AKF Blog

Welcome

we have a lot of thoughts about the 529 industry. Important topics like downward fee trends, program manager rebids, new product developments, and even the Veep’s Task Force, to name just a few. We have our bird’s eye view and we want to share it with you.

So we invite you to follow us on Twitter – 529Source – and to visit this blog frequently. We’ll tell you what we’re thinking and we hope you’ll tell us, too. We need to elevate the college savings conversation – across states, program managers and advisors alike. That’s what we intend to do. Please join us. Read Now>

  • Pre-SOTU thoughts on President’s (disconcerting) 529 ProposalJanuary 21, 2015

    Much to my surprise, once again, we expect a president to propose changes to the Tax Code that will curtail the federal tax benefits for Section 529 plans. If my memory serves me right, President Bush proposed similar changes in the early 2000s in connection with tax simplification efforts (remember the Lifetime Savings Account proposals?). I am surprised by the anticipated proposal(s) by President Obama because while they appear to allow the President to “help middle class families get ahead”, they really just eliminate the significant incentives provided for college savings.

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  • Lessons from PIMCO Total ReturnNovember 17, 2014

    With the recent management shake-ups at PIMCO, Morningstar downgraded the PIMCO Total Return Bond Fund (PTTRX) from Gold to Bronze in late September. Arguably, this announcement came with little surprise as the Fund’s apparent star Manager and PIMCO co-founder, Bill Gross, unceremoniously left the firm (some suggest this was pre-emptive to his being asked to leave). The PIMCO Total Return Bond Fund was once the world’s largest mutual fund and was included in at least eighteen 529 Plans before the downgrade. It is interesting to see how different States responded to Mr. Gross’ departure.

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  • There’s Diversity within Index FundsJune 25, 2014

    Morningstar’s “Short Answer” (see http://news.morningstar.com/articlenet/article.aspx?id=651074) recently addressed some differences in index funds. Although the article addresses the topic from a retirement plan perspective, the fundamentals also apply to 529 plans, particularly since so many plans now include index fund options. Reading this article shows why index fund options may result in far-from-identical returns and why the differences can be pronounced in 529 plans due to varying fees.

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  • The Best Funds also have Strong StewardshipMarch 31, 2014

    A recent Morningstar study suggests that high fund performance seems to be correlated with better stewardship practices. This study examined the twenty largest mutual fund companies by assets under management – almost all of them involved in the 529 business – and discovered a relationship between the long-term success of the companies and Morningstar’s Stewardship Grade. Of the twenty companies reviewed, the top four – American Funds, Dodge & Cox, T. Rowe Price and Vanguard – received Stewardship Grade A.

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  • Socially Responsible Funds in 529 PlansMarch 21, 2014

    The DC 529 College Savings Plan is among the most expensive Plans nationwide, with one individual investment option costing 2.01%, including 1.86% in annual underlying fund fees alone. This is the highest cost investment option among all Direct Plans nationwide. We wondered about this investment option – which is for the Calvert International Equity Fund (CWVGX). Not surprisingly, the cost reflects the “social conscience” that Calvert brings to investment management through its screening for companies that uphold environmental, social and governance (“ESG”) standards.

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  • Poor Market Timers Lost Big in 2013March 13, 2014

    A recent research report by Morningstar shows that investors in general are not so great at timing their investments. 2013 was a year full of surprises, and investors made bad market bets in 2012. Investors who withdrew from domestic stocks and loaded up on bonds or emerging markets last year likely suffered significant losses. One of the largest outflows in 2012 was from the US Equity asset class, but selling then would have been a bad move because domestic equities actually returned 35.04% in 2013, recording this asset class’ best performance in decades.

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  • Fixed Income ObservationsFebruary 10, 2014

    2013 was a great year for equities overall, and exceptional for domestic equities. In contrast, bonds lagged, with just a few high performing sectors. And, based on the current market, 2014 will be a challenging year to find return across the fixed income spectrum. All fixed income sectors recorded near zero or negative total returns in 2013, except high yield bonds (7.4% total return) and leveraged loans (5.3% total return). High yield bonds were the culprit that exacerbated losses during the financial crisis but interestingly have recently become a source of income for investors.

