How to Choose the Right 529 Adviser for You

With more than 100 plans and more than 3,000 investment options, choosing the right 529 plan can be daunting. That's where an adviser can help. Called upon to assist in choosing the right investments and maximizing tax breaks, first-rate 529 advisers can significantly boost your balance. Finding a top-notch 529 adviser isn't as simple as searching on Google. Here's how to separate the first-class advisers from the fakes. Choose an adviser, not a broker "Families need to find out if the person they're investing with is an investment adviser and a broker or just one (of them)," says Clint Gharib, director of insurance and managed products at J.P. Turner & Company in Atlanta. "If they're an adviser, they're held to a different standard," Gharib says. According to the Securities and Exchange Commission, registered investment advisers are held to a fiduciary standard, meaning they are required to provide investment advice in their clients' best interests. Brokers are held to rules of suitability. When a broker recommends that you buy or sell a particular security, he must have a "reasonable basis" for believing that the recommendation is suitable for you, the SEC says. To ensure that you're getting a full-fledged registered financial adviser, families check their advisers' credentials through the SEC website. Families also should ask how long their potential adviser has been advising clients -- not how long they've been in the industry -- and how often their 529 portfolio will be reviewed. Check their credentials After you've found a few potential advisers, Scott Zuckerman, president and CEO of Wexford Financial Strategies in New York, recommends investigating even further. "If someone holds a designation like a CFS (Certified Fund Specialist) or ChFC (Chartered Financial Consultant), that shows they've been in the business a certain numbers of years," says Zuckerman. "There's a lot of attrition in financial services, so finding that out is important." Once you know an adviser has put in his or her dues, Zuckerman says to put him or her to the test. "Call and say that you want to open a 529 plan. If they simply say 'OK, give me your e-mail address and I'll send an application,' that's a red flag," he says. "Each family is different so to recommend the right 529 plan, an adviser should be asking you questions before signing you up. If he doesn't, move on to someone else." Think outside the 529 plan Want to know if your adviser is truly up for the job? Ask what he or she would recommend outside of a 529 plan. "There are several tax-advantaged ways to save and pay for college. A 529 may not be the best fit," says Tom Davison, a Certified Financial Planner with Summit Financial Strategies, Inc., in Columbus, Ohio. "A good adviser will tell you about how to use a 529 plan in combination with other savings methods." Davison adds that there are certain scenarios when a 529 plan just doesn't make sense. For families that want a truly diversified college savings portfolio and who live in a state that doesn't offer a state tax deduction for a 529 plan, a Roth IRA that offers tax-advantaged savings, greater investment diversity and the ability to change investments more than once a year (unlike 529s) could be a better option. Low-income families who plan to invest all of their savings into a 529 plan could get a greater benefit by instead taking the American Opportunity or Lifetime Learning education tax credits. Offering deductions of up to $2,500 and $2,000 respectively, the credits can only be taken if the family has paid college costs using funds that aren't invested in a 529, according to the IRS. "People think the question is, 'What 529 plan should I use.'" Davison says. "But it's really, 'How do I best save and pay for college?'" Check the costs How much you pay for an adviser will depend on his fees as well as the investments you make. Davison says that families should expect to pay around 5 percent of the value of their investments for adviser services. If someone quotes you a figure outside of that mark, start shopping elsewhere. Zuckerman adds that a good adviser also can show mathematically why his recommendations are a solid bet. Before signing onto a 529 plan, Zuckerman advises families to get a projection of how much they can expect their plan to grow over the years and why the specific investments their adviser recommends will be the most cost effective. "It comes down to finding someone who you feel is going to provide you with the most service," Zuckerman says. "That's the only way you're going to get the most bang for your buck." Posted October 22, 2010 With more than 100 plans and more than 3,000 investment options, choosing the right 529 plan can be daunting. That's where an adviser can help. Called upon to assist in choosing the right investments and maximizing tax breaks, first-rate 529 advisers can significantly boost your balance. Finding a top-notch 529 adviser isn't as simple as searching on Google. Here's how to separate the first-class advisers from the fakes. Choose an adviser, not a broker "Families need to find out if the person they're investing with is an investment adviser and a broker or just one (of them)," says Clint Gharib, director of insurance and managed products at J.P. Turner & Company in Atlanta. "If they're an adviser, they're held to a different standard," Gharib says. According to the Securities and Exchange Commission, registered investment advisers are held to a fiduciary standard, meaning they are required to provide investment advice in their clients' best interests. Brokers are held to rules of suitability. When a broker recommends that you buy or sell a particular security, he must have a "reasonable basis" for believing that the recommendation is suitable for you, the SEC says. To ensure that you're getting a full-fledged registered financial adviser, families check their advisers' credentials through the SEC website. Families also should ask how long their potential adviser has been advising clients -- not how long they've been in the industry -- and how often their 529 portfolio will be reviewed. Check their credentials After you've found a few potential advisers, Scott Zuckerman, president and CEO of Wexford Financial Strategies in New York, recommends investigating even further. "If someone holds a designation like a CFS (Certified Fund Specialist) or ChFC (Chartered Financial Consultant), that shows they've been in the business a certain numbers of years," says Zuckerman. "There's a lot of attrition in financial services, so finding that out is important." Once you know an adviser has put in his or her dues, Zuckerman says to put him or her to the test. "Call and say that you want to open a 529 plan. If they simply say 'OK, give me your e-mail address and I'll send an application,' that's a red flag," he says. "Each family is different so to recommend the right 529 plan, an adviser should be asking you questions before signing you up. If he doesn't, move on to someone else." Think outside the 529 plan Want to know if your adviser is truly up for the job? Ask what he or she would recommend outside of a 529 plan. "There are several tax-advantaged ways to save and pay for college. A 529 may not be the best fit," says Tom Davison, a Certified Financial Planner with Summit Financial Strategies, Inc., in Columbus, Ohio. "A good adviser will tell you about how to use a 529 plan in combination with other savings methods." Davison adds that there are certain scenarios when a 529 plan just doesn't make sense. For families that want a truly diversified college savings portfolio and who live in a state that doesn't offer a state tax deduction for a 529 plan, a Roth IRA that offers tax-advantaged savings, greater investment diversity and the ability to change investments more than once a year (unlike 529s) could be a better option. Low-income families who plan to invest all of their savings into a 529 plan could get a greater benefit by instead taking the American Opportunity or Lifetime Learning education tax credits. Offering deductions of up to $2,500 and $2,000 respectively, the credits can only be taken if the family has paid college costs using funds that aren't invested in a 529, according to the IRS. "People think the question is, 'What 529 plan should I use.'" Davison says. "But it's really, 'How do I best save and pay for college?'" Check the costs How much you pay for an adviser will depend on his fees as well as the investments you make. Davison says that families should expect to pay around 5 percent of the value of their investments for adviser services. If someone quotes you a figure outside of that mark, start shopping elsewhere. Zuckerman adds that a good adviser also can show mathematically why his recommendations are a solid bet. Before signing onto a 529 plan, Zuckerman advises families to get a projection of how much they can expect their plan to grow over the years and why the specific investments their adviser recommends will be the most cost effective. "It comes down to finding someone who you feel is going to provide you with the most service," Zuckerman says. "That's the only way you're going to get the most bang for your buck." Posted October 22, 2010