Advisor-sold 529 plans are only available through licensed financial advisors who work for a broker-dealer or registered investment advisor. A financial advisor may help a family select and open a 529 plan, create a college savings investment strategy and offer guidance when it is time to pay for college.
Benefits of using an advisor-sold 529 plan
Advisor-sold 529 plans have higher fees than direct-sold 529 plans, but some investors feel they are worth the extra cost. Advantages of advisor-sold 529 plans include:
- Access to professional investment advice. A financial advisor may provide guidance on selecting investments, when to adjust 529 plan contributions, what to do with college savings during a market downturn and help with the college selection process.
- Centralized investments. Families who work with a financial advisor to manage retirement and brokerage accounts may prefer to have the same advisor handle their 529 plan accounts.
- Flexible portfolios. Instead of using a predetermined asset allocation, such as an age-based or target asset allocation, a financial advisor may design a unique 529 plan portfolio using a combination of index funds and alternative asset classes.
- Actively-managed investments. Many advisor-sold 529 plans offer actively managed mutual funds, which have greater return potential than passively managed funds (but with higher fees).
How to choose an advisor-sold 529 plan
There are 30 advisor-sold 529 plans available, with over 660 investment options. Financial advisors can help families understand the different options and find the best 529 plan to maximize their college savings. Advisor-sold 529 plans are available through Registered Investment Advisors (RIAs) and Broker-Dealers.
RIAs have a fiduciary duty to put their clients’ best interests ahead of their own. Most RIAs operate as fee-only and cannot collect commissions on the sale of investment products, including 529 plans. Some advisor-sold 529 plans have a unique share class for RIAs that does not include a sales charge.
RIAs may also help clients open and select investments for a direct-sold 529 plan, but in most cases an RIA cannot access a direct-sold 529 plan to manage the investments.
Financial advisors who work for a broker-dealer are not held to the same fiduciary standard as an RIA, but they are required to select investments that are suitable based on their clients’ needs and investor profile. Brokers typically operate as fee-based and earn commissions on advisor-sold 529 plans.
However, brokers may be able to offer lower-cost share classes when an investor’s total amount invested (including IRAs, 529 plans, etc.) with a single fund manager reach certain sales charge breakpoints.
A financial advisor should have discussions with their clients about their college savings goals, risk tolerance and investment time horizon. They should start by exploring the 529 plans offered by the client’s state to see if there are any available state income tax benefits. It’s also important to review out-of-state 529 plans, since sometimes lower fees can outweigh the benefits of a state income tax benefit.
How to open an advisor-sold 529 plan
Advisor-sold 529 plans must be opened through a licensed financial advisor. There are several ways families can find a financial advisor:
- Use Savingforcollege.com’s Find a Financial Professional tool to find financial advisors who help with college saving strategies
- Search for a financial advisor on the advisor-sold 529 plan’s website
- Find a fee-only financial advisor through The National Association of Personal Financial Advisors or through the XY Planning Network
The financial advisor you choose to work with can open an advisor-sold 529 plan for you and select an appropriate investment mix. Your advisor will discuss ways to contribute to the 529 plan, including making lump-sum deposits and setting up automatic contributions with a linked bank account or payroll deduction.