529 Plan Industry Analysis: 2017

Transcription

1 529 Plan Industry Analysis: 2017 Author: Paul Curley, CFA

2 U.S. 529 Industry Analysis 2017 Introduction Chapter one of this study provides an overview of the college financial planning landscape. First, we review the increasing demand for higher education by families in the United States. Second, we evaluate how tuition inflation continues to outpace most workers pay increases and, therefore, their ability to pay from current income. The combination of these factors results in a widening of the college affordability gap between cost and ability to pay, and further leading to rising levels of student loan debt to fill the gap. This trend has created multiple downstream issues, such as selecting a career based on income, moving back home after graduation and delaying the purchase of a home and other life s goals such as starting a family and saving for retirement. It is here that we start to present the concept of saving efficiently with 529 qualified tuition plans as the solution to the widening college affordability gap. Chapter two navigates the 529 college savings plan landscape from both a market data and a research perspective, and provides an overview of where 529s are projected to grow in terms of market sizing going forward. Chapters three, four and five are primarily based on Strategic Insight s (SI) sixth annual proprietary survey of over 1,000 parents earning over $25,000 per year and with children under the age of 18. Chapter three analyzes the demographics of 529 plan users, non-529 college savers and nonsavers. Chapter four analyzes product developments in demand by 529 users, non-529 college savers and non-savers, while chapter five analyzes marketing and distribution enhancements in demand. When presented together, SI s nationally representative panel allows product providers to restructure their product, marketing and distribution initiatives to align with the demands of investors, employers and advisors as a means to drive growth of their 529 plans and the higher education savings plan industry as a whole.

3 529 Industry Analysis: Table of Contents Table of Contents Directory of Exhibits...iii Methodology...iv About Author...v Chapter 1. The College Financial Planning Landscape... 1 College Affordability Gap Analysis... 1 The Value of Higher Education... 1 College Affordability... 1 College Affordability Gap...2 Conclusion... 3 Chapter 2. The 529 Landscape Market Data...8 Assets...8 Accounts...8 Net Flows...9 Gross Sales and Gross Distributions Industry Projections Chapter 3. Demographics of 529 Users, Non-529 College Savers and Non-Savers...18 Defining the Target Market: Key Markers Account Owners...19 Income and Net Worth...20 Age of Beneficiaries: Increasing Percentage of Younger Beneficiaries Consumer Perceptions How 529 Savers Save; Opportunity to Increase 529 Wallet Share Continues...28 How Non-529 Savers Save; Usage Increases for 401(K), Trusts and Coverdells...29 How Non-Savers Will Save: Demand for Banking Products Wanes...29 Consumer Satisfaction With 529s...30 Satisfaction Levels Decrease...30 Improving Product Support...30 How to Increase Savings Rate and 529 Usage Rate Hurdles for Non-Savers, and Incentives to Convert Non- Savers to Savers Top Incentives to Convert Non-529 Savers to 529 Savers; Top Five Differs from Non-Savers...32 Chapter 5. Marketing and Distribution Perspectives...35 Marketing 529 Plans...35 Consumer Perceptions...35 Projected Investor Interest Slightly Wanes...35 Reaching the Target Market...36 Sources of Information...36 Employer Channel Support in Demand: Materials, Platform Enhancements & Meetings...36 Push vs. Pull Marketing: Drive Consumer Demand & Adviser Initiative...36 Adviser-Influenced Investor Enrollment Strategies...37 Appendix SI College Savings Consumer Survey...41 Chapter 4. Product Perspectives Product Selection Process...24 Product Selection and Preferences Differ by Channel...24 Product Selection and Preferences Differ by Income Level...25 Product Selection and Preferences Differ by Household Net Worth...25 Primary 529 Plan of Choice, and Why?...26 Consumer Product Preferences...28 i

