Wealth management companies are lowering fees on 529 college savings plans to attract and retain assets.

Last week Vanguard Group said it would lower its costs for the 19 investment options in the Vanguard 529 College Savings Plan sponsored by the state of Nevada by an average of 12%.

As a result of the cuts, which went into effect today, the costs for the plan's options now range from 0.44% to 0.66%.

The Malvern, Pa., company said that investors would save about $1.8 million annually as a result of the cuts.

Vanguard, which manages and administers plans for Nevada, New York, Iowa, Missouri, Colorado and Pennsylvania, had $20 billion of 529 assets, including $2.9 billion in Nevada's plan, as of March 31.

John Heywood, a principal in the company's education markets group, said in an interview last week that many 529 plan providers are reducing expenses.

"We have seen costs continue to decline in the college savings market and we think that we needed to pass those savings along to our client," he said.

Vanguard, which had more than $1 trillion of total assets under management as of March 31, has reduced expenses associated with its 529 plans four times in the past five years, Heywood said.

In October 2004 the expenses on six portfolios were reduced up to 16%. In June 2005 the expenses on eight portfolios were reduced by as much as 8%, and in November 2006 the expenses for all the portfolios were reduced by as much as 20%.

Joe Hurley, the founder of Savingforcollege.com, said in an interview last week that over the past three years wealth management providers have been forced to reduce fees or risk losing a state to another provider when state treasurers put a program up for rebid.

"As programs go out for rebid, states tend to attract new bids at lower costs," Hurley said. "This keeps the industry moving toward lower expenses."

The administrators for plans in a number of states, including Arkansas, have reduced fees in the past six months, and Hurley said that he expects more states will follow.

Unlike a lot of trends this year, he said, the decision to reduce expenses did not occur because of difficult economic conditions, but rather "as a result of the competitive nature of the 529 marketplace and the fact that these programs are achieving economies of scale that can result in lower fees."

Expenses associated with 529 plans include management fees and fees associated with underlying funds, Hurley said. Management fees can range from 10 to 70 basis points.

More plans are using index mutual funds, he said, because they are less expensive than actively managed funds.

"The states and the public are very sensitive to the level of fees, and it is a significant factor when it comes to selecting a 529 plan," Hurley said.

Heywood, who has been at Vanguard since it launched its first 529 plan in 2002, said the latest fee reduction is an effort to remain competitive.

"What goes on in each state is different, but generally, you need to keep costs low to maintain this business," he said. "We have had great experience in terms of the number of clients opening these accounts, and that creates economies of scale."

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