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  • Morningstar’s Fund Managers of the YearFebruary 07, 2014

    On January 15, 2014, Morningstar announced its best “Fund Managers of the Year” for each asset class category. The best fixed income fund manager of the year was awarded to a team that manages a fund in four 529 savings plans – the PIMCO Income Fund (PIMIX). This silver-rated, multi-sector bond fund is offered as part of age-based and static options in California direct, Michigan advisor, and South Dakota direct and advisor plans.

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  • Morningstar’s Pick of Best International Equity Fund ManagersJanuary 10, 2014

    Morningstar has nominated another set of five fund managers for the International Stock Fund Category. Two of the nominated fund managers’ funds are used in 529 Plans: the Dodge & Cox International Stock Fund (DODFX) and the Causeway International Value Fund (CIVVX). The Dodge & Cox Fund is present in three 529 Plans including Illinois Bright Directions (10 options), Indiana Direct (1 option) and South Dakota Advisor (1 option). The fund returned 26.3% in 2013.

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  • Morningstar’s Pick of Best Domestic Equity Fund ManagersJanuary 09, 2014

    Morningstar has nominated five fund managers for the Domestic Stock Fund Category, two of which manage funds in 529 Plans. One of them is the Dodge & Cox Investment Policy Committee which manages the Dodge & Cox Stock Fund (DODGX). The fund returned 40.55% in 2013 and is included only in the Nebraska NEST Advisor Plan (6 options). The second fund manager is Larry Puglia, who manages the T. Rowe Price Blue Chip Growth Fund (TRBCX).

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  • International and US Stocks Perform WellJanuary 08, 2014

    2013 was a great year for international equity funds in general, and even better for US equity funds. According to Morningstar, the top performing international category (foreign small/mid cap growth) returned 22.6% as of December 19, which was lower than the worst performing US category (large cap value) which returned 28.3%. Declining foreign currencies and relatively better US growth are some reasons that explain the difference in returns.

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  • Overcrowding into Short Term BondsJanuary 07, 2014

    In response to an interest rate shock in the summer of 2013, many investors have directed dollars to short term bonds. Over $30 billion have flowed into the short duration category ever since, which we believe reflects investors’ concerns about a possible interest rate spike in the near future. Short maturity bonds help reduce interest rate risk in the short term, but investors need to determine whether the move makes sense from an overall portfolio standpoint. It could mean giving up upside potential and losing diversification benefits from having duration in the portfolio.

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  • Emerging Markets in 529 PlansJanuary 06, 2014

    Emerging markets, which used to be categorized as a “non-traditional” asset class, do not seem non-traditional anymore for purposes of 529 plans. The asset class is offered in 78 investment options across more than half of all 529 direct- and advisor-sold plans. Recently there has been much talk of emerging markets due to its disappointing performance in 2013, caused by the announcement of planned Fed tapering and slow growth in China and Brazil. Nonetheless, over the long-term, emerging markets has been a noticeable source of yield

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  • Moderate Allocation Funds increasing Equity ExposureDecember 17, 2013

    Moderate Allocation Funds, which generally invest in equity and fixed income, are included in several 529 Plans such as Maine’s NextGen Plan (Advisor), Ohio CollegeAdvantage (Direct), Oregon MFS (Advisor), Virginia’s College America (Advisor) and both Direct and Advisor in the D.C. College Savings Plan. According to a recent Morningstar article, moderate allocation funds have increasingly loaded up exposure to equities this year given the current low yields from fixed income.

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  • PIMCO Total Return Fund included in 20% of 529 Savings PlansDecember 12, 2013

    The PIMCO Total Return fund (PTTRX) is a popular fund present in 18 College Savings Plans, or approximately a fifth of all direct and advisor-sold 529 savings plans today. Of those 18 Plans: 14 Plans offer PTTRX in their age-based options, 19 Plans include the fund in static options and 9 plans include it in individual options.

