NASD is probing six large securities firms for their 529 college savings plan sales practices, The Wall Street Journal reports today. Although the article does not name the six firms, and NASDs Web site makes no mention of the probe, NASD Vice Chairman Mary Schapiro told The Journal that an "overwhelming majority," typically 90%, of 529 plans sold by the six firms are sold to out-of-state residents. The NASD is investigating whether these are appropriate sales, Schapiro said, because nonresident investors "potentially lost one of the great benefits of buying a 529 plan: state tax deductability" of contributions.
The NASD began its investigation into the six firms last summer and is now "looking at expanding the scope of what we are doing beyond these six firms," Schapiro said.
The news comes on the heels of the announcement of a SEC 529 task force this week. A spokeswoman for House Financial Services Committee Chairman Michael Oxley (R-OH) said he applauds the new SEC task force and will be holding 529 hearings of his own.
SEC Chairman William Donaldson, in a March 12 letter to Oxley, expressed "concern" that expenses of some college savings plans have eroded special tax benefits authorized by Congress for the purpose of helping families accumulate educational savings. In addition, Donaldson noted that some plans have potentially become too complicated for average investors to understand.
State-run college savings plans can have layers of fees, including: annual enrollment or maintenance fees, administrative costs and fund fees, plus whatever charge a financial adviser might levy.