnam CollegeAdvantage program from $25 to $15, something it said would put it below the "industry peer group average." But its asset-based fees, which would probably have the most impact on any investment over a few thousand dollars, will stay put, at least for now.

No Industry Average

A real industry average for asset-based fees is hard to come by, Hurley said, as some 529 providers wrap underlying mutual fund fees into one overall annual asset-based fee, and some have a separate program management fee, so that you have to add in underlying expenses. Other variations include an annual account maintenance fee, while some only offer a direct-sold plan without any extra fees paid to advisers. In general, not including loads or payments to brokers, total asset-based fees under 80 basis points is on the low side, between 80 and 120 basis points is moderate, and above 120 basis points is on the high side, Hurley said.

Putnam seems to fall right in the middle. Not including 40 basis points for advisers on the adviser-sold option, Putnam charges total asset-based fees on its funds of between 85 and 160 basis points, with its most popular option, the Asset Allocation Growth Portfolio, at 105 basis points.

Starting May 24, Putnam will also improve the disclosure in its CollegeAdvantage 529 offering statement by simplifying the language, breaking out various layers of fees into tables and charts, and including total expenses for a hypothetical $1,000 investment.

"The [mutual fund] industry overall is looking at showing fees and expenses on a $1,000 investment," said Putnam's Sullivan. "That's not something that 529 plans have been asked to do, but if it's a good practice overall, then it's one we should adopt on 529 plans as well."

The SEC has been investigating disclosure of 529 fees, amid concern over a lack of standardization and regulation in this area.

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