BrightStart - The Results Are In!

For those of us with kids nearing their college years (if they're in diapers, they're nearer than you think!), the goings-on at the Illinois State Treasurer's office has had more than just a passing interest for us.

If you haven't been following the story, just prior to leaving office, Judy Baar-Topinka negotiated a new management deal with Oppenheimer Funds, to manage the Bright Start 529 plan. As one of his first acts in office, Alexi Giannoulias (rightly so) asked for the negotiations to be reviewed, as due diligence. What resulted was a dramatic improvement in the terms of this plan, making BrightStart, in my opinion, superior to the other savings-type plan sponsored in Illinois - the Bright Directions 529 plan.

The primary reason that I consider the BrightStart plan superior to Bright Directions at this point, is that the cost structure of the BrightStart plan is now within the range of the most efficient investing vehicles that Americans have available to them. The new cost structure for the BrightStart plan ranges from 0.20% to 0.63% - you'd be hard-pressed to find ANY investment vehicle with expense ratios that low!

By contrast, the Bright Directions plan's expense ratios range between 0.12% and 1.24%, with a program management fee of 0.45% tacked on to each account. In addition, unless you've chosen to use a Fee-Only financial advisor (like, for example, Blankenship Financial Planning!) to assist you with acquisition of your Bright Directions account, you will have to pay a commission of anywhere from 3.5% up front to a 0.50% annual trailing commission. Effectively, you're paying around 4% up front (or more) for this plan, plus annual fees of an extra 0.50% for the underlying funds.

Now - if you happen to own the Bright Directions plan, there's probably a very good reason for it. Up until this recent announcement, the BrightStart plan had fees very comparable to the Bright Directions plan, with fewer choices for your investments, making it far inferior to Bright Directions. Just because at present the BrightStart plan has the edge over Bright Directions doesn't mean that you should switch plans or make dramatic changes to your strategy. I suspect that there may be improvements in the wings for the Bright Directions plan as well - and even if things don't change, the Bright Directions plan still offers a very good choice of investments. If you pay attention to how you manage the account, your costs can still be very low compared to the industry. If you'd like to discuss your options, give me a call.

The good news is that the BrightStart plan has "stepped up" and is now providing Illinois residents with a very cost effective 529 plan. If you're trying to decide what the best savings plan is for your Education Savings Strategy, the choice just got a little easier.