4 529 Industry Analysis: Table of Contents Table of Exhibits Exhibit 1-1 Weekly Median Earnings by Level of Educational Attainment, Exhibit 1-2 Unemployment Rate for those over 24 years old by Level of Educational Attainment, Exhibit I-3 Average Tuition and Fees in 2016 Dollars, to Exhibit 1-4 Average Tuition, Fees, Room and Board in 2016 Dollars at 4-year Institutions, to Exhibit 1-5 Projected Annual Cost of Attendance by Type and Control of Institution (Enrollment Weighted)...4 Exhibit 1-6 Average Annual Increases and Returns over 10 Years: Consumer Price Index, Wage by Educational Attainment, Higher Education and Average 529 Portfolio Performance...4 Exhibit 1-7 Total Undergraduate Student Aid, to ($ Millions, in 2015 dollars)...5 Exhibit 1-8 U.S. College Enrollment Patterns, Exhibit 1-9 Average Student Loan Balance of New Graduates, Exhibit 1-10 Historical Student Loan Debt, and Average Increase in Debt ($Billions), Exhibit 1-11 U.S. Personal Savings Rate as a Percent of Disposable Annual Income, Exhibit 1-12 Market Index Returns, Exhibit 1-13 Asset Growth by Investment Type, Exhibit Savings Plan Annual Net Flows and Year-End Assets, ($Billions)...8 Exhibit 2-2 Assets in 529 Plans, ($Billions)...9 Exhibit 2-3 Three-Year 529 Plan Assets CAGR by Distribution Channel, Exhibit 2-4 Year-End Assets in Total College Savings Market, ($Billions) Exhibit 2-5 Total College Savings Market Size by Investment Type as of 2014, 2015 and Exhibit 2-6 Number of 529 Savings Plan Accounts and Households, (Millions) Exhibit 2-7 Number of 529 Savings and Prepaid Plan Accounts and Households, (Millions) Exhibit 2-8 Percentage of U.S. Households and U.S. Family Households Using 529s Exhibit 2-9 Annual Growth Rate of 529 Savings Plan Accounts, Exhibit 2-10 Average 529 Savings Plan Account Size by Channel, 4Q Q Exhibit 2-11 Average New Account Size by Channel, 4Q Q Exhibit 2-12 Annual Net Flows by Distribution Channel, ($Billions) Exhibit Gross Contributions vs. Gross Distributions, ($Billions)...14 Exhibit Savings Plan Automatic Funding as Percentage of Gross Sales, 4Q Q Exhibit Asset Breakdown by Distribution Method, Exhibit 2-16 Consumer Survey 2017: 529 User by Channel Exhibit 2-17 Concentration of Industry Assets by Largest Three Program Managers, Exhibit 2-18 Actual and Projected 529 Savings Plan Assets, ($Billions)...16 Exhibit 2-19 Actual and Projected 529 Savings Plan Net Flows by Channel, ($Billions)...16 Exhibit 2-20 Actual and Projected 529 Savings Plan Assets, Gross Sales, Gross Distributions and Appreciation Overall and By Channel, ($Billions) Exhibit 3-1 Decision Tree in 2017 Strategic Insight College Savings Consumer Survey Exhibit 3-2A Consumer Survey 2017: Age of College Savers Exhibit 3-2B Consumer Survey 2017: Saving Category Percentage by Age Exhibit 3-3A Consumer Survey 2017: Incomes of 529 Users vs. Non-529 College Savers ii

5 529 Distribution Analysis: Table of Exhibits Exhibit 3-3B Consumer Survey 2017: Income of 529 Users by Source of Enrollment Exhibit 3-4A Consumer Survey 2017: Net Worth of 529 Users vs. Non-529 College Savers Exhibit 3-4B Consumer Survey 2017: Net Worth of 529 Users by Source of Enrollment Exhibit 3-5 Consumer Surveys : 529 Beneficiaries by School Status and Age Exhibit 3-6 Consumer Survey 2017: and Adviser Survey 2016: Perception of College Savings Exhibit 3-7 Consumer Survey 2017: Percentage of your Child(ren) s College Cost Expecting to Cover-College Savers Exhibit 3-8 Consumer Survey 2017: Estimates of Annual Tuition Inflation Exhibit 3-9 Survey : Fear of Debt Drives Action to Save Exhibit 4-1 Consumer Survey 2017: Plan Selection Factors Ranked by Importance by Channel...24 Exhibit 4-2 Consumer Survey 2017: Plan Selection Factors Ranked by Importance by Income Level Exhibit 4-3 Consumer Survey 2017: Plan Selection Factors Ranked by Importance by Household Net Worth Exhibit 4-4 Consumer Survey 2017: Frequency of College Savings Vehicle Usage by Income All Savers Combined Exhibit 4-5 Consumer Survey 2017: Frequency of College Savings Vehicle Usage by Net Worth All Savers Combined Exhibit 4-6 Consumer Survey 2017: Frequency of College Savings Vehicle Usage by Income All Savers Combined Exhibit 4-7 Consumer Surveys : Most Popular College Savings Vehicles for Non-529 Savers Exhibit 4-8 Consumer Surveys : Accounts Non-Savers Expect to Use Exhibit 4-9 Consumer Surveys : 529 User Plan Satisfaction by Channel Exhibit 4-10 Consumer Survey 2017: What Can Plan Providers Do to Better Support 529 Users?...31 Exhibit 4-11 Consumer Surveys 2017: Top Reasons for Not Saving for College by Income Exhibit 4-12 Consumer Surveys : Preferred Tactics to Incentivize Non-Savers Exhibit 4-13 Consumer Survey 2017: Top Incentives for Non-529 College Savers to Become a 529 Saver Exhibit 5-1 Consumer Surveys : Awareness and Understanding of 529 Plans Exhibit 5-2; p1 Consumer Survey 2017: Awareness and Understanding of 529 Plans by Household Income Exhibit 5-2; p2 Consumer Survey 2017: Awareness and Understanding of 529 Plans by Household Net Worth Exhibit 5-3 Consumer Surveys : Awareness and Understanding of 529 Plans Exhibit 5-4 Incomes for All Responses, Non-529 College Savers and 529 Users Exhibit 5-5 Consumer Surveys : Investment Expectations of 529 Users Over the Next Three Years Exhibit 5-6 Consumer Surveys : Investment Expectations of Non-529 College Savers Over the Next Three Years Exhibit 5-7 Consumer Surveys : Expectations of Non-Savers to Begin Saving in the Future Exhibit 5-8 Exhibit 5-9 Exhibit 5-10 Consumer Survey 2017: Sources of Information on College Savings by Channel, Ranked by Response for All College Savers Consumer Survey 2017: Sources of Information on College Savings by Household Income, Ranked by Response for $150,000 or more Consumer Survey 2017: Sources of Information on College Savings by Household Net Worth, Ranked by Response for Greater than $500, Exhibit 5-11 Adviser Survey 2016 and Consumer Survey 2017: Push vs. Pull Marketing iii

