Hartford Life has entered the 529 savings plan business.
The Simsbury, Conn., unit of Hartford-based Hartford Financial Services Inc. this month started its version of a 529 savings plan to help parents save for their childrens education. The Hartford plan is called SMART 529.
The plans have become much more popular since Congress enacted a law in mid-2001 to make them tax-exempt starting this year.
Like all products, it comes down to, is there a need? said Bruce Ferris, a vice president, director of sales and marketing at Hartford Life. Clearly the need is out there. Right now, its estimated that 32% of the $7 trillion in mutual fund assets out there are dedicated to education. But the 529 is tax-free. Its a better alternative.
The 529 program is often referred to as a 401(k) savings plan for college. In the case of the Hartford product, customers can put their money in conservative, growth, or aggressive equity investments. Or they can invest within other guidelines offered by Hartford Life.
We have age-based portfolios, so if the parents or grandparents start young, theyll be put in more aggressive funds, and as the child gets older, they are shifted into more conservative investments, Mr. Ferris said. So the portfolio changes with a time horizon.
He added that investors with older children could also use a 529 plan.
Theyll just go right into more conservative investments, Mr. Ferris said.
It is too early to track sales results, Mr. Ferris said, but he estimated that about 50 banks are selling Hartfords 529 plan, which is tied to the equity markets and is registered through the state of West Virginia. All plans must be registered with a state, though investors from anywhere in the United States can invest in the product.
He said he is optimistic that banks will be big providers of 529 college savings plans.
If people come to banks for checking accounts, mortgages, and retirement planning, this is a natural extension; its the childs education, Mr. Ferris said. But the challenge remains getting brokers to understand the product and getting them to understand why this is a good solution.
Kenneth Kehrer, the president of the Kenneth Kehrer Associates consulting firm in Princeton, N.J., said banks could become big players.
It is like a 401(k) plan, which banks have not been a big player in because its usually done through employer relations, Mr. Kehrer said. But this is an individual sale, and its certainly possible for a bank to sell this.
He said the pressure will be on providers to help banks sell the product.
Theyre going to have to train banks to target the right market, notice who the prospects are, identify their assets, and decide what percentage of their assets can be moved to this, Mr. Kehrer said. But this is a good opportunity.
So good, he said, that even though it is a new product, the marketplace is already getting crowded.
Players like TIAA-CREF, the biggest 529 provider; American Skandia; Alliance Capital; State Street; and Fidelity Investments are also selling the plans.
