2011 529 Research Paper and Industry Survey

The 529 industry has grown more competitive in 2011, with plans pushing to lower fees, improve investment options, and expand their distribution. Several plans reported their average account sizes increased in the year's first half, thanks to a bull market and new cash contributions to accounts. The industry managed $133 billion as of Sept. 30, 2011, up from $119 billion on Sept. 30, 2010. That represents a 12% increase in industry assets, while the U.S. equity market was up about 1% for the period and U.S. bonds increased more than 5%. Those assets are spread across 83 plans from 48 states and do not include prepaid tuition plans. (Prepaid tuition plans are 529 plans, but Morningstar does not collect data on such plans.)

Assets remain fairly evenly split between advisor-sold and direct-sold plans, although advisor-sold plans lost more than a percentage point of market share relative to direct-sold plans in the 12-month period. Most direct-sold plans are marketed primarily to parents and grandparents and do not charge a sales load, while advisor-sold plans are marketed to financial advisors and brokers. College savers who buy into advisor-sold plans with the help of a financial planner typically pay a sales load that can vary by plan. Some financial planners do direct their clients to a state's direct-sold plan, and some plans, including Utah Education Savings Plan, have actively marketed and designed investment options aimed at financial advisors who make investment decisions on behalf of their clients.

In this special annual report, Morningstar fund analysts offer an overview of the industry, a breakdown of state tax benefits, an analysis of 529 plans' investment and allocation processes, a performance and fee comparison, and a closer look at asset-weighted plan star ratings.

Click here to download the full PDF report.