They Shouldn't Have to Ask

According to a survey commissioned by Hartford Life, a large percentage of people are interested in 529 plans. However, the percentage of people that are actually offered a 529 program by their advisor is much lower. Conducted in early fall of 2006 by Opinauri, Inc., the survey interviewed 300 parents and 102 grandparents, all of them well-educated and with annual household incomes above the national average. Most of the interviewees were aware of the plan–78% for parents and 72% for grandparents, and a majority intend to start financial planning for college education over the next five years, with 71% of parents and 66 % of grandparents saying they would definitely do so. Yet, despite the familiarity and interest, only 45% of parents and 25% of grandparents have purchased a 529 plan.

“They should have been prime targets,” notes Jeff Cohgan, director of The Hartford’s 529 program, which is celebrating its five-year anniversary and services over 50,000 families. However, clients are doing all the asking. Although all of the survey participants use financial advisors, there were considerable numbers of advisors who never brought up the subject of 529 plans as a college savings tool. The conversation was initiated by the client 53% of the time in the group of clients without a plan and 57% of the time in the group with a plan, meaning over half of the advisors never asked the question. “What we found out was that clients are having to ask financial advisors about this product. So, they’re hearing about it from friends, colleagues, etc. and going to their advisor,” explains Cohgan. “What we’re trying to do is get advisors to turn that conversation around and make it a proactive and very positive one for them and for their practice. From a selling techniques perspective, the first thing we’re stressing is to just ask,” he says.

In the past, advisors may not have turned to the 529 plan due to some early roadblocks in the industry, that have since been dispensed with. “I think one thing was the lack of permanency,” recalls Cohgan. “In 2001, 529 plans were enhanced though tax legislation, which was scheduled to sunset in 2020, absent further action by Congress. So, a lot of people we worried-including advisors-that at some point, these plans may not be as good as they were advertising them to be.” However, with the Pensions Protection Act making permanent the tax-free withdrawals for education funding, advisors should start showing clients the stats. “With a five-year track record, you can really show a client the power these programs deliver.” However, when pitching a plan, Cohgan advises not focusing on the total college price, but building it into the overall financial plan. “A big thing we hear from clients is that they don’t have the money to get started,” he notes. “But you can get into these programs with small amounts of money. Hartfords’s program has a minimum of $50/month.” And remember the required minimum distributions from retirement accounts when dealing with grandparents. They can be redeployed into another tax-advantaged account — the 529 plan.