6 U.S. 529 Industry Analysis 2017 Methodology The 529 Industry Analysis 2017 is Strategic Insight s 16th study on college savings. Its purpose is two-fold: To provide college savings industry participants with a qualitative and quantitative analysis of key trends that we believe will drive industry growth over the next five years To outline actionable steps to help product providers restructure their products, their marketing and their distribution to better align with the demands of investors, employers and advisors, and therefore to improve the growth rates of both their plans and the industry Research Sources This report builds on fifteen prior Strategic Insight college savings studies: 529 Plan Distribution: Industry Analysis Distribution Study (2015) 529 Industry Analysis (2015) 529 Distribution Study (2014) 529 Industry Analysis (2014) 529 Advisor Study (2013) 529 Industry Analysis (2013) 529 Financial Advisor Support, Selection and Distribution Preferences (2012) 529 Industry Analysis (2012) 529 Plans and Distribution Analysis (2011) 529 Advisor Perspectives (2011) Evaluating the College Savings Market Opportunity (2009) 529 Strategies for Success (2004) 529 Plans: An Investment in Your Company s Future (2002) Consumer Survey The primary goal of this study is to analyze the decisionmaking and product-selection processes of individuals who are either 529 users, non-529 college savers or noncollege savers. For Strategic Insight s 2017 College Savings Consumer Survey, we partnered with a premier B2B and B2C panel provider and data collection services company to conduct a proprietary survey of 1,005 consumers in February This nationally representative sample included U.S. household decision makers between the ages of 25 and 82, with annual incomes of $25,000 or more, who were parents or legal guardians of a child or children under the age of 18. The survey utilized a choice model method that mapped the target market into three categories: 529 users, non- 529 college savers and non-savers. This approach provides firms with strategies on how to convert non-college savers to college savers, college savers to 529 users and 529 users to 529 power users. Longitudinal analysis is reported for certain data points, as Strategic Insight conducted similar consumer surveys with enhancements based on feedback in 2012, 2013, 2014, 2015 and 2016, partnering with the same firm to poll consumers. While there were not any changes in the demographics of survey-takers in 2017, one change in the 2016 demographics was to include those with annual incomes of $25,000 or more, as opposed to $30,000 or more, to improve sample alignment with the U.S. Census. While this broadened out the target market of the survey takers, we do not project material changes in results due to the inclusion of the category. Therefore, year-over-year trend reporting will be included in charts and tables, and in the written analysis. Other Surveys and Interviews In addition to the consumer surveys described above, Strategic Insight regularly conducts proprietary industry surveys of product providers, advisors, broker-dealer home offices, plan sponsors and parents to give firms a 360-degree view of the current and projected state of the college savings plan industry. Strategic Insight also regularly conducts primary research in the form of interviews and meetings with industry executives in order to understand the latest trends in product development, marketing and distribution of college savings plans. iv

7 U.S. 529 Industry Analysis 2017 About the Author Paul Curley, CFA, joined Strategic Insight (SI) as a research analyst in 2008 and currently oversees college financial planning market data, research, events and digital-related topics for institutional clients. He is the primary contact for proprietary data aggregation and analysis of 529 savings plans, 529 prepaid plans and ABLE accounts, and authors SI s weekly, quarterly and annual business intelligence publications on the college savings market. He is also the Editor-in-Chief of the 529 Dash e-newsletter and the 529 Insiders ( website for financial advisors and the media, which also provides marketing services for program managers. Paul oversees the content for the 529 Conference and speaks frequently on topics in the college savings market at industry conferences and with major news publications and media outlets, including The Wall Street Journal, Investment News, SmartMoney, Advisor Perspectives and Ignites. He is also the principal contact for SI s membership with the College Savings Foundation and College Savings Plan Network. Lastly, he conducts ad hoc custom research and consulting with leading program managers on market issues. Before joining Strategic Insight, Paul was at Loomis, Sayles & Company, L.P. as a fixed-income operations analyst for retail mutual funds and institutional and high-net-worth investment products. He also worked in the global treasury and custody fund accounting areas of Investor s Bank and Trust. Paul received an MBA from Boston College, where he was awarded the Anne Murphy Award for outstanding contribution to the program, and was accepted into the Beta Gamma Sigma honorary society. He also received a Bachelor of Arts degree in economics and political science from Emory University. He holds the Chartered Financial Analyst designation and is a member of the CFA Institute. As a member of the CFA Society Boston, he has contributed to the organization as a CFA Review instructor, practice exam writer and as a program committee organizer from 2005 to v