Jump to content

Establishing a 529 Business


Guest AHayhow
 Share

Recommended Posts

Guest AHayhow

I have been asked to research how to establish a 529 business within the Benefit Services Department of our Insurance Brokerage Firm. The first step is to determine how to become a Broker Dealer or if we want to partner with an established financial services firm that can do this. I cannot find any guidance on line on which way to go with this. I understand that we will need someone that is Series 7 and 24 licensed, but cannot determine what else is necesasry.

Also, I can't find what average fees (load) is being charged on these accounts. Any guidance would be GREATLY appreciated.

Link to comment
Share on other sites

Guest dmj1998

AHayhow - i'd recommend not even getting into the "business"

If you are looking to get a piece of the action, I'd say it is too late, unless you can prove to me (and your ptotential customers) that you would add value to the process that would justify you receiving a cut of the money. Almost every state allows anyone into their plans, so you offering wouldn't be exclusive. Almost every state has partnered with an existing financial services firm that administers their program, and these firms (Fidelity, Merrill, Smith Barney, TIAA-CREF, etc.) already have their own enrollment programs, including thru the workplace. It is already being pointed out that investment fees and performance are very important aspects of the decision-making process, adding your fee will not help. And since no one plan is the right answer for all people, are you willing to maintain information, contacts, and records for all 50 states and their various plans?

Oh, and the NASD doesn't just give any licenses, so this could have some hefty start-up costs.

Link to comment
Share on other sites

Guest AHayhow

I am unclear why I need to prove to you that we would bring additional value to the table?? I do understand about the current fees, but from everything I've read it looks like other brokers are adding fees and still soliciting new clients interested in providing payroll deductions for their employees and adding benefits to their current benefit package.

Also, I am unclear on what licenses I would need from the NASD? From reading through the information on NASD.com re: the recent conference it looks like you no longer need to be licensed as a Broker Dealer?

Since I am in the initial stages of determining what would be involved in this, I haven't even gotten to the point of determining what states and what clients we would be marketing this program to. But, I do understand the enormity involved with working with multiple states, funds, etc. Thanks for your help.

Link to comment
Share on other sites

Guest benji

This might give some insight:

January 22, 2002

STUDY INDICATES SECTION 529 PLAN MARKET POISED FOR MAJOR ASSET INFLOWS IN 2002

CHICAGO – Financing their children’s secondary education is second only to assuring a comfortable retirement for affluent households age 45 and under, according to a newly issued report on Section 529 plans from Spectrem Group, a strategic consulting firm specializing in the affluent and retirement markets. Entitled "Section 529 Plans: The Next Big Wave of Assets for Money Managers?", the report observes that Section 529 Plans are quickly becoming a highly attractive investment tool for families seeking college-funding vehicles. These state-sponsored secondary education savings plans received an additional boost in their investment potential when generous tax breaks went into effect in January 2002. As a result, there are tremendous opportunities for asset managers, administrators, distributors and advisors in this growing market.

The report is specifically geared to helping financial services providers identify opportunities to participate in this growing market. "Section 529 plans have already had a significant impact on the financial planning and advice world," says Scott Slater, a Director at Spectrem who wrote the report. "Yet we are just beginning to see the potential for asset accumulation for financial services firms that these plans provide."

Section 529 plans provide far greater tax savings opportunities, investment management options and individual account maximums than the various government tuition savings programs introduced over the past several decades. However, "consumers are generally unaware of 529 plans and often confused by the many decision variables, which presents a tremendous opportunity for financial planners and advisors to assist their clients."

Slater drew a parallel between the emerging 529 Plan market and the early stages of the 401(k) market in the 1980s. "When 401(k) plans first started, generally one provider offered all the services (trustee, recordkeeper, communications, administration, investment management). Investment choice was limited to four to six funds from that single provider. Now participants expect investment choice, advice and multiple points of access to their account information. Similarly, states which initially teamed up with a single 529 provider are now seeking multi-fund options and nationwide distribution – which opens the door to new entrants."

Providers must assess their particular capabilities to identify their best opportunity to enter this market. But the asset gathering and long term client relationship building potential of 529 plans is significant. "Clearly," concludes Slater, "if you haven’t examined where your organization can leverage this market, you may miss out on what may be the next big wave of assets since the 401(k).’

Spectrem’s Section 529 report contains additional information on education funding alternatives, the roles and responsibilities of different entities involved with Section 529 plans, key issues and opportunities for providers. The report is one of numerous "Spectrem Perspectives" reports available for purchase on www.spectrem.com.

Spectrem Group is a strategic consulting firm specializing in the affluent and retirement markets. Spectrem integrates fact-based information with expertise in building business, marketing and M&A strategies for clients.

Link to comment
Share on other sites

  • 11 months later...

AHayhow,

You raise many issues in your request. There is no question about the need for qualified consultants providing advice and counsel to clients about college savings plans, including 529 plans. The number of available options is increasing almost on a daily basis. To be of value, you would have to know the various programs and which might suit a particular client better than another. To my knowledge, all of the state-sponsored 529 plans are offering mutual funds as the underlying investment. Therefore, you and others in your firm would have to be appropriately licensed to sell mutual funds. The decision of having your firm be a broker-dealer would require additional licensure and compliance. The entry into this business is no different than the decision to enter any other business, except the cost of entry here may be more substantial than you expect.

Jim Geld

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...