Strong Out, Oppenheimer In At Oregon 529 Plan

The announcement ended more than three months of uncertainty in the wake of the board decision last year to terminate Strong Capital surrounding allegations that the company’s founder and namesake conducted questionable market-timing transactions (See Trading Probes Muscle Out Strong, Putnam Chiefs ). Oppenheimer will move into the driver seat for $132 million in Oregon residents’ college savings, contingent on certification from the New York-based firm that it has a clean slate with state and federal securities regulators, according a report by The Oregonian.

Oregon’s State Treasurer, Randall Edwards, announced that the deal would lower fees and more investment choices for Oregon investors. “The board will maintain its unique ability to fire providers of the plan for any reason – the provision the board exercised when firing Strong,” according to a statement released by Edwards. “Also, the board will seek the strongest possible contractual protections for plan participants and the state.”

In large part, the 529 Board said its decision was based on Oppenheimer’s willingness to offer Oregonians a plan they can buy directly without paying sales commissions. The company would substitute its mutual funds into portfolios with the same investment mixes as the current portfolios made up of Strong and U.S. Bank’s First American Funds – but at a lower annual cost to investors.

Quantifying the savings, investors were paying expenses of 1.25% annually under the Strong regime. That figure is expected to drop to between 0.70% and 0.99% with Oppenheimer, depending upon the fund mix. Further, as assets in the funds grow, fees could drop as much as another 0.10%.

A final contract could be signed within a month and Oregonians’ college savings accounts could be transferred to the new manager by summer, Edwards said.

Oppenheimer was the dark-horse candidate to replace Strong when news of the scandal first broke. However, the early front runner, Massachusetts Financial Services Co (MFS), lost favor earlier this month when it agreed to relinquish $225 million and force out two executives in a fund-trading scandal of its own. MFS already manages $19.5 million for the state fund but was bidding for Strong’s much-larger slice of the pie.