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  • 529 Conference and Boot Camp Returns in OctoberJune 28, 2011

    Since 2004, I’ve had the pleasure of helping Joe Hurley put together a 529 industry conference under the Saving For College banner. Market conditions and Joe’s brief departure from the business suspended our plans in 2009 and 2010, but we are back this year with a robust agenda and an expert group of speakers. The Conference is set for Thursday and Friday, October 20 and 21 at the Venetian Hotel in Las Vegas – click here for the complete Agenda, but also note these highlights:

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  • College Savings Plans Network Conference – Lessons from the Transitions PanelMay 13, 2011

    I spent a good chunk of last week in Atlanta attending the National Association of State Treasurers Conference, which included a College Savings Plan track with 12 different panels focused on 529 plans. I was delighted to moderate a panel on “Transitions” in the 529 college savings business, covering the viewpoints of a state administrator (ably handled by industry veteran Kathleen McGrath of the Pennsylvania Treasury), a program manager (refreshingly presented by Rocky Granahan from OppenheimerFunds), and an investment consultant (presented with humor and insightfulness by Jeremy Thiessen of Pension Consulting Alliance). Here are my takeaways from the panel:

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  • CollegeIllinois! Probe a Wake-Up Call for 529 Plans NationwideApril 18, 2011

    The Illinois General Assembly unanimously passed a resolution on Thursday to launch a State investigation into CollegeIllinois!, the 529 prepaid tuition plan administered by the Illinois Student Assistance Commission (ISAC). According to the Chicago Sun Times, the State’s Auditor General will now review the investment decisions made by ISAC on behalf of the Plan’s more than 59,000 accounts.

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  • College Savings Foundation Conference – Reflections on the BasicsMarch 11, 2011

    The College Savings Foundation held its annual conference last week. Well done, as always, by the CSF folks. Some common themes came through and are worth noting as they suggest that we need to get back to basics to see this industry grow as we all know it should. First, consumer awareness about saving for college is too low. And, despite skyrocketing college costs, not enough people are saving. Financial education will be important to getting people to save; we also need to think about changing financial behavior.

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  • Obama Budget Low on 529 College Savings PlansFebruary 23, 2011

    Last week, President Obama released his proposed FY 2012 budget. In contrast to budgets proposed by President Bush, which included some savings incentives – even those at a potential cost to 529 plans – the Obama budget ignores 529 qualified tuition plans altogether. Instead, the Obama budget makes permanent the features added to Coverdell Education Savings Accounts by the 2001 Economic Growth and Tax Relief Reconciliation Act (which were extended through December 2012 in December 2010).

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  • Attractive 529 College Savings Amendments Introduced…AgainFebruary 16, 2011

    No fancy titles for this blog. Just a simple statement of fact – Congress again has the opportunity to amend Section 529 in extremely positive ways. Congresswoman (and former Kansas State Treasurer) Lynn Jenkins (R-KS) has teamed up with Congressman Ron Kind (D-WI) to sponsor the “Savings Enhancement for Education in College Act,” which was filed cleverly enough to garner the bill number “HR 529.” The bill is important for two reasons.

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  • Winners in the College Savings Super BowlFebruary 03, 2011

    You may wonder how this relates to college savings (since I know so little about the NFL). It’s pretty simple: when you are evaluating several different 529 plans, and you get to the final decision – that is, you are down to two or even four final plans – you really can’t go wrong as long as you’ve vetted them all equally along the way. And “vetting them” means considering a host of factors including whether your own state offers a 529 plan with benefits for its residents alone, the level of fees charged, your exposure to the investment manager (particularly if you have other investments with the same manager), and the breadth of investment options for you to choose from.

