In many areas, something that’s popular can be a good choice. For example, when a trendy new restaurant opens in a big city, foodies often wait months for a table. When it comes to financial planning, popularity is essentially irrelevant. The right investment for scores of other people may be completely wrong for you.

In the area of college savings, many parents and grandparents become overwhelmed with the number of 529 plan choices. Almost every state has some kind of qualified tuition program, and many states have several plans from which to choose. When shopping for plans, is there any inherent benefit to choosing one that’s a popular “destination” for out-of-state investors?

Advisors and plan administrators answer that question with an unequivocal “no.”

Rick Kahler, president of Kahler Financial Group in Rapid City, South Dakota, advises clients to evaluate an out-of-state plan in the same way they would for their own state’s offerings.

“Look at a plan’s expenses, investment offerings, expense ratios of the sub-accounts of the various funds you’re going into. Everything that applies to investigating any investment applies here,” says Kahler, who served on the council that put South Dakota’s 529 plan into place in 2002.

In addition, Kahler advises taking advantage of any in-state tax deductions that may apply and seeing if your state offers any cost savings to residents. For example, South Dakota has no state income tax, but residents pay a fee of 65 basis points for the state’s 529 plan, whereas out-of-staters pay 100 basis points.

States have the data on out-of-state plan owners versus in-state plan owners, but they don’t release those numbers. That’s largely because program marketing efforts are geared toward state residents.

“We have that information available, and periodically, I’ll get a report just in raw numbers where our accounts are located,” says Mary Morris, CEO of Virginia529 College Savings Plan. “I suspect that every program could tell you exactly where their accounts are located, but we spend the most time looking at our in-state accounts, trying to figure out how we are serving just the population of Virginia.”

Betty Lochner, director of Washington’s prepaid 529 program, Guaranteed Education Tuition, says there isn’t any compelling reason at this time to aggregate and analyze data about out-of-state inflows on a nationwide basis. Lochner also chairs the College Savings Plan Network, a national consortium of officials representing state 529 plans and vendors, such as mutual fund companies.

The goal of CSPN, Lochner says, is to educate families about the need for college savings and help them get started. “The average middle-class 529 buyer is not necessarily a sophisticated investor,” Lochner says. “Part of what we do is help them decide what’s right for their families.”

Rather than competing with each other to attract the most assets, program managers gather at the CSPN yearly conference, as well as other occasions , to share information and ideas. An overarching problem plaguing the entire industry is a lack of college savings among American families, Lochner says.

“Every program manager wants their plan to be rated highly, so people come in,” she says. “But we’re barely scratching the surface in terms of how many families are saving versus how many should be saving. That’s where our efforts are focused right now — just getting the information out to families.”

Nonetheless, states are aware that some plans hold special appeal for non-residents.

Lynne Ward, executive director of the Utah Educational Savings Plan, says low costs, quality investment choices and plan flexibility make her state’s offerings attractive to investors throughout the country. Utah’s offerings include funds from Vanguard and Dimensional Fund Advisors, both popular options for investors who like a passive, index-based approach.

Ward says she sees some plan buyers use a strategy of investing in their home state’s plan until the point at which they receive a tax break. “Then if they have more money they want to save, they’ll send it to another state’s 529 plan,” she says.

Morris says advisor-sold plans, such as her state’s CollegeAmerica, tend to have more of a national focus than those sold directly to buyers. Although investors generally pay higher fees when they go through an advisor, an advisor can help clients sift through the pros and cons of the various plans to understand where a tax benefit may offset a lower expense ratio, for example.

Kahler provides 529 analysis for his clients, and says it can pay to dig into the details of fee structures. He favors funds from Dimensional Fund Advisors, but cautions that advisor-sold plans may add surcharges that offset some plans’ low costs.

Kathryn Spica, a mutual fund analyst at Morningstar, says although 529 program managers are not yet analyzing out-of-state inflows, it may be valuable data for the mutual fund companies that provide the underlying investments.

She cites American Funds, whose funds make up Virginia’s CollegeAmerica plan. “One of their key priorities is to make sure that advisors nationally know that if investors aren’t satisfied with their home state plan, they should look at the CollegeAmerica plan,” she says.

“From a distribution standpoint, and keeping investors focused, it can have some merit to look at how plans are advertised and where the money’s coming from,” she adds.

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