Keeping up with the graying of America is a big part of Rob Nestor's job.

As senior director of product management for the iShares family of exchange-traded funds, he's leading the push into retirement plans by Barclays Global Investors. One of those initiatives has been to leverage the asset manager's leadership position in ETFs to forge new growth paths into 529 plans for college savings.

IndexUniverse.com recently caught up with Nestor at BGI's San Francisco headquarters for a progress report.

IndexUniverse (IU): How big do you see the 529 market shaping up for ETF providers?

Rob Nestor (Nestor): If you look at our position in the ETF market as a whole, we're the fourth-largest mutual funds company in the U.S. just based on the iShares assets. And certainly we think we can get to a similar size in the 529 market. Since that market is newer and we're getting in much earlier, we'd expect to obtain an even greater portion over time. Right now, the 529 market is about a $120 billion marketplace. It's projected to get to $250 billion by 2012.

IU: How early are you in terms of capturing that market's growth?

Nestor: It only has begun to take off in the past four or five years after legal reforms gave 529 plans their tax-free status. So it's a relatively young financial instrument. The biggest player is American Funds with about $23 billion in assets under management. Vanguard is a close second at around $20 billion. After that, the drop-off is pretty significant.

IU: Those companies have made their inroads through mutual funds, haven't they?

Nestor: Yes, that's correct. American Funds goes through advisors and Vanguard relies more on the direct side of the business.

IU: What are the prospects for ETFs catching on in 529 plans?

Nestor: We've just launched the iShares 529 plan. It's the first all-ETF plan for the 529 marketplace. It's also the first one targeted to fee-based advisors, which is our core constituency in our ETF business. We've just started to market the iShares 529 plan and now it's full steam ahead.

IU: Do you see any back-office issues with using ETFs in 529 plans as have cropped up in 401(k) plans?

Nestor: These are treated as state municipal securities. So the tax treatment for 529 plans originates from each state's particular tax system. So plans are offered more or less like wrap accounts. That means instead of investing directly in an ETF as a retail investor, you're buying a pool or a portfolio of iShares.

IU: So how many different portfolios do you offer?

Nestor: There are 20 different portfolios. Nine of these portfolios are made up of single pools with just one iShare each. These are ETFs tracking broad market indexes from the Russell 1000 to the Russell 2000 and the MSCI EAFE. We've also got pools for the MSCI Emerging Markets Index, a real estate index and several bond indexes.

Four other ETF pools make up asset allocation portfolios. And then seven others are target-enrollment portfolios. They're the equivalent of the 401(k) target-date retirement funds.

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