Going to School With Morningstar

Tax-Advantaged Returns. A built-in tax-benefit calculator works throughout the product’s calculations to allow advisors to determine whether the tax advantages of an in-state plan outweigh the potentially higher returns of an out-of-state plan. In making comparisons, the calculator takes into account a client’s location, tax bracket, investment amount, and time horizon. “We believe it’s the first time that anyone’s ever offered this,” says Rothschild. “An advisor can see the true value of the in-state tax advantage reflected in the return.”

Funding Forecaster assesses the likelihood that clients will meet their college-savings goals by investing in a specific 529 plan. The Funding Forecaster evaluates the investor’s contribution, time horizon, and savings goal, and calculates the probability that a particular plan will meet the target. Returns for in-state plans are adjusted to reflect tax benefits. The Plan Selector feature narrows the list of options by identifying the plans that meet a client’s specific needs. The selector highlights plans that offer low annual maintenance fees or are managed by a particular investment-management firm. As noted, tax benefits for in-state plans are factored in the results, making it easier for advisors to determine the best overall choice.

Morningstar Reports is a feature that helps get around the problem that 529 plans haven’t been around long enough to build much of a performance track record. The feature helps by leveraging Morningstar’s fund data to cull information such as total returns, fees, Morningstar ratings, portfolio and sector weightings, and asset allocation statistics on a 529 plan’s underlying funds–up to about five year’s worth of data on some funds. Also included is Portfolio Illustrator, which presents hypothetical reports that illustrate how recommended 529 plans would have fared in a variety of historical market conditions.

A big advantage to 529 Advisor is that it allows advisors to perform apples-to-apples comparisons, says Rothschild. “For example, we have peer groups that are directly relevant to each portfolio, whereas usually they are all lumped together regardless of whether they’re for a one-year old or 15-year-old. So all portfolios for, say, one-year-olds would be compared to all other portfolios for one-year-olds.”