Purpose This paper studies differences between 529 college savings funds sold via advisors versus those sold directly to investors across a variety of dimensions: performance, risk, active management and cost to determine the potential agency costs for investors using advisor funds. Design/methodology/approach Utilizing data covering 529 plan funds that are age-based between 2015 and 2024, we look at key differences in funds sold by advisors versus directly to investors. The sample focuses specifically on funds designed for children of a particular age or college enrollment year that become more conservative in asset allocation over the life of the fund. Findings The results indicate some advantages and disadvantages to the investor of advisor-sold 529 plan funds versus those sold directly to investors. Advisor funds underperform on a risk-adjusted basis, have higher risk and cost significantly more when considering several different cost measures compared to funds directly sold to investors. However, advisor-sold funds provide some active management for investors in the form of deviation from glide path, although they hold fewer actively managed securities. Perhaps most importantly, the advice and guidance of a personal financial advisor comes with many potential benefits. Practical implications Given the regulation and constraints of 529 plans at the state level, states should leverage their oversight power to ensure that advisor-sold funds become more competitive in terms of cost and performance, comparable to those offered directly to investors, as well as promote investor education of differences in various plan options within the state. Originality/value Analysis of 529 plans is very scant in the finance academic literature. This paper holistically examines differences in advisor versus direct to investor 529 plan options. The cost of education is one of the largest expenses many families/individuals incur in their lifetime.
Sherrill et al. (Fri,) studied this question.