It's probably not what the industry wants to hear right now. 529s are supposed to be the next big thing. The egg laid by the golden goose that will allow mutual funds to escape the doldrums. The last thing financial services firms want to hear anyone doing anything less than extolling the virtues of the college-savings project. That the skepticism is being voiced by The Wall Street Journal is the double whammy.

In his article "Saving for College? 529 Plans Might Not Be Your Best Option", Jonathan Clements argues that 529 plans may not be the best way to save for Junior's higher education. His target audience are investors who may be considering a 529 plan. Clements voices his biggest concern as that it is still unknown how 529 plan savings will impact on financial aid.

Clements reports that Congress will be looking into and may decide how 529 plans will impact the federal financial aid formula, but it's anybody's guess as to what they will decide. And even if the laws turn out to be favorable regarding financial aid, universities may be unwilling to grant financial aid to families that have 529 plans.

Clements goes on to argue that there are other tax advantages outside of the 529 sphere such as Hope and Lifetime Learning education tax credit. He makes a case for Coverdells, such as the ability to find a cheaper mutual fund in that system that even the most inexpensive 529.

Though the industry may not want to listen to Clements's message, it is something that they should hear. It would be dangerous for mutual fund firms to put all of their eggs in one basket and expect 529 plans to be the salvation of the industry.

529 plans are extremely complicated. At least with 401(k) plans, individuals have the benefit of an employer to explain what that system is. Unless you work for a company that has an employer-sponsored program, you are going to have little exposure to 529s. As many firms have told the MutualFundWire.com over the past year, education is the key. Executives are starting to see the numbers go up among those who know what a 529 plan is but those numbers have not exactly been through the roof.

And 529 plans are becoming increasingly an intermediary-sold business. A financial adviser's main objective is to serve the needs of the client. It is not far-fetched for many financial advisers to be drawing many of the conclusions that Clements draws.

For firms to be successful in this space, they are going to have to keep in mind these sorts of arguments against 529 plans. They will also have to develop winning strategies not just for investors but for financial advisers as well. Firms should take a flexible approach offering a number of different products in the college-saving arena.

Firms may find that 529s are, in fact, the next big thing, but they shouldn't bet the farm on it. 

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