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In Practice May 1, 2007
PPA to Pump Up 529 Sales Interest Among Advisers
A quarter of financial advisers who do not now sell 529 college savings plans intend to start offering them as a result of the Pension Protection Act (PPA).
Reported by Fred Schneyer
A news release from MFS Investment Management about an adviser survey it conducted said the poll also found that 33% of advisers already selling 529s expect to increase their sales volume.
Regional broker/dealers indicate they have emerging interest in 529s; with an older client base, this group of advisers also forecast greater 529 sales to grandparents who are hoping to create an education legacy for their families, according to the survey.
According to MFS, 80% of financial advisers have sold some form of college savings investment product to clients, with two-thirds of those using 529 plans as the vehicle.
According to MFS, 80% of financial advisers have sold some form of college savings investment product to clients, with two-thirds of those using 529 plans as the vehicle.
Uniform Gifts to Minors Act (UGMA) and UniformTransfers to Minors Act (UTMA)s represent the next most popular vehicle, garnering 20% of sales. The majority of college savings product sales funnel through the independent adviser channel, where advisers report that nearly a quarter of their books of business are in college savings products. Conversely, broker/dealers currently have only 5% of their business in college savings vehicles, the survey found.
The PPA permanently extended the tax benefits of state-sponsored 529 college savings plans, which has been set to expire in 2010.
Knowledge Gap
The survey showed a knowledge gulf between advisers who actively sell 529 plans compared to those who do not. Nearly twice as many active sellers are aware of the details of the PPA that relate to 529s as opposed to non-sellers.
When asked about obstacles to successfully selling 529s, compliance issues were listed as the number one concern, as advisers are confused and intimidated by the varying, and often significant, levels of paperwork required by different mutual fund companies, according to the press release.
Uniformly, advisers stated the best way to understand the sales process, work through compliance issues, and sell more products is through training – at the adviser level and the consumer/family level.When asked about obstacles to successfully selling 529s, compliance issues were listed as the number one concern, as advisers are confused and intimidated by the varying, and often significant, levels of paperwork required by different mutual fund companies, according to the press release.
The attributes that appeal most highly to advisers when counseling their clients on college savings and 529 plans are the new permanent tax-free status as a result of the PPA, deep investment options and owner control, the survey found. State tax deductions, which vary state by state, were ranked as the lowest impact factor in purchase decision appeal.
The survey was conducted with a group of financial advisers, half of who sell 529s and half of who do not, during January 2007.
For survey purposes, advisers whose 529 sales made up 5% or more of their total 2006 sales were labeled “529 Sellers’. Advisers whose 529 sales constituted less than 5% of their total 2006 sales were labeled “529 Non-Sellers,’ the announcement said.