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BJLeal
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BJLeal asked about a year ago in 529 Plans

529 front end sales charge

Our Fidelity Advisor 529 plan charges 5.75% and more with each monthly purchase. Isn't that too high? I asked my broker to switch over to the state plan which is also run by Fidelity months ago, but he hasn't done it.

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Mark Kantrowitz
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Adviser-sold 529 college savings plans tend to have high fees, which is how they compensate the brokers. In some cases the high fees consume all the tax savings. I do not recommend using an adviser-sold plan because of this and because 529 college savings plans have such limited investment options that you don't need an adviser to tell you how to invest. The rules are very simple:

1. Do not invest in any plan that charges more than 1% fees on top of the underlying funds.
2. If your state offers a state income tax deduction for your contributions, consider your state's plan along with a handful of states operated by the low-cost leaders (Vanguard and TIAA-CREF). Compare the net return on investment (ROI) for a S&P 500 fund within each plan, after subtracting the fees and adding in any tax savings, and pick whichever gives you the best overall return on investment.
3. Every state plan offers some form of an age-based (or years-to-matriculation based) asset allocation fund, which uses a more conservative mix of funds as college approaches. You can either use such a fund, or mimic it yourself by changing the asset allocation each year.

If your broker did not follow your instructions to change the 529 plan, he's in breach of his fiduciary duty to you. The problem with the adviser-sold plans is they provide the broker with a conflict of interest, since the broker gets paid a commission from the hefty sales charge, even though you would be better off investing on your own directly with the state. You may need to take matters into your own hand and roll over the plan into your state's direct-sold 529 plan yourself.

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