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Checking Up on your Advisor's Advice about College Savings and Investing

How can individuals ensure they are receiving dependable advice about saving and investing for college?

(1)  Require transparency on fees.  Although it may be difficult for most individuals to sort through and understand the range of fees and expenses associated with 529 plans, a good advisor should be able to break them down in detail.  If you get the sense that you are not getting straight talk about the fees and expenses associated with a particular program, put your plans on hold and consult with another advisor before making any commitments.


(2)  Determine whether college savings advice is part of the advisor's normal practice and how many clients they advise in this area..  Some advisors work as generalists, so the lack of a deep resume regarding college savings does not necessarily mean that an advisor cannot deliver competent advice.  However, an advisor who regularly works with clients on college savings programs is more likely to be current on new plans, changes to the tax code, and other relevant factors.  Gift tax law is an area that may be particularly troublesome for an advisor who does not regularly deal with college savings plans. 


(3)  Ask about the criteria the advisor uses to choose 529 plans to recommend to clients.  Every advisor has a slightly different take on what makes a good 529 plan.  An advisor who utilizes active management is more likely to focus on recent performance, while advisors who use passive strategies will be more concerned about diversification options, fees, and expenses.  Ensure that your advisor can articulate their evaluation process, and that it conforms with your desired approach.. If what you hear does not give you confidence, then consult with another advisor for a second opinion. 


(4)  Understand the assumptions used to determine the future cost of college.  All advisors should have a reasonable understanding about the investment side of college planning.  But some may not take the time to help their clients understand how inflation might affect the future cost of tuition, and how these assumptions might affect an individual's mix of investments.  In other words, planning is not just about generating returns to meet a static cost; it's  about generating returns that will keep pace with inflation.  We have developed an interactive model for our clients and prospective clients, available at our website.  Feel free to try it out.


(5)  Find out whether the advisor is familiar with FAFSA rules and how different savings accounts might affect financial aid.  If you do not think you will be a candidate for financial aid, this may not be important.  But if you think you may be in a position to qualify for some assistance (most applicants are), then it is critical that your advisor understand the nuances of the FAFSA evaluation process.  Your efforts to plan and save will be wasted if you undercut your ability to receive financial aid when the time comes.


North Capital, a fee-only registered investment advisor based in San Francisco, provides financial planning and investment advisory services to individuals, families, businesses, and non-profit institutions.  We are a proponent of direct 529 College Savings Plans that offer our clients a tax-efficient means of saving and investing for college.  North Capital is a fiduciary and does not charge and will not accept any commissions, revenue shares, or referral fees.


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Comment   |  7 years, 10 months ago from San Francisco, CA