The radio commercial features a cheery woman encouraging Rhode Islanders to give the gift of college by opening a CollegeBoundfund account. But gift givers may want to consider other options this year, says investment research firm Morningstar.
Seven weeks after Morningstar ranked the fund dead last among its peers, the plan’s administrator and state officials are still stewing. Morningstar, meanwhile, stands behind its analysis.
In October, the firm ranked 53 so-called 529 plans, which garner their name from the corresponding section of the tax code. The plans let people tuck away money that grows tax-free in anticipation of higher education expenses. States oversee the plans, but many, including Rhode Island, contract their management to investment firms. And that’s where the Ocean State hit turbulence.
In a blistering report, Morningstar criticized AllianceBernstein, which manages the CollegeBoundfund. The analyst who wrote the report on Rhode Island, Katie Rushkewicz, later told Providence Business News that concerns about recent changes in top management and the company’s structure were the primary reasons for her pessimism. The company hired a new CEO two years ago who has hired new lieutenants and sought to turn around the company’s stock price, which is down about 75 percent from 2007.
“Those changes can take a long time to play out, whereas there are a lot of other competitive firms in the fund industry that are really steady,” she said.
The collapse of the market struck CollegeBoundfund hard. The total asset value of the fund fell to $5.9 billion in 2008, down from $8.4 billion the year before. Today, the fund with about 500,000 account-holders has recovered to $7.5 billion.
CollegeBoundfund was not alone. In its report, Morningstar notes the market collapse of 2008 created some “well-publicized performance blunders” at 529 funds across the nation.
In ranking the funds, Morningstar said it looked at their investment portfolio, past performance, fee structure and management. In its accompanying report, the firm typically placed Rhode Island in the middle of the pack in each area of analysis.
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