In looking at 15 different 529 college savings plans from a variety of brokerage firms, a consulting company concludes both product and pricing information are too hard to find and even harder to compare.
Visits to plan Web sites proved confusing, with many containing information that was out of date about pricing, options and investment managers, according to a report from Corporate Insights Inc., New York.
Reached by phone, the consulting firm found many brokerage firms' customer service representatives didn't seem to know a 529 plan existed.
While many investors are demanding clearer price information, some 529 plans seem to be obfuscating the issue, the study also concludes.
"The 529 plan marketplace has changed dramatically since its inception in 2001 due to a variety of factors including uncertainty about long-term viability, limited interest from corporations and, most importantly, performance," says Michael Ellison, executive vice president at Corporate Insights. "Some of the brokerage firms we follow now have over 25 different plan options, and counting the number of investments managers and options was a challenge, even for us. We can't imagine how an investor can make sense of all of the information required to make an intelligent decision on comparing one plan vs. another."
When 529 plans were first introduced most of the major fund companies– independents, wirehouses and banks–wanted a piece of the action, the report says. The attraction: generous profit margins. In a strong bull market, advisors seemed to have little concern about offering clients plans without the tax deductions that their state plans provided.
Proprietary plans, in which the fund firm and its advisors charge higher fees than other investment options, won't look very impressive in a market where performance is not as strong as it had been in 2002, the report says. Higher fees and no tax savings will be conspicuous in such a setting, it adds.
