Target Market Analysis: Competition in College Savings Investment Products, 2017

The data in the chart and analysis in the written section below comes from the “Strategic Insight 529 Industry Analysis 2018”, which is Strategic Insight’s 18th study on college savings. Its purpose is two-fold:

• To provide college savings industry participants with a qualitative and quantitative analysis of key trends that we believe will drive industry growth over the next five years

• To outline actionable steps to help product providers restructure their products, their marketing and their distribution to better align with the demands of investors, employers and advisers, and therefore to improve the growth rates of both their plans and the industry

The Strategic Insight 529 Industry Analysis 2018 builds on seventeen prior Strategic Insight college savings studies:

– 529 Distribution Analysis 2017
– 529 Plan Industry Analysis 2017
– 529 Plan Distribution 2016
– 529 Industry Analysis 2016
– 529 529 Distribution Study (2015)
– 529 Industry Analysis (2015)
– 529 Distribution Study (2014)
– 529 Industry Analysis (2014)
– 529 Advisor Study (2013)
– 529 Industry Analysis (2013)
– 529 Financial Advisor Support, Selection and Distribution Preferences (2012)
– 529 Industry Analysis (2012)
– 529 Plans and Distribution Analysis (2011)
– 529 Advisor Perspectives (2011)
– Evaluating the College Savings Market Opportunity (2009)
– 529 Strategies for Success (2004)
– 529 Plans: An Investment in Your Company’s Future (2002)

Proprietary Consumer Survey

The primary goal of this study is to analyze the decision-making and product-selection processes of individuals who are either 529 users, non-529 college savers or non-college savers. For Strategic Insight’s 2018 College Savings Consumer Survey, we partnered with a premier B2B and B2C panel provider and data collection services company to conduct a proprietary survey of over 1,000 consumers in February 2018. This nationally representative sample included U.S. household decision makers between the ages of 25 and 82, with annual incomes of $25,000 or more, who were parents or legal guardians of a child or children under the age of 18.

The survey utilized a choice model method that mapped the target market into three categories: 529 users, non-529 college savers and non-savers. This approach provides firms with strategies on how to convert non-college savers to college savers, college savers to 529 users and 529 users to 529 power users. Longitudinal analysis is reported for certain data points, as Strategic Insight conducted similar consumer surveys with enhancements based on feedback in 2012, 2013, 2014, 2015, 2016 and 2017, partnering with the same firm to poll consumers. While there were not any changes in the demographics of survey-takers in 2018, one change in the 2016 demographics was to include those with annual incomes of $25,000 or more, as opposed to $30,000 or more, to improve sample alignment with the U.S. Census. While this broadened out the target market of the survey takers, we do not project material changes in results due to the inclusion of the category. Therefore, year-over-year trend reporting will be included in charts and tables, and in the written analysis.

Other Surveys and Interviews

In addition to the consumer surveys described above, Strategic Insight regularly conducts proprietary industry surveys of product providers, advisors, broker-dealer home offices, plan sponsors and parents to give firms a 360-degree view of the current and projected state of the college savings plan industry. Strategic Insight also regularly conducts primary research in the form of interviews and meetings with industry executives in order to understand the latest trends in product development, marketing and distribution of college savings plans.

Analysis: What is the total amount of assets invested for college savings in each investment product vehicle as of 2017?

Building upon our proprietary market data collection and our annual consumer surveys, the chart reports that the total college savings market size was $1,181 billion as of 2017 with $319 billion invested in 529 plans and $862 billion invested in non-529 vehicles. Compared to prior years, there has been an increase in assets invested in 529s and non-529 investment vehicles for the intended purposed of higher education. For example, 529 assets increased from $191 billion in 2012 to $319 billion in 2017 while non-529 investments increased from $542 billion in 2012 to $862 billion in 2017. This analysis from a prior 529 Insiders article brought about the follow-up question of what the total amount of assets were in each investment product vehicle used to save for higher education.

The chart in this article provides the breakout of the $1.181 trillion in the college savings market as of 2017 by investment vehicle type based on the survey of parents used in the Strategic Insight 529 Industry Analysis 2018. The numbers suggest that parents are using assets wherever they have them stored to pay for college, including their 401(k) and IRAs, instead of creating and executing a comprehensive college financial plan. Additionally, liquidity continues to be in demand, as noted in the usage of assets in cash, banking products and taxable brokerage accounts. However, these are less efficient saving vehicles for higher education in terms of tax, financial aid, and gift and estate tax planning, which can make the long-term college financial planning process even harder for a family to afford. Next, families are increasing their reliance on trusts and cashing out insurance products with cash values as a means to pay for college. Lastly, assets in Coverdell Education Savings Accounts are primarily increasing because of market appreciation, not increased usage and net flows. Therefore, advisors have an opportunity to grow assets under management by helping their clients to efficiently save, pay and repay the cost of higher education. Have the college financial planning discussion with your clients today.