Strong resigns; EdVest alters

matt.nash@marquette.edu

EdVest, Wisconsin’s college savings plan, announced Wednesday it would allow investors to take their money out of funds controlled by Strong Financial Corp. and place it in different financial companies.

The announcement came one day after Richard S. Strong announced his resignation as chairman, chief executive officer and chief investment officer of Strong Financial Corp. amid allegations of improper trading.

State Treasurer Jack Voight said investors would now have the option of investing savings toward college tuition with Baird, Legg-Mason Inc. and the Vanguard Group in addition to Strong Financial.

“We were already pressing Strong (Financial) for this to occur a year ago,” Voight said. “It opens up more choice for investors.”

Strong Financial had been the sole investment firm for EdVest since May 2001, he said.

Strong Financial will still be the only mutual fund provider under the state’s college saving program, called a 529 plan. Baird will offer a bond fund portfolio, Legg-Mason Inc. will offer their aggressive portfolio, and the Vanguard Group will offer an index fund, Voight said.

“The investor can only limit themselves to that specific fund” within the investment firm for the college savings program, although the firms offer different types of funds, he said. “These firms have different strengths and we picked the best of the best I guess you’d say.”

“This will cost (Strong Financial) business in the short run,” said Sarah Peck, assistant professor of finance at Marquette. If they emerge with a solid record as an investment firm, it will be good for them, she said.

Peck said the allegations against Strong may deflate consumer confidence in Strong Financial.

“Certainly people thinking about starting a 529 plan with all of (the allegations against Strong) in the papers are not going to want to choose Strong (Financial),” Peck said. “The state had no other choice.”

Investors won’t want “to go with this company that’s being plagued with scandal,” she said.

Voight said his office is also requesting the federal government change the rules for a 529 plan because of the allegations against Strong. The federal government created 529 plans in 1997 by passing a law creating state-sponsored savings programs for college tuition money. The state can either manage the money, as Wisconsin did before May 2001, or get an investment firm to handle the 529-plan money.

Once investors put money into a 529 plan, they deduct the amount from their income when filing federal income taxes and the interest made on the money is not taxed. Investors can move their money once a year without penalty. The money can only be moved into another state-sponsored 529 plan. So investors can now move funds to one of the other firms.

However, investors can also move their funds to another firm that participates in a 529 plan in another state and then move back to Wisconsin.

“Many investors have done that,” Voight said. “If they moved (back to Strong) maybe six months ago not knowing what was coming down the pike, they’re stuck for another six months … We’re asking the federal government and the IRS to waive that restriction.”

There have been no criminal charges against Strong from New York Attorney General Eliot Spitzer’s office. Spitzer is leading an investigation into Strong’s trading practices.

Strong’s decision to step down “will have no impact on the investigation,” said Brad Mahoney, a spokesman for the New York City public affairs office.

Kenneth Wessels with replace Strong as chairman and CEO and Richard Weiss with replace Strong as the chief investment officer, Strong Financial reported Wednesday in a statement. Wessels and Weiss, along with Frank Doyle, will comprise Strong Financial’s board of directors, the statement said.

According to reports from the Milwaukee Journal Sentinel, Strong Capital Management Inc. is looking to sell the company and would like to have indications by Christmas of interest from potential bidders. The report said Goldman Sachs Group Inc. has been hired to do this.