Financial Advisors Are Ill Equipped To Help Clients With Financial Aid Forms For College

Wednesday, September 19, 2012 16:09
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Financial Advisors Are Ill Equipped To Help Clients With Financial Aid Forms For College

Tags: 529 plans | college planning | CSS PROFILE | FAFSA | financial aid | Sallie Mae

It’s college time, and parents of high school seniors across the country – myself included – are scurrying to figure out a good many things, such as how to fill out the FAFSA, Common Application, and CSS PROFILE. They are also trying to figure out how to title accounts earmarked for college costs. And the list goes on.

Financial advisors, however, are somewhat ill-equipped to help clients with some of the finer details of applying to college and helping their clients get financial aid. “College financial consulting is a very specialized field, in my opinion, and many advisors don’t realize the number of financial variables involved and how these variables impact the affordability of college,” says David Emery, CFP, CDFA, CCPS of the Marshall Financial Group.

“I don't think most advisors are very good at the FAFSA and other government aid forms,” says Christopher Olsen, CFP, of Olsen and Associates, a financial advisory practice of Ameriprise Financial Services, Inc.

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Then again, there’s a good reason for that say financial advisors. “In my experience, both personally and professionally, most of the people we deal with don't qualify for aid,” says Olsen.

But that point of view could be a mistake according to a recent SmartMoney.com report. “Nearly 30% of high-income families didn't fill out the FAFSA last academic year, according to a recent Sallie Mae survey. But that's usually a big mistake, Alex Bickford, a senior manager of college finance at College Coach and a former financial-aid officer at Southern New Hampshire University, is quoted as saying in the report. That’s because affluent families may qualify for at least some aid, Bickford says.

In the main, advisors acknowledge that they are more expert in helping clients save and invest for college than figuring out financial aid forms and the like.

“I think planners in general are aware of the issues and can, at the very least, raise awareness of the consequences of each type of account on the financial aid calculations via the FAFSA.  However, college planning is one more area that specialization pays the most benefits,” says Michael Clancy, CFP, CLU, the director of financial planning at Drexel University’s College of Medicine.

Indeed, some planners might consider making it a core competency and specialty given it’s importance to many families. “Paying for college routinely comes up as the number two most important financial goal for families, behind paying for retirement,” says Clancy.

For her part, Paula Nangle, CFP of the Marshall Financial Group says she completed the National Institute of Certified College Planners to earn her Certified College Planning Specialist designation, but she hasn’t maintained it. “There is an awful lot to know about college planning,” she says, noting, as did Olsen, that most her clients will not qualify for financial aid and have considerable wage income. “I would say my expertise and experience (with FAFSA and filling out other government aid forms) is limited.”

But even though Nangle’s experience is limited, her firm does have a college planning expert at her firm with whom she consults. “College planning is a pain point for many clients and it is an area where planners can add a lot of value,” says Nangle, who notes that one of the advisors in her firm – Emery – specializes in college planning and that she often consults with him.”

Personal Experience Plays A Role

On a personal note, Nangle says that she will become much more familiar with the college application process as her daughter is now a junior in high school. Others have become familiar with the college application through personal on-the-job training too.

“There is nothing in our formal training that addresses these issues,” says Tim Knotts, CFP of the Hogan-Knotts Financial Group. “However, continuing education, and life experiences can give us the background we need.”

As an example, Knotts says he has four children, two of whom are out of college and two of whom are still in college. “I have some serious expertise right now in all of these areas,” Knotts says. “However, I can see this becoming rusty in 10 years or so unless I make a conscious effort to keep up on it.”

What Advisors Need To Know

Advisors have the best background to bring the knowledge of various account types as well as the client’s other goals into play for a more comprehensive solution, says Clancy.

But Clancy acknowledges that things get complex given that clients might need to complete FAFSA forms for some colleges, the CSS PROFILE for others, and still other forms for another college.

“Profile schools add some complexity to the financial aid calculations that do not get covered in general financial planning education,” says Clancy. 

How insurance and annuities play a role too can be clouded by the planners own views on those products – pro and con, says Clancy. “If a planner’s compensation model does not allow for selling those products then their utilization in addressing financial aid ‘may’ be overlooked,” say Clancy.  “Vice versa is also true in that many pitches to parents regarding increasing financial aid are designed to market more insurance-based products vs. other investment vehicles. “

Comparing aid “packages” from one school to the next or even steering parents and the student towards schools that fill more of the cost of attendance with grants vs. loans needs to be brought into the conversation well before a student matriculates, says Clancy.  “If a planner doesn’t have these conversations routinely then they should partner up with experts for the benefit of their client base that could use this information,” Clancy says.

As for financial aid calculations, Clancy says there’s more than just one year involved.  “While account types are important for that first calculation, when funds are withdrawn - to pay for school or not - can impact the next year’s calculation negatively too,” he says.

And then there’s the issue of taxes. “How familiar a planner is with personal income tax preparation should also be brought into the conversation,” says Clancy.  “If the parent is a business owner or landlord not only makes the tax situation more complex but opens up other opportunities for how to pay for college.”

Planners also need to discuss using life insurance as a way for clients to pay for college costs. “Not only for goal completion, in case a parent pre-deceases the child, but also when co-signing for a loan,” says Clancy.  “How is the debt going to be repaid and potential loan forgiveness programs or scholarship searches are areas a planner can expand on their service offerings.”

Where Advisors Make Mistakes

For his part, Emery says the following are among the more common mistakes that trip up advisors who do college planning.

1.    Not all 529 withdrawals for college costs are tax free.  Many times advisors set up 529 savings accounts, manage the growth of these funds, but when it comes to liquidate those funds, sometimes they trigger a taxable event.  I have seen this happen if a client has a financial aid package or if they are also utilizing tax credits.

2.    Not understanding which assets need to be reported on FAFSA or CSS Profile forms.  When assets are valued, which assets need to be reported, and the correct value of reportable assets are extremely important in accurately reporting a family’s ability to pay for college.  Also, which entity reports the asset is also important.  If a client has a student going to some of the more expensive private schools, that family may have to file three different financial aid forms (FAFSA, Profile, and the school’s own form). I have seen mistakes with all of these areas.

3.    Many advisors don’t realize that their current planning for the family may impact future years college costs (both good and bad).  To do good college financial consulting, the planner really needs to consider all the years the family has kids attending college, which can span as many as 10-plus years.

A Chance To Learn More About Incorporating College Planning Into Your Practice

In the interest of full and fair disclosure, I am presently a full-pay client of Strategies for College. But even if I wasn’t, I’d still want to tell you more about a webinar the company are hosting for advisors and others in financial services industry who would like to offer college planning services - at some level - to clients and prospects. Learn more about the free ProPlan PLUS: A Business Development Program For Financial Services Professionals webinar that will take place on 9/25/2012 from 7 pm ET to 8 pm ET.

Share Your Story Below

Are you in a position to help your clients complete financial aid forms, or do you mostly specialize in helping them save and invest for college? Share your story with your peers in the comment field below.

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