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403b Annuity Salesman Perspective

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Thanks, but most of the success is attributable to random chance

I happened to start programming in middle school because my parents bought a computer and a friend showed me how. My dad saw I liked it and in the most casual way, one time, mentioned that I should study Computer Science. So I did, without giving it any thought or even really knowing what "Computer Science" meant. In fact, the only thing I knew about programming was that I heard a lot of talk about jobs going to India and I had no idea how much the job even paid. Ultimately, it was pure luck that the job pays over 100k and I was fortunate that I didn't take on college debt only to enter a low-wage or shrinking industry like manufacturing.

After graduation, which was luckily after the real estate crash, I bought a house that I wound up hating and sold 3 years later. I had no idea that virtually every dime of the mortgage payment in the early years went towards principal or the enormous fees you pay when you buy and sell. That was a very ignorant and costly decision (that could've been much worse had I been born 2 years earlier), again because I put in no research and just did what I thought I was supposed to do.

I got ripped off for years by two separate financial companies and again on my own by buying high cost mutual funds. That lasted several years and I didn't put in a single bit of effort to learn anything, not even 1 google search. It was random chance that one of my co-workers had been ripped off with an annuity, told me the whole story, and told me about the virtue of index funds and the boglehead community. That is the only reason I have a solid portfolio today.

...I guess I say all of this because I don't want anybody  to think my success is attributed to how 'awesome' I might be. Sure, I try to do a good job at 'life', but almost every success I have is attributable to luck and the people who came into my life and helped me.

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1 hour ago, tony said:

I tell my son though who is 23 years old that the sooner you start the less you will need to save. So many folks don't get that. He didn't get that either until I explained the magic of compounding to him, the rule of 72 and why costs matter.

It sounds like he already is, but I would tell your son he is lucky to have you teaching him this information and that he should listen intently. I wish families talked about money more and I certainly wish mine had.

...on a side note, better late than never, but a few months ago (maybe a year) we helped my grandma and her sister transition their retirement savings to index funds. It felt so rewarding to fire that awful adviser and because it was all in tax advantaged accounts it cost them nothing!

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@EdLaFave I reached out to my district's former plan administrator to ask her questions about behind the scenes in the business office. I have a few specific questions in mind but will clearly benefit from getting other questions from this group. Here's what I have so far. Thank you for your input, each of you. 

1) What process does a sales rep need to go through in order to be able to walk into the district's schools?

2) What vetting does the business office do, if any?

3) How much control is given to the TPA (OMNI, in our area) and what control does the school district have, if any?

4)What can you tell me about the use of a RFP for vendors?

And Ed, to your comment. You would fit right into our Choose FI group. Jonathon and Brad started less than 12 months ago with the podcast, website and now a facebook group. Additionally, there are 10