529 Conference 2016: Distribution Strategies – View from the Wirehouses

By Paul Curley | paul.curley@strategic-i.com | November 16, 2016

What are wirehouse advisers looking for in terms of college financial planning?

The 529 Conference 2016 at the JW Marriott Grande Lakes in Orlando featured a session titled, “Distribution Strategies-View from the Wirehouses.” This year’s panel was moderated by Rob Tirrell, 529 Business Development Specialist with Voya Investment Management and included the three panelists of John Hesse, Director of Distribution – Funds and 529 Unit Trusts with Morgan Stanley, Richard Polimeni, Director of Education Savings Programs with Bank of America Merrill Lynch and William Reilly, IRA and 529 Plan Associate Product Manager with UBS. This week’s article highlights a summary of the session’s discussion including an introduction to the firms from key inside persons, insight on what their firm’s advisers are looking for, an overview of how their firms are positioned to fight the Robo and their view on industry trends including tax parity effect, regulation updates, share class development and advisory accounts. This week’s article will provide proprietary data and insight from the panel’s discussion to help you get up to speed with the firms and industry trends.

Market Sizing: Based on data gathered directly from product providers and presented at the 529 Conference 2016 by Strategic Insight, the adviser-sold product channel accounted for $107 billion of the $253 billion under management in 529 plans as of 2015. This value of $107 billion is 29% higher than three-years ago in 2012 and 49% higher than five-years ago in 2010. Capturing this asset growth in college financial planning can help you grow your book of business as well. Read the panel overview below to learn how.

Select Panel Topics of Discussion:

—Introduction to the firms from key inside persons. Based on the “Strategic Insight Asset Management Industry Market Sizing 2015-2020” report and confirmed by the panelists, there were roughly 54,000 financial advisers within the wirehouse channel as of 2015. As represented on the panel, 30% of the 54,000 financial advisers are with Bank of America Merrill Lynch, 29% are with Morgan Stanley and 13% are with UBS. Together, the three firms oversee roughly $28 billion of the $253 billion in 529 industry assets. Therefore, the panel provided feedback on college financial planning from firms representing 72% of the wirehouse channel and roughly 11% of the assets in the industry.

— Insight on what advisers are looking for. First, advisers would like the business easier to do. In response to this demand, two of the firms currently have 529 brokerage (omnibus) in place, and are expanding upon the capabilities within the firm. The third firm is seeking funding to build it out, and so all three firms are seeking to address this issue. Second, the firms are undergoing a re-education effort to have the financial advisers and client service associates to revisit 529s. Beyond “what is a 529” or “why save for college”, the goal is to re-inform the financial advisers that doing the business is a much better experience now. As part of the process, most firms have an intranet with educational material on 529s and college financial planning. If you would like additional content on your intranet, want access to on-demand training or an update as part of your annual firm-wide training, contact your firm to request additional information as they are building out these modules for you.

— Trends including tax parity effect, regulation updates, share class development & advisory accounts. Based on comments by the panelists, there is demand for additional product developments including convertible C share classes and 529 brokerage (omnibus) accounting. Building upon this, share class suitability is an important topic to review. Also from a business structure perspective, the usage of advisory accounts with fee-based compensation structures are on the rise in comparison to commission-based compensation structures. Lastly, the Department of Labor is providing an opportunity for advisers to revisit 529s as they were not directly impacted and college financial planning is on the rise as a core part of the re-emphasis on goal based investing. As paying for college is a top goal for parents, it should be a higher priority for advisers going forward. Lastly, the employer channel is important, though advisers need to remember that the investor is the client as opposed to the employer, and so suitability needs to be reviewed accordingly. Therefore, there are a number of trends in college financial planning that advisers need to keep up to date on.

— Robo Rebuttal – How are firms positioned to fight the Robo? Last but not least, the panel provided their perspective on how full service financial advisers successfully compete against robo advisers. Ultimately among other things, advisers solidify their value proposition by providing a more comprehensive and holistic approach to financial planning including the customization of services to meet the estate, tax, legal and financial aid needs of their clients. Therefore, there is a much more robust vetting of knowing the clients in the goal creation process, enhanced support in progress tracking towards their goals and successfully management of the completion or payout phase. Therefore, advisers need to focus on their value proposition, and college financial planning provides a perfect way to showcase the value to their clients as there are more factors to account for in a tighter window.

Therefore, advisers, accountants and estate planners should know their counterparts, their internal support groups, industry trends and how you are proving your value proposition against the Robo through college financial planning. Overall, product providers and your firm’s product specialists are seeking to support you in your college financial planning discussions with your clients, and have the discussion with your clients and your firm today.