As 529 plans come more into the limelight, they are also going to come under increasing scrutiny. Especially in the mainstream media. Last week, the MutualFundWire.com reported on an article in The Wall Street Journal that examined whether or not a 529 was always the appropriate vehicle for college savings. Now, USA Today looks at 529 plans from a different angle.

One of the main areas that Sandra Block and John Waggoner, authors of "529 College Plan Choices Are All Over the Map", explore is that of advisor-sold plans. The article suggests that fees from such plans could wipe out any savings an account might accrue.

"But the benefits can be wiped out with poor investment decisions, USA TODAY's analysis shows. A major trouble spot: the poor performance of many plans sold by brokers and financial advisers. Such plans are grabbing two-thirds of all money invested in 529 plans. Brokers and advisers, eager to attract new clients, are aggressively marketing the plans' tax benefits to parents and grandparents worried about the rising cost of college....USA TODAY's analysis found that many plans sold by brokers and financial advisers underperformed 529 plans that investors could purchase on their own at little or no up-front cost," the Block and Waggoner contend.

The authors further argue that sales fees and expenses can further limit an investor's potential return. They use the Arizona InvestEd Plan as an example. They state that brokers place a 5.75 percent sales charge on that plan; Block and Waggoner add that that is more than the average fund made in a year period ending March 31, 2002.

They also highlight management fees. Their examples for this one are the Mercury Large-Cap Core Fund through the State of Arkansas -- which charges 1.38 percent in annual expenses for non-residents -- and Vanguard fund through Utah -- which charge under 0.35 percent a year. The authors also opine that some plans are poorly diversified.

Though the article is critical of many aspects of 529 plans, this may not necessarily be a bad thing for the industry. As 529 plans become better and better known, there will be debate and a back-and-forth on the issues surrounding those plans. And a debate about the particulars of a 529 plan only serves to legitimize the existence of the offering.

"This article provides some good information," Joe Hurley, ceo of SavingForCollege.com, told the MutualFundWire.com. "Anything that keeps the debate alive is providing a useful service."

"For people who can investigate a 529 plan -- or any financial services offering really -- on their own, there will be savings. The article in USA Today points out how complicated and confusing a 529 can really be. The fact that there are brokers reflects the fact that people are confused," Hurley added.

According to Hurley, many investors were first introduced to the idea of the 529 through their financial advisors. Does the executive see a time when 529s are so well-known that people will more likely then not buy them direct? "All evidence points to the broker/dealer programs being where a lot of the growth is right now," he stated. "Direct will always be an option, just like no-load. But more and more states are offering their programs through the advisor channel." 

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