Be a 529 Booster and Watch Your Business Grow

In a market pummeled by accounting scandals, tainted research and economic malaise where even mutual funds are fizzling it makes sense to look for something your customers can feel good about. College savings plans, the so-called Section 529 accounts, would seem ideal. They have great tax advantages, and it's all for a good cause. First, however, you stop and ask: What's in it for me? Then reality

In a market pummeled by accounting scandals, tainted research and economic malaise — where even “five-star” mutual funds are fizzling — it makes sense to look for something your customers can feel good about. College savings plans, the so-called Section 529 accounts, would seem ideal. They have great tax advantages, and it's all for a good cause.

First, however, you stop and ask: “What's in it for me?” Then reality sets in: These investments are time consuming and not particularly lucrative for brokers. For starters, it seems impossible to know which state's plan to use. And by the time you have investigated all the offerings, half the states have revamped their plans or changed money managers. You may also be competing for client dollars with a plan offered by your own state, which may be offering its own tax incentive beyond what the feds give. And these programs may operate without brokers at all. That's true in New York, for example, which has hired TIAA-CREF to sell 529s directly to consumers and gives a tax deduction for 529 contributions.

Last but not least, the accounts are tiny. Strong Funds reports that the average account balance in its advisor-sold 529 plans is about $5,500. At, say, a 4 percent commission, you would need to open one about every 30 minutes to keep your job at most wirehouses. And it won't take you long to realize it takes just as much hassle and paperwork to open a $1,000 529 plan as it does to write a $100,000 annuity ticket (guess which transaction most excites your branch manager in these austere times).

But don't get discouraged. In spite of the drawbacks, talking about 529s with your clients can still mean gathering large assets, establishing and strengthening relationships, and enjoying a prosperous career as a trusted financial advisor — as long as you are presenting 529s in the right manner to the right people.

College vs. Retirement

Decades ago people used to start families in their early 20s. Now it's not uncommon for a mom and dad to carry an AARP card as well as a PTA membership. This demographic shift may make for more mature and financially secure parents, but it means that many of your clients may be touring ivy-covered campuses at the same time they're reserving a condo at the Golden Sunset Assisted Living Facility.

No discussion of college planning can be complete without an analysis of your clients' retirement plans. More often than not, you will find an underfunded IRA or 401(k). Since families can't borrow for retirement nearly as easily as they can for college, you may end up recommending redirecting deposits away from college needs and toward an IRA or tax-deferred annuity. Impressed by your wisdom, clients may place all their retirement assets in your care.

Corporate Prospecting

Selling a 529 here and there may not add up to much in commissions. But if you can grab a whole company full of college savers, you can do quite well. Start by getting a list of all the companies in your area that have 401(k) plans. Retirement plan data can be acquired from judydiamond.com and larkspurdata.com.

Call the firm's contact person and ask two questions:

  1. Are you happy with the performance of the funds in your plan?

  2. Would you like me to show you how you can add a benefit to the plan that your employees want, but won't cost your company any time, money or added liability?

“No” to the first question will get you an appointment to discuss the plan in general. “Yes” to the second will let you show the decision maker the great features of payroll deduction 529 plans.

“Ask Me About My Grandkids!”

In a social setting, you may want to run the other way if you see the phrase, “Ask Me About My Grandkids” emblazoned on a T-shirt. But if it brings in business, it's worth listening to every cloying word from a doting grandparent. Grandparents are the perfect audience for your tuition-plan pitch.

  1. They are usually much more financially secure than the children's parents.

  2. They will jump at the prospect of reducing their taxable estates without giving up control over the assets.

  3. They have a special place in their hearts for their grandkids (one client confessed to me that he and his wife only had children so that they could eventually have grandchildren — I think he was kidding).

According to a Fidelity Investments survey, 62 percent of grandparents are willing to help pay their grandchildren's college costs. But a different Fidelity survey showed only 27 percent of parents of younger children were willing to ask the grandparents for help.

You can place yourself squarely in the middle by asking grandparents you meet if they are interested in saving for their grandchildren's college costs. And you will earn the eternal gratitude of parents if you offer to contact their children's grandparents to explain the benefits of 529 plans. Either way will get you “warm” introductions to potential new relationships along the branches of the family tree.

If you (and your clients) need any extra motivation to begin working with 529 plans, the Census Bureau recently released an updated study on the economic value of higher education (census.gov/prod/2002pubs/p23210.pdf). It shows that the thousands of dollars used to pay for higher education can mean millions more in income for a graduate — some of which might find its way back to the advisor who established the college savings plan in the first place.

Writer's BIO:
Kevin McKinley
is a CFP and vice president of investments at Robert W. Baird and author of Make Your Kid a Millionaire — 11 Easy Ways Anyone Can Secure a Child's Financial Future. www.kevinmckinley.com

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