Direct-Sold 529 Plans Coming to Advisor Market: Morningstar

"I tell them it grows without tax and can be withdrawn without tax as long as they use if for higher education," Snyder told ThinkAdvisor. "I tell them the most important factors are how much money they add and how early they add it."

Snyder adds that if could devise his own 529 plan, he would increase investment options in large- and small-cap stocks as well as in international, real estate and bonds.

"I look for tax benefits, good investments options and low expenses," he said.

As 529 plan assets and the industry gains in prominence, Hume expects more of these solutions to become available to a wider investor base; however, the offerings in an advisor-sold plans are currently more comprehensive.

For example, an advisor-sold plan could include an active equity fund, where direct-sold plans would only hold a passive index-tracking equity fund.

"Direct-sold plans can be a bit more paternalistic," said Hume, author of the Morningstar report. "Advisor-sold plans might offer a balanced fund, and it's common to see a multi-manager approach, whereas you might not see as much of that in direct-sold plans."

The study further found that direct-sold plans assets grew 9.9% annually over the past five years while advisor-sold plans grew 4.4% annually.

"One element of the advisor-sold plans lagging behind their direct-sold counterparts is the higher fee hurdle that they are assessed," said Hume, who estimates that fees for advisor-sold plans are some 60 basis points higher.

— Check out Best & Worst 529 College Savings Plans of 2018: Morningstar on ThinkAdvisor.