PNC Financial Services Group Inc. says it has succeeded in 529 college savings plan sales because it has not limited its customers to one plan option.
"I don't think there is one product that can serve every need," said Jonathan H. Randall, the manager of nonmanufactured products for the Pittsburgh banking company. "You can't offer every choice, but you need to provide some choice."
Section 529 college savings plans, named for a part of the federal tax code, had offered federal tax deferments for college savings since 1997. But since Jan. 1, withdrawals for qualified expenses have been tax-exempt. This has increased interest in the product among financial institutions and savers.
Mr. Randall said that PNC has seen "substantial" growth in 529 sales in the past six months. He would not give sales figures, however, either for this year or 2001. The company is selling plans created by Fidelity Investments, Putnam Investments, American Funds, and Manulife, he said, and when Delaware Investments starts up the Pennsylvania 529 College Savings Plan this fall, PNC will look to sell it as well.
"We want to be able to sell plans in states where we do business," he said. "I think this is catching the attention of the mass market and the affluent, and there are a lot of opportunities here for banks."
Stan Gardner, a senior vice president and the director of investments at Quick and Reilly Asset Management, FleetBoston's brokerage arm, agreed it is crucial for banks to offer more than one plan. Quick and Reilly offers 529 plans from Putnam, Oppenheimer, Franklin Templeton, Mainstay Funds, Fidelity, and Alliance, he said, and sales are up "dramatically" from last year. He, too, declined to give sales figures.
"This is all about addressing an additional need," Mr. Gardner said. "As the population gets older they want to aggregate their relationships and work with one institution under one roof."
Fidelity Investments sells its Advisors College Investing Plan through banks, brokers, and insurance companies. Edward R. Nigro, a vice president of new business and program development at Fidelity, said banks have been a very successful sales channel because they are well-established institutions.
"There is a lot of foot traffic in the bank," he said. "There are people at banks to discuss the difference in 529 plans, and they are helpful, recognizable faces in the community. People want to deal with someone they trust."
A study by Synergistics Research Corp. in Atlanta of 1,000 affluent people found that 23% of those with 529 plans had bought them from banks. This was second only to brokerage firm distributors, where 36% of the account holders had bought their 529 plans.
Genie Driskill, Synergistics' chief operating officer and a senior vice president of research, said the study found that 529 plans are catching on. The study, "The Consumer Perspective on 529 College Savings Plans," which is to be released in July, indicated that 40% of those surveyed were aware that the product existed and 12% owned a plan account.
The study found that 77% of those with 529 plans are buying them through financial advisers. Ms. Driskill said this is great news for banks.
"This is a definite opportunity for banks," she said. "Some banks are involved as 529 plan providers, and some are involved as advisers in the market. Because of the importance of face-to-face contact and financial advice in the 529 space, banks are well-positioned through their branch network to sell these products."
But some bank providers are skeptical. Ralph J. Constantino, the chief executive officer of Schoolhouse Capital, the college savings unit of State Street Corp., said banking companies may be well suited to offer 529 plans but few are taking advantage of their position. He said Schoolhouse's 529 plans are sold through E-Trade rather than through the banking network.
"Not many pure retail banks are selling these plans," he said. "Citi, Chase, NationsBank [now Bank of America], they aren't selling this. They may offer something, but by and large most haven't even gone into this market." Citi doesn't even sell Salomon Smith Barney's plan, he said.
"I agree that more consumers need help in buying these products. They are new and complex," Mr. Constantino said. "Both banks and brokerage firms have an advantage if they can approach their customers effectively. But banks have never been able to do that. Bank have challenges just in selling mutual funds."
Joseph F. Hurley, the chief executive officer of savingforcollege.com, an online Web site that offers advice and information about college savings plans, said banks must offer several 529 plans in order to be viable providers for their customers. He said this could be difficult for a company like Bank One Corp. that sponsors the Indiana plan.
"Banks have to at least consider offering other plans so that they are giving good advice to their clients," he said. "If banks want to be a leader in this area, they have to choose whether they want to be product manufacturers or product distributors."
Most banks have chosen the latter route. PNC's Mr. Randall said the best way for banks to continue as leaders in 529 sales is to begin increasing workplace sales. PNC has a lot of business banking and corporate relationships, he said, so it is well positioned.
