Is Your 529 Savings Plan a Target for Fraud?


When you started saving for your children’s college tuition with a 529 savings plan, you probably did not give much thought to the risk of investment fraud. As a tax-advantaged investment tool that is sponsored by states across the country, you, like most people, probably assumed that the worst-case scenario would be not earning quite enough to cover your children’s education costs in their entirety.

Unfortunately, unbeknownst to most people, fraudulent management of 529 savings plans is a very real concern. While 529 savings plans are state-sponsored investments, they are still managed by private brokerage firms; and, in a recent News Release, the Financial Industry Regulatory Authority (FINRA) publicly voiced its concern that a lack of oversight may be putting families at risk for fraudulent losses:

“[F]ees and expenses [for 529 savings plans] vary widely from plan to plan. FINRA is concerned that some firms may not provide supervision reasonably designed to ensure that representatives recommend a 529 plan share class that is tailored to the unique circumstances and needs of each customer. Through [its new] 529 Initiative, FINRA is encouraging firms to assess their supervisory systems and procedures governing 529 plan share-class recommendations, to identify and remediate any defects, and to compensate any investors harmed by supervisory failures.”

In other words, in some cases, assets placed into 529 savings plans are not being properly invested, and this is costing investors who end up paying unnecessary fees and expenses – often in addition to not earning the returns that they should.

How Can You Determine if Your 529 Savings Plan has Been Exposed to Fraud?

For individual investors who do not actively manage their own investments (which includes the majority of parents and families with 529 savings plans), it can be extremely difficult to figure out if your savings plan has been exposed to fraud. What fees and expenses are appropriate? What should you expect as far as a reasonable rate of return on your investment? These are not easy questions to answer, especially if you do not have a detailed understanding of the investment market.

If you have concerns about fraud affecting your 529 savings plan, the best thing you can do is to discuss your situation with an experienced lawyer. A lawyer who focuses on cases of financial fraud will be able to examine the trading activity under your plan and determine if there is evidence of fraudulent conduct.

What if I Have Lost Money Due to 529 Savings Plan Fraud?

If you have lost money due to 529 savings plan fraud, you may be entitled to recover your fraudulent losses through FINRA arbitration. This is an alternative dispute resolution (ADR) procedure that avoids many of the burdens and costs of courtroom litigation. Learn more: Are You Eligible to File for FINRA Arbitration?

Schedule a Free Initial Consultation at Zamansky, LLC

If you would like to speak with a financial fraud lawyer about the performance of your 529 savings plan, we encourage you to contact us for a free, no-obligation consultation. Our lawyers represent individuals and families nationwide. To discuss your situation in confidence, give us a call at 212-742-1414 or tell us how to reach you online today.