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403b Annuity Salesman Perspective

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I agree. Walk into your nearby bank or Edward Jones office and you will not be sold low-cost index funds, or even lower-cost actively managed funds, and probably will be stuck with an  >1% AUM fee. I think I've read that the overall average ER of funds in 401k plans is around 1%? Of course selling variable annuities takes it to another level! The rollover scams another level above that!

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@EdLaFave Thank you for your very specific list! The business administrator who I appealed to and finally added the lower cost option left our district - she probably was able to parlay that one strategic move to her advantage and will definitely be bringing them (Aspire) to her new district. I was thinking of reaching out to her and asking her for strategies to use when appealing to other leaders in her position. And what's the purpose of an RFP if it's unpublished? I often wondered how they go about that, and I think I was told they just ask to be added as an 'approved' vendor to the TPA. The TPA is the one with the cards, and they are not local. I don't know how they, or if they, send out RFP. You've given us food for thought with your direct suggestions.

@403bannuitysalesman What is it that makes you generously share your insight with us here? 

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Personally, I don't like taking advantage of people.  I see so many individuals listening to the wrong individuals when it comes to investing their hard earned money.  There is no screening as to who can come into the teacher's lounge.  Personally, I think 403b sales agents should be banned from school districts.  I think vendor fairs should go the way of the dinosaur.  I think 403b sales agents should work on salary and not commission.   I find it amazing that there are agents that have worked 40 plus years in the financial industry and have not helped one educator start a mutual fund or low cost retirement platform - only annuities. Annuities are only for a specific type of person...there is no way that 80% of teachers under 30 need a 403b pre-tax annuity instead of a mutual fund ROTH IRA or 403b-7 custodial account.  But that is basically the only product that an insurance agent pushes because of the huge commissions they generate. 

 

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2 hours ago, MoeMoney said:

@EdLaFave Thank you for your very specific list! The business administrator who I appealed to and finally added the lower cost option left our district - she probably was able to parlay that one strategic move to her advantage and will definitely be bringing them (Aspire) to her new district. I was thinking of reaching out to her and asking her for strategies to use when appealing to other leaders in her position. And what's the purpose of an RFP if it's unpublished? I often wondered how they go about that, and I think I was told they just ask to be added as an 'approved' vendor to the TPA. The TPA is the one with the cards, and they are not local. I don't know how they, or if they, send out RFP. You've given us food for thought with your direct suggestions.

@403bannuitysalesman What is it that makes you generously share your insight with us here? 

I think it is a great idea to reach out to her. It can be tempting to think of these sorts of people as the opponent because they're essentially the gatekeeper between you and a better plan. However, if people like us can form relationships with people like them then it is a solid step towards reform. Maybe she is friendly with her counterparts in other districts and perhaps she can be encouraged to reach out to them to help reform other districts? Maybe, like you said, she can better help you understand how to convince her counterparts and folks like her. I think there is always tremendous value if you can bring different groups of people together.

Here at OCPS (FL) our RFP is published on a website and I believe vendors can log in and view it. However, as far as I know, it isn't generally advertised and the district doesn't reach out to every vendor to ask for submissions. On top of that hurdle, as I'm sure you know and as Tony pretty well documented in his Vanguard/Newport thread, these vendors aren't exactly on top of things. So I felt it was critical to attempt to serve as a liaison between OCPS (FL) and Vanguard/Fidelity.

Here at OCPS (FL) vendors are only added/removed once every five years, they have to submit to the RFP, and a "fringe committee" goes through some kind of process to decide who is in and who is out. The "fringe committee" is apparently made up of folks from the district as well as the union...however, when I talk to our union I get the sense that they don't exercise their power in this role.

Here at OCPS (FL) our TPA is TSA Consulting Group and technically they have none of the power but in practice they have tremendous influence. I haven't read the contract or anything but this is my read. TSA Consulting Group basically says to OCPS:

  • Dealing with all of these vendors is a pain.
  • Understanding the legal requirements is a pain.
  • We're experts in this field and we can guide you through it.
  • Ultimately you make all the calls but we'll make sure everything is done "right".

So technically the TPA should be a glorified paper pusher. However, the folks at OCPS Retirement Services know very little about investing and even less about the law. So TSA Consulting Group always mentions lawsuits in vaguely threatening ways, side note: I was on a conference call with OCPS Retirement Services and TSA Consulting Group because I wanted to help Retirement Services understand the problem and they patched TSA Consulting Group in, well TSA Consulting Group made a big deal out of me helping teachers understand their plans and vaguely threatened me with a lawsuit at which point I asked him to remain quit for the rest of the call. So at the end of the day I think OCPS just throws up their hands and more or less does whatever TSA Consulting Group tells them to do. Although, now that I'm challenging that arrangement, it may change a bit.

