Hartford Financial Services Group Inc. says it hopes renewed interest in 529 college savings plans nationally, coupled with a marketing plan it launched last fall, will help it more than quadruple its assets under management in such plans in the next three years.
Jeff Coghan, the director of Hartford's Smart529 plan, said in an interview last week that he expects assets in the program to reach $4 billion to $5 billion in the next three years. Hartford increased its 529 plan assets under management by 36.1% last year, to $909.9 million.
With a combination of improved marketing and strong market conditions, Mr. Coghan said 529 assets are ready to increase for Hartford and the industry. Hartford's 529 sales grew 25% in the fourth quarter as compared with a year earlier, he said.
"We believe there is a lot of upside potential in 529 plans," he said. "We have tremendous expectations for growth for this coming year and beyond."
Mr. Coghan, who began running Hartford's 529 business 18 months ago after helping to run Van Kampen's plan in Alabama, said the college savings business has been sluggish in recent years because of regulatory changes and compliance costs.
"Hartford's experience in the 529 business has been similar to many of our competitors'," he said. "There were huge expectations based on the early success some firms had, particularly with adviser-sold plans, and I think there was some initial disappointment as compliance, regulatory, and legal issues kind of hampered the growth of these plans."
But Hartford and other companies have taken a renewed interest in the past six months as new legislation repealed the sunset provision for the tax break attached to 529 plans. Last fall, the Simsbury, Conn., company started a marketing campaign called "Just Ask." It targets advisers to sell Hartford's 529 plan by asking their current customers who are parents or grandparents how they are saving for college.
"There was this trend early on that we had to come up with creative ways to sell 529 plans with payroll deduction programs through employers or something," Mr. Coghan said. "We have found that all advisers have to do is ask the right questions to the right customers and they have a high probability of selling this product."
The marketing campaign is seeing some early results, he said, in terms of advisers ordering sales kits, but it is too early to determine how it will affect sales.
"We have invested in technology, launched a marketing plan, and have renewed interest from our sales force," he said. "Advisers and wholesalers are excited about selling this product again."
Joe Hurley, the founder of Savingforcollege.com in Pittsford, N.Y., said he saw a "resurgence" in 529 plans at the end of last year and early this year. His company's data show the third quarter of last year was among the worst for 529 net sales, he said, but that the fourth quarter set a record.
"So far, the evidence for 2007 indicates that we can expect strong sales this quarter," Mr. Hurley said. "The trend has turned around from what we could say was the wrong direction in 2006."
Mr. Coghan said different companies are taking different approaches in order to expand 529 assets under management. Companies like Upromise, Vanguard Group, and Fidelity Investments have contracts with multiple state programs in order to increase their assets by selling directly to investors on a state-by-state basis.
Others, including Hartford, have contracts with a single state but offer their 529 plan through advisers nationally. Mr. Coghan said Hartford has worked in partnership with West Virginia since 2002 and does not plan to go "the multistate route" at this point.
"We think our road to becoming a top five player in the 529 industry is primarily through organic growth," he said. Hartford is currently ranked 15th. "We are working with our wholesalers and with financial advisers to sell more 529 plans and leveraging our relationships to increase sales."
Mr. Hurley said this approach has helped companies like American Funds and AllianceBernstein enter the ranks of the top 529 providers. As long as a company has a long-term contract (Hartford's deal with West Virginia runs through 2012) and a good relationship, he said, it can succeed with a single state.
Mr. Coghan said Hartford avoids marketing its plan to advisers in Idaho, Montana, Colorado, New Mexico, Missouri, Mississippi, South Carolina, Virginia, New York, and its home state of Connecticut because the tax advantages for the in-state plans make it "too difficult to do a whole lot of business in these states."
Banks remain a crucial distribution channel for Hartford, he said. They accounted for 35% of Hartford's 529 plan sales last year.
"There is a good opportunity for referrals and cross-selling with banks," Mr. Coghan said.
Early on, he said, most financial services companies and financial advisers had unrealistically lofty expectations for the 529 industry's growth. Now that certain regulatory hurdles have been cleared, the industry can expect strong growth in the next five years, he added.
"When 529 plans came out, it was pitched as the next 401(k), which I think was a little unrealistic, at least in hindsight," he said. "A lot of advisers were disappointed by 529 plans. But now I think advisers need to know that there is a market for these programs. There is a permanence."
Mr. Hurley said that, though he too expects strong 529 sales, it is a bit much for Hartford to expect a leap from 15th place to the top five within three years.
"This is a competitive marketplace for 529 plan providers," he said. "I think Hartford is among a group of providers that has very similar goals. Now it is a matter of who can go out and distribute most effectively and work with advisers and get this to their clients."
