In introducing Morningstar Inc.’s 529 Advisor program this October, the company’s advisor-business president Chris Boruff noted that in spite of the colossal growth of 529 college savings plans, “independent information on these plans is scarce” and financial advisors have found it “challenging to provide solid, complete advice.” The 529 Advisor product is designed to take the hassle out of tracking down, compiling, and comparing available 529-plan data (there are well over 60 plans nationwide) by enabling advisors to, as Boruff puts it, more easily “evaluate and choose a 529 plan that best fits their client’s college-savings portfolio.”
This is accomplished through an online suite of research tools that allows the advisor to review overall 529-plan features, portfolio offerings, and underlying fund information. These tools, says Boruff, will enable the advisor to quantify the tax benefit of in-state plans; determine which out-of-state plans are worth considering; make accurate comparisons among plans; evaluate the underlying funds; and calculate the likelihood that a particular plan will meet a client’s needs.
The cost? An annual subscription to 529 Advisor is $495. (To subscribe, or see a demonstration and sample reports, advisors may go to www.morningstaradvisor.com/529t or call 800-735-0700.) The program is available on MorningstarAdvisor.com, the company’s Web site for financial advisors, which Morningstar says has more than 90,000 registered users. To date about 300 advisors have signed-up for 529 Advisor.
According to Morningstar Senior Product Manager Tricia Rothschild, 529 Advisor’s benefits include:
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.”