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On 1/27/2018 at 8:21 PM, 403bannuitysalesman said:

Personally, I don't like taking advantage of people.  I see so many individuals listening to the wrong individuals when it comes to investing their hard earned money.  There is no screening as to who can come into the teacher's lounge.  Personally, I think 403b sales agents should be banned from school districts.  I think vendor fairs should go the way of the dinosaur.  I think 403b sales agents should work on salary and not commission.   I find it amazing that there are agents that have worked 40 plus years in the financial industry and have not helped one educator start a mutual fund or low cost retirement platform - only annuities. Annuities are only for a specific type of person...there is no way that 80% of teachers under 30 need a 403b pre-tax annuity instead of a mutual fund ROTH IRA or 403b-7 custodial account.  But that is basically the only product that an insurance agent pushes because of the huge commissions they generate. 

 

Thanks for sharing your sincere thoughts and posting on these forums.

What we need to do is educate our educators while they are in undergraduate school by teaching them to weigh the pros and cons of all benefit plans for the school districts they are applying to. 

I'm doing my part to help future K-12 teachers (I teach college including many future educators). I do my part to inform them of what they are about to face when applying for teaching jobs by spending some time in my classes talking about benefit plans, 403b/457b/defined benefit plans (most will be with IPERS here in Iowa for their pension). Luckily, our state has negotiated with Voya, VALIC, Mass Mutual, and Horace Mann to provide plans that include lower cost index funds so teachers/staff can use the voluntary 403b and or 457b plans to set aside pre-tax (or Roth 403b/457b) in low cost funds. Of course there is a wrap fee on top of the underlying funds which is .18% - .2%, but c'est la vie. 

I really wish Vanguard, Fidelity, or Blackrock would come into the school systems in the US and totally BLOW the competition out of the water. Unfortunately, it's probably too small of a niche market for any of them to do something good for our educators. So the insurance companies are happy to keep stepping in - after all, sales for them is what it is all about. Maybe there is a reason for educators to carry a gun at school. ;-)

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Here is another moral dilemma.  We are told not to talk about cheaper alternatives when educating prospects.  We are told to only mention those products that benefit us, regardless if it is not as financially beneficial to the client.  If we do not offer it, we are not supposed to talk about it.  Our job is not to educate people, but sell them a product that gets us paid. 

A day in the life of 403b salesman: I had an appointment with a teacher after school to talk about the 403b.  I mentioned other low cost options available in addition to a 403b and the teacher didn't realize there were fees in these things and her husband takes care of this kind of thing.  I get back to the office and find out that someone was told by a 403b representative in the lounge that he should move a 403b annuity over to another 403b annuity and pay the 8% surrender charge to take advantage of the great small cap returns in his own variable annuity. 

I asked myself: Why are you moving from one high cost annuity-to another high-cost annuity, chasing small cap returns, and locking your money up for another 12 years.  If you don't have access to a lower cost option at your district, and you understand the volatility of the small cap sector, all that is needed to do is switch your fund line up.  This was never told to you because it does not benefit the 403b representative's commission.

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403bannuitysalesman, what is your purpose for posting all of this?

Nothing you’ve said is news and you’re complicit in this unethical industry that you willingly and freely participate in. So what is the point?

There are innocent answers to my question, but I honestly wonder if you’re just trolling...having a laugh at the pain you create for a dollar.

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You know Ed, you took the words out of my mouth.  Being reminded of all that goes on in this awfully corrupt industry is starting to make me mad . I am not sure I want to hear anymore. These folks have a license to steal.

Quote

Nothing you’ve said is news and you’re complicit in this unethical industry that you willingly and freely participate in. So what is the point?

There are innocent answers to my question, but I honestly wonder if you’re just trolling...having a laugh at the pain you create for a dollar.

 
  •  

 

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I came into this thread late.  I'm willing to take the 403bannuitysalesman at his word--as somebody who works in that field and is struggling with the ethics of his job.   Unfortunately, much of the financial services industry as it stands has conflict of interest built in, and I'm sure many (most?) folks go into it with good intentions, only to find that they have to engage in tortured rationales to justify "helping" people by selling products that are not in their clients best interest.

