529 Conference 2016: Distribution Strategies – View from the Independent RIA Channel

By Paul Curley | paul.curley@strategic-i.com | December 28, 2016

What are the key trends in the independent RIA channel from a college financial planning perspective?

The 529 Conference 2016 at the JW Marriott Grande Lakes in Orlando featured a session titled, “Distribution Strategies: View from the Independent RIA Channel.” This year’s panel was moderated by Chris Stack Esq., Managing Consultant of Savingforcollege.com, and included the three panelists of Andrew Dickens, Wealth Advisor and 401(K) Plan Specialist with Summit Wealth Partners, Doug Campbell, ChFC, Managing Director of Third Party Mutual Funds and 529s with Charles Schwab and Sheff Faulkner, Vice President with BlackRock. This week’s article highlights a summary of the session’s discussion including what is and is not working in the fastest growing distribution channel of RIAs, what the key trends are in the channel and how you can capture the momentum in the channel. This week’s article will provide proprietary data and insight from the panel’s discussion to help you get up to speed with the distribution channels and industry trends.

Market Sizing: Based on data gathered directly from product providers and presented at the 529 Conference 2016 by Strategic Insight, RIA advisor-sold plans and share classes accounted for $5 billion of the $253 billion under management in 529 plans as of 2015 and a percentage of the $103 billion in the advisor-sold channel and a percentage of the $123.0 billion in the direct-sold channel. When focused on the RIA advisor-sold plans and share classes, assets grew 53.0% over the past three years and 99.8% over the past five-year which places the channel as the fastest growing in the 529 industry. Capturing this asset growth in college financial planning can help you grow your book of business as well, and read the panel overview below to learn how.

Select Panel Topics of Discussion:

— Learn what is and is not working in the fastest growing distribution channel of RIAs. Based on the “Strategic Insight Asset Management Industry Market Sizing 2015-2020” report and confirmed by the panelists, the largest 25 independent RIA firms by assets under management oversaw roughly $435.2 billion in assets with an average account size of $33.1 million as of May 2015. Building upon these figures, the channel is sophisticated but extremely diverse in terms of planning methods, technology, geography, firm size and internal resources/capabilities. That being said, the channel tends to work with a high net worth and ultra-high net worth client base, which lends itself naturally to the gift and estate planning aspects of 529s and college financial planning. Collectively, the moderator and panelists noted the growth of the channel, highlighting that it was the first time the 529 Conference had a dedicated panel on the channel as a means to symbolize the channel’s growing level of importance. Together, the panel with its representative cross section of perspectives confirmed the RIA channel’s growth and usage of college financial planning.

— What are the key trends in the channel such as client demand, product development and advisor support? First and building off of the high net worth pool of clients, client demand remains high for custodial 529 accounts given the high volume of assets currently in trusts such as UGMA/UTMA accounts. Additionally based on the experience of the panelists, the demand for 529s are high among grandparents, and potentially higher than that of parents. As covered in a prior 529 Insiders article titled, “529 Essentials: 529s vs. Trusts”, providing a comparison of 529s and trusts, and explaining how a trust can invest in a 529 account via a custodial 529 accounts may provide value to the clients given their current usage of investment vehicles. Second from a product development perspective, there has been an increase in number of advisor-sold 529 plans offering fee-based share classes. Additionally, RIAs have an opportunity to get compensated in a fee-only compensation structure through a hourly retainer or through an asset-based fee that gets charged to a separate but related account. Third from an advisor support perspective, the channel is difficult to generalize given the variation from firm to firm. That being said, larger RIAs typically have internal back office support while smaller RIAs may have lower levels of support. Therefore, the level and types of adviser support in demand does vary from firm to firm, though there is some correlation based on size of firm. Building upon this, advisers currently within the RIA channel have an opportunity to work with their internal team to gain the support they need. Alternatively, they can work with product specialists at their primary product providers to learn more through phone calls and to obtain the marketing collateral, training and continuing education they need to work with clients on college financial planning.

— How to capture the momentum from a product, platform and advisor perspective? Generally, the moderator and panelists commented on the expected continued growth of the channel, and especially in light of the Department of Labor’s fiduciary duty proposal. Since RIAs are already fiduciaries, they could have an advantage over a traditional financial advisor which is one reason why the independent broker-dealer channel started to work with RIAs. Additionally, there were comments on the channel-wide demand for technology enhancements as a means to automate the operational process of account activity. In addition to advocating for technology improvements, advisers should stay up to speed on basic knowledge and advanced strategies of 529s and college financial planning through on-going product training. Ask your home office product specialists and product providers today for a refresher.

Therefore, advisers, accountants and estate planners should know their counterparts in the channel, know what is working for them and the challenges they face. Overall, product providers and state agencies are seeking to support you in your college financial planning discussions with your clients, and have the discussion with your clients and your product provider’s today.