Direct-sold 529 plans are more likely to outperform advisor-sold plans because the charge significantly lower fees.
Here at SFC we do quarterly performance rankings. We compare direct-sold plans, and we compare advisor-sold plans, but we do not compare them against one another in our published rankings. We compare them separately because we're assuming people that invest with an advisor are not also managing their own money. The additional fee you pay is compensation to your advisor, so it doesn't make sense to compare it against retail investments
What your advisor is showing you is the best perspective to make the sale. S/he's comparing actively-managed, retail, advisor-sold mutual funds against an index fund of the S&P500 at a single point in time starting in 1977. You're also comparing a single return period, rather than multiple time periods and recurring deposits. It is also implying that because the funds have performed great, they will continue to do so relative to Vanguard. But performance is a lagging indicator. Fees are a leading indicator of performance.
How would that $25,000 look over the past twenty years - which is about as long as 529 plans have been around - with the deposits spread over that time period? What about the one-, three-, five-year, and ten-year annualized returns? This gives you a better look at how it performs if you'd invested one-year ago, three-years ago, etc. Also, remember that you pay that 5% load every time you invest. So if you put in $100 in Jan, that's $95 actually invested. You're also paying more in ongoing annual fees to the plan over the direct-sold Vanguard option.
Don't get me wrong: Among advisor-sold plans the CollegeAmerica plan is one of the best options available. It has low fees relative to other advisor-sold plans, a broad investment selection, and strong historical performance. However, if you're comfortable managing your own investments, it's unlikely CollegeAmerica plan will outperform the Vanguard plan. It's much less expensive, and offers similarly high-quality investment options. There's no guarantee; CollegeAmerica might still outperform, it just has a handicap due to the fees.
You also have a much shorter time horizon for college savings versus the 40 years in the comparison image you provided. Assuming you're making ongoing investments over a 18 year time horizon (or less), it becomes much more difficult for the plan to make up for its commission.
So if you're investing through your advisor and want the convenience of having everything managed in one place and access to the advice of your rep, it's hard to go wrong with CollegeAmerica. However, if you are comfortable managing your own money, a direct-sold plan typically has an advantage with lower fees.
I hope this is helpful!
Brian Boswell VP, Research & Development
This information does not constitute tax advice and is provided for informational purposes only. Please consult your tax advisor, financial advisor, local taxing authority, and/or plan provider or sponsor for more information.