If that's true, it seems like the question is: why not use this experience to move toward another, more ethical career path?  For example, could you make a living as a fee-only fiduciary financial advisor who specializes in teachers and school employees?  I think some of the most successful client-focused investment or financial planning people have backgrounds in "traditional" financial services--Rick Ferri began as a high-fee stock broker, if I remember correctly.

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Whyme

Your point is well taken. Why not take your experiences 403bsalesman and move to a financial career that you can feel good about and not feel so conflicted. I believe you can make just as much money presenting fair honest products to others and be able to sleep at night with a clean conscience. I would hate to spend 30 years in a career and wake up one day and realize that my contribution to society was ripping teachers off.

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On my Podcast with Dan & Scott I said  "You can make a good living as a financial advisor doing the right thing why would you do the wrong thing?"

I have had three speaking engagements in school districts in the last 6 months.  I can tell you there are a lots of teachers & administrators need help figuring all of this out. Most can't tell me what an annuity is or if they currently are invested in one.   America has done a poor job on educating people on the basics of financial planning and investing. Sad but true.  There are good advisors out there (ex Scotty D) & they are adding value to client relationships. This is obviously rare in the 403(b) marketplace.

I just don't understand why  annuity salespeople don't open an independent practice and act as a fiduciary to their clients?  guess it is the quick compensation drives them.

solution: Provide advice via an hourly fee & if clients don't have the time, desire, or competence level to manage their investment portfolios then provide them with a fee based platform.

I show all prospects Aspire & FTJ ( some have access to TIAA-Cref)  platforms and tell them they can go direct or hire me to manage the investment models. No sales pitch necessary

make the change

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Quote

Provide advice via an hourly fee & if clients don't have the time, desire, or competence level to manage their investment portfolios then provide them with a fee based platform.

Great post  Ken !!

 

I was thinking ( a fantasy)  about starting a very  reasonable  low cost consulting flat fee business to help teachers navigate  their 403b /457 choices and making sure they make the right choice. We have failed in educating our citizens in personal finance. Financial literacy is starting to show itself in our educational system in all grades-finally!! Some states further ahead then others. 

Ken great to hear from you!!

Tony

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Just in case somebody reads this post and they're thinking of starting an ethical investment company in Orlando...get a hold of me. I have no interest in the stress associated with starting/running a business, but I do have an interest in helping.

I have significant doubts that a company offering financial advice for the "average" person can generate meaningful profit/income while still remaining ethical (i.e. only purchasing investments that are optimal for clients and charging rock bottom fees). I believe you'd have to eliminate nearly all human interaction with your clients, embrace automation, and scale massively and quickly. If you were able to accomplish that, I suspect your clients would be 35/40 and younger and I suspect targeting the education 403b/457b market would be a disastrous business decision.

I've long ago come to the conclusion that some businesses are inherently incompatible with the profit motive and I think this is one of them. I believe communities like the Bogleheads, required financial/investment education for our kids in K-12, and access to a company like Vanguard (a check on the entire industry) is the only viable path forward. Although, I may simply lack vision because had I been around in the 50s/60s I may have given a company like Vanguard 0% chance of coming into existence.

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Ed and Tony, I don’t agree that we’ve heard enough from the OP. Yes we’ve heard most of it before, but everyone needs to hear again and again! 403bannuitysalesman’s posts are very valuable to the reform movement. To have a 403b annuity salesperson detailing the ethical problems is much more convincing than are complaints from teachers, their spouses, and reformers. Not only more convincing to teachers, but to school administrators, unions, state legislators, congress, etc, that can actually do something about it. He is willing to expose the industry from the inside. Perhaps this thread could help inform district administrators of the need to move to reduce the provider list? The K-14 403b doesn’t have to be killed, it can be fixed. Witness what a number of Missouri counties have done! 

I don’t believe that 403bannuitysalesman himself is committing all the outrages conflicts of interest that he describes. We don’t really know what he himself currently sells to teachers but he implies that he does not do rollovers that result in surrender fees. 

I noticed that the OP included a CFP tag on this thread. I wonder if he has that credential?  

OP have you always worked as a 403b annuity salesman, or is this a job you’ve taken up recently? Do you consider yourself a sort of industry whistleblower?

Edited by krow36
change the link

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Krow

I appreciate what 403bsalesman is saying and sharing and I hope he will continue to contribute to post and share. Still I can understand why Ed would feel a certain level of disgust reading all that he describes. What we need  to do is to get others to feel that same level of disgust. But its not happening. Annuity sales greatly outpace the better 403b choices in the k-12 arena.

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