For the first time, investors can sign up for a college savings 529 plan through Wealthfront, the firm announced in an email to clients recently.
Wealthfront, which manages $4.3 billion in assets, just launched a 529 college savings plan for investors. These 529 plans are tax-deferred and withdrawals are tax-free when used for qualified higher education expenses.
Wealthfront has set up its 529 college plan at a total cost of 0.43 to 0.46% according to CEO Adam Nash who wrote about the company’s plan on a blog post in June 2016. The first $10,000 invested is free to consumers. According to data from fund-tracker Morningstar Inc., the average fee for 529 plans is 1.13% for an advisor-sold plan and 0.39 for direct-sold plans.
“Saving for college can be a daunting financial goal. If you have a newborn daughter, you’ll need roughly $540,000 to pay for her engineering degree at Stanford or $240,000 for a philosophy degree at UCLA,” Nash wrote in his post.
Investors need only $500 to set up the plan and they answer a series of questions about their risk tolerance as well as the age of their child to help discover what type of asset allocation strategy they should use.
“We built our college savings product with convenience, low cost and automation in mind,” states Wealthfront in an email to clients.”
Wealthfront is the first pure-robo advisory firms to dive into the 529 arena, and it could prove to be hard work, says Scott Smith, an analyst with Cerulli Associates, a Boston-based financial analysis firm.
“529 is definitely interesting – dealing with states is a challenge and low balances to contend with doesn’t help robos deal with their acquisition costs,” Smith says.
He points out that many robo firms like Wealthfront and its competitor Betterment have to spend significant dollars to acquire each consumer and average account balances are typically less than $10,000.
But Kate Wauck, senior director of communications for Wealthfront, says client acquisition costs aren’t steep at all.
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