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Advisers Missing Out on 529 Opportunities


An overwhelming majority of financial advisers are not steadfastly selling 529 college savings products, missing out on a viable opportunity to establish stronger client relationships and sales of other products.

Seventy-six percent of financial advisers report that only 1% to 4% of their business comes from 529 sales, according to a survey of 780 financial advisers conducted online by San Francisco-based Zoomerang for John Hancock College Savings of Boston.

There had been some confusion about the tax advantages of 529s, which were scheduled to sunset in 2010. However, the college savings plans have increased in popularity since the Pension Protection Act made those advantages permanent. Last year, 529 assets rose 31.5% to $90 billion, according to data from Financial Research Corp. and the College Savings Plan Network.

Because many financial advisers are not speaking with clients about 529s, most sales thus far have been client-driven, and, as a result, advisers are missing out on a key opportunity, said Diana Scott, senior vice president and general manager of John Hancock College Savings.

"Twenty-nine percent of financial advisers said they don't sell 529 plans simply because their clients do not ask for them," she said.

It would be prudent for advisers to talk to clients about 529s, as saving money for children's college education is uppermost on parents' minds. Sending children to college is the second-highest financial concern individuals have besides having enough money for retirement, Scott said.

A consumer survey conducted by Synovate of Chicago for John Hancock found that more than two-thirds of parents and nearly one-half of grandparents planned to contribute to 529 plans if they hadn't done so already. And 95% of parents said they plan on helping their kids pay for college, according to a survey by Mathew Greenwald & Associates of Washington for AllianceBernstein of New York.

Although today's college expenses are quite high, an adviser's core business isn't going to come from the sale of 529s. The current estimated cost of a college education is $54,880 for a public university and $131,361 for a private college.

However, if an adviser talks to clients about college savings plans and takes a holistic approach, the client will trust them and turn to them for more assistance, Scott noted. "This is a definite relationship-building tool," she said.

To assist clients, advisers must first understand 529s. Fund companies should supply advisers with the education and tools to learn about 529s themselves so that they can then be able to explain them efficiently to investors, Scott explained.

John Hancock has been committed to providing education materials to advisers, with information available both online and in hard copy.

Other firms have recently kicked off 529 educational and marketing campaigns of their own. The Hartford launched a "Just Ask" program, while AllianceBernstein introduced a "College Savings Crunch" campaign to encourage advisers to initiate conversations on college savings.

Of the financial advisers in the John Hancock survey who said they are talking about 529s with their clients, 49% said the college savings topic was broached as a result of an overall planning discussion. Another 45% said it was mentioned in an annual review; and 42% said the topic came up when a client experienced a life-changing event, such as the birth of a child.

Seventy-nine percent of the financial advisers surveyed said that a very important aspect of the 529 sale was performance. After that, 67% said multi-managed platform characteristics were important, 58% pointed to selling tools such as calculators, and 49% cited brand recognition.

Additionally, there are certain times of the year when sales of 529s seem to increase. Sales are strongest in the fourth quarter, and 42% of advisers surveyed said it was their best time for sales.

Two things generally happen during the fourth quarter. One is the concept of gifting, which a lot of parents and grandparents do for their children around the holidays, Scott said. The second is that many advisers have a year-end conversation with their clients and discuss renewed planning for the upcoming year, Scott said.

Following the fourth quarter, 24% of advisers surveyed said the next big sales push is in the first quarter, 17% said the second quarter and 16% found the third quarter to fare well in sales.

However, 46% of investors do not feel there has to be a special occasion to buy a 529 for a child. Occasions that were popular were graduation, with 31% citing that milestone. Another 11% said a child's birthday, and 6% said a child's birth.

Going forward, 529s are expected to increase in popularity. "529s have been a stepchild to 401(k)s, Roth IRAs and other products," said Walter Gowens, a financial adviser in New York. With the recent legislation making them permanent, there will likely be more inquiries and sales of the products, he said.

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