At first blush, the 529 plan market, which is considerably smaller than the retirement plan market, may seem inconsequential. Yet, providing college tuition planning services has a wide range of benefits, including client retention and cross selling (See related story at Investment Advisor Weekly).
With that in mind, advisors would be well served to brush up on tips for selling tuition savings account. Selling 529 plans has two aspects. One is simply promoting the benefits, such as tax savings and compounding investment returns offered by 529 plans. The second is promoting the advantages of using an advisor when investing in 529 plans.
Much has already been written in financial publications about the benefits of 529 plans, but the topic of the benefits of using adviser-sold plans instead of direct-sold plans has been widely neglected. One strong selling point for advisor-sold plans is that financial planners and their home offices have spent considerable resources researching tuition programs and developing guidelines for helping clients choose the best plan for their unique needs.
More specifically, advisors can help clients assess the appeal of programs offered by their state of residence. For example, some states offer attractive tax incentives to encourage residents to invest in their home state program, while residents of states that don’t offer those benefits may want to consider programs offered by other states.
Advisors can also promote that they have evaluated the quality and the range of investment options that plans offer so that they are prepared to help their clients choose the most appropriate programs. Financial advisors can also help clients avoid common pitfalls associated with tuition planning. That is especially true with estate planning issues. With 529 plans, the account owner is the adult or couple that has created the account and the beneficiary is the person who will receive the assets for tuition.
When completing estate plans, some parents may make arrangements for passing account ownership to their children along with other assets upon their death. Once the beneficiary also becomes the account owner, however, the assets may disqualify the child for qualifying for financial aid. When selling 529 plans, advisors should also be prepared to respond to potential objections from clients.
Clients, for example, may say they don’t want to pay for fees, such as sales commissions, associated with using an advisor. In such cases, advisors should point out that the fees with some plans are lower than with Class A mutual funds and that clients will benefit from paying the fees because they will receive advice.
Clients may also say that they are uncertain if their children—including unborn children—will attend college, so saving tuition money could be pointless. Upon hearing that objection, advisors should explain that account owners can always change their beneficiary designations. So, if their children don’t attend college, parents can list their grandchildren as beneficiaries. Parents may also want to list themselves as beneficiaries as many Americans are pursuing additional education as part of their hobbies and passions when they retire.