After a year of record growth, Hartford Financial Services Inc. wants to expand its 529 college savings business over the next two years by increasing sales and perhaps by becoming a plan sponsor in another state.
Last year the Simsbury, Conn., company increased its 529 college savings plan sales a record 29.5%, to $250 million, and its 529 plan assets under management 21%, to $1.1 billion. Now it says it will start examining requests for proposals to determine if it wants to become a provider for states other than West Virginia, whose plan it has sponsored since 2002.
"We are actively considering what acquiring another state may mean for us, Jeff Coghan, Hartfords director of 529 plans, told American Banker in an interview last week.
A 10-year contract renewal Hartford signed in October with West Virginia allowed the company to lower fees, simplify choices, and enhance customer service. It also gave Hartford permission to become a provider in other states.
This really just gives us the freedom to look, Coghan said. We are not looking at anything specific. We still view West Virginia as our flagship, but if there are opportunities to grow, we will look at different RFPs, and we are open to that. Upromise Inc., Vanguard Group, Fidelity Investments and a number of other leading mutual fund companies and educationally oriented discount partners have contracts with multiple states to facilitate direct sales to investors. While just one year ago Coghan said that Hartford had no plans to go the multistate route, that model has obviously changed.
Joe Hurley, founder of Savingforcollege.com, a Pittsford, N.Y., website now run by Bankrate Inc., noted, for example, that OppenheimerFunds Inc., which already ran programs in New Mexico and Oregon, added Illinois and Texas programs in the past year. There certainly is room for Hartford to go after more states, Hurley said. Hartford, like Oppenheimer, has strong intermediary distribution and can certainly grow by adding another state. Coghan noted, however, that only 15% of Hartford's 529 assets are from West Virginia residents.
Meanwhile, scores of 529 contracts are due to come up for renewal or rebid in the next two years in a number of states. The immediate benefit of adding another states plan is the company would assume all the assets currently in that plan.
The most attractive states to add are those offering generous tax deductions to residents who use the plans, he said. There are probably over two dozen states that you could put in that category, Hurley said.
Coghan, who took over Hartfords program 2-1/2 years ago after helping to run Van Kampen Funds Inc.'s plan in Alabama, said that for the next 18 months, his company will remained focused on expanding the West Virginia program. He expects that program's assets under management to reach $4 billion to $5 billion in the next three years.
The reduced fees that were part of the West Virginia contract renewal will make the plan more attractive to investors, he said.
The majority of the products in the program are Hartford's proprietary funds, but Coghan said there is no outcry from advisers or investors for open architecture.
"A year ago we had five 529 plans within our platform," he said. "Two were multimanager programs, but they just didn't sell very well, and we are in the process of shutting them down and assimilating those assets into our other plans."
Since their launch four years ago the multimanager plans had accumulated only $150 million, Coghan said. He expects them to close by the end of next month.
"Multimanager plans just don't work, because the fees that are charged in those programs are higher, and the performance just hasn't been strong enough to justify those fees," he said. "In the adviser-sold market, there just isn't an outcry for it. The top programs are all single-manager programs. Costs are just a big consideration when it comes to 529 plans."
Last year the number of 529 accounts in 49 states and the District of Columbia grew 13.7%, to 10.54 million at yearend, and the assets under management grew 22.8%, to $129.83 billion, according to the nonprofit College Savings Plan Network. (Wyoming does not have a plan.)
"If we looked at this growth four to five years ago, we probably would've been a little disappointed," Coghan said. "We probably would've hoped this business would've grown more quickly, but I think those were unrealistic expectations. I think now we are growing at a strong pace."
Despite market volatility and fears of a recession, he said he remains optimistic that Hartford can add assets to its platform.
"Our mutual fund business has grown from $6 billion in sales in 2005 to $14 billion in sales last year, which is pretty dramatic growth," Coghan said. "We are leveraging that growth for our 529 area. We look at the 529 business as an extension of our mutual fund family. We are selling the same funds to the same advisers, and we are hopeful we can experience that same growth in our mutual funds this year, and we are confident we can do the same with 529s."
In the near term, Hartford will work to educate consumers and advisers about 529s, Coghan said, and it is working with regulators to simplify plan administration for advisers and the application process for investors. "If it is easier for advisers to bring these products to their clients, more people are going to use this product," he said.