Predicts 529 Assets Will Quadruple By the End of the Year
Fidelity Investments introduced today a new 529 plan offered through the State of New Hampshire, which is available exclusively through financial advisors.
Although 529 plans have been available for only three years, they have amassed over $2.5 billion in assets, and Fidelity estimates that assets will grow to more than $10 billion by the end of the year, said Ellyn McColgan, president of Fidelity Investments Institutional Services Company.
The plans have the potential to become for college savings what 401(k) plans have become for retirement, said McColgan in a conference call. 'Now, of course, 401(k)s have been around for 20 years, but they've already amassed over $1.7 trillion in assets. So we're expecting that 529s will be an incredible growth vehicle of the future. We believe that advisors will be a critical part of that growth.'
The plan, which offers investors a choice of eight different portfolios, has three different advisor compensation structures. The plan's A-shares impose a 3.5% sales charge and a 25 basis point annual service fee paid to the advisor. With B-shares, there is no charge to investors as long as the assets remain in the plan for six years, there is a 2.5% payment to the advisor, and a 25 basis point annual fee. On C-shares, there is no sales charge, but there is a 50 basis point annual fee paid to the advisor.
A survey recently commissioned by Fidelity indicates that 56% of Americans currently saving or considering saving for college education believe that advice from a financial advisor would help them decide which plan is right for them. Over 80% of those surveyed did not understand the differences between 529 plans and other education investment vehicles, such as education IRAs. Also, 84% were not aware that the recent tax cut package signed by President Bush included a provision that would allow qualified withdrawals to be free form federal taxation, according to Fidelity.
Fidelity's new plan is available to investors nationwide through more than 50,000 financial advisors at about 150 firms, according to Mike Kellogg, executive VP of FIIS.