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  • “Winning the Future” Means Saving For CollegeJanuary 26, 2011

    In Monday’s New York Times, Tamar Lewin reported that student tuition is now covering an increasing percentage of the cost of an education at public universities across the country. This is due to increasing budgetary pressures on the states and thus their limited abilities to subsidize the cost of a public college. In highlighting the challenges faced by states like California, South Carolina, Texas and even Georgia, the article implicitly makes the case for saving for college. And, how appropriate that last weekend’s Wall Street Journal included a summary of college savings vehicles by Jane Kim, which made clear that there are many pieces to the college funding pie.

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  • What’s The Consumer Really Thinking?January 18, 2011

    It was reported on Friday that the University of Michigan Consumer Sentiment fell unexpectedly for the month of January on the news of higher gas prices and higher than expected unemployment rates. On the same day, the Dow Jones Industrial Average finished up 54 points (0.5%), the S&P 500 increased by 9 points (0.7%), and the NASDAQ closed up 20 points (0.7%). According to theStreet.com, “The Dow and S&P 500 have now gained ground for seven consecutive weeks. This week, the Dow rose 0.9%, the S&P 500 shot up 1.7%, and the Nasdaq was the biggest winner, surging nearly 2%.”

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  • 529 Programs in Play – Real Opportunities AheadJanuary 13, 2011

    The California Treasurer’s Office announced today that it intends to issue an RFP for Program Management before the end of January. The Tennessee Treasurer’s Office announced last week that it will explore new Program options this year. The New York Comptroller’s Office issued an RFP for Program Management services on December 22. Add these to the Missouri Program Management RFP that is well underway, and we have real assets at stake and, more importantly, real opportunities for program changes. Between California, New York and Missouri alone, we are looking at more than $15 billion in assets under management under review. And, in Tennessee, we once again find an opportunity to create something from scratch that has the potential for national appeal.

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  • Renewed Interest in Advisor 529 PlansOctober 14, 2010

    Over the course of the last year, we have seen some interesting developments in advisor-sold 529 plans. Since 2009, we have seen new advisor-sold 529 plans launched by Allianz (in Michigan and Oklahoma in partnership with TIAA-CREF) and BlackRock (in Ohio).

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  • Getting Started on the College Savings TrackOctober 12, 2010

    Maybe it’s the time of the year, but every October I am asked the same question again and again: “What tips can you give me for saving for college?” I know this is the crucial time of year when folks begin thinking about year-end finances, taxes and even holiday gifts for loved ones. This fourth quarter money mindset also encourages people to address long-term financial milestones such as paying for higher education. So, here are four tips for anyone who asks, “How do I start saving for college?”

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  • Another FDIC Notch in 529 PlansSeptember 30, 2010

    Amidst news of fee reductions for the Nevada Vanguard 529 Plan, Fidelity Investments announced the launch of a new FDIC-insured investment option for its direct-sold plans in Arizona, California, Delaware, Massachusetts and New Hampshire1. Our recent Market Report suggested that more federally-insured investment options would be coming and here are at least a few.

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  • More Savings for 529 InvestorsSeptember 28, 2010

    Before the ink could dry on our recent Market Report, college savings plans in Colorado, Iowa and Nevada have announced fee reductions in their respective direct-sold plans.

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  • Direct-Sold 529 Fee Reductions: Is That All There Is? September 15, 2010

    A lot of attention has been paid in the last few months to 529 fees and what appears to be a race to the bottom for direct-sold plans. We all know that lower fees are good news on two fronts.

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  • 529 Bank Floodgates?April 30, 2010

    I admit it’s a little surprising that the House would pass a 529 bank product bill on a voice vote in an otherwise busy time. I also admit that this is a significant victory for the Missouri Bankers Association and, by association, for the American Bankers Association.

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  • Where are the 529 Cheerleaders?February 06, 2010

    When Forbes starts questioning the benefits of a 529, I think it may be time to worry. Read their Rethinking 529s and tell me if the message isn’t “529s-are-not-worth-it”. From the inconsistent state tax treatment, to the lack of investment flexibility, to the uncertainty of financial aid treatment, this article raises more issues than it resolves and has to leave the reader thinking “why bother?” But this isn’t going to help the mom or dad who really needs to start to thinking about Junior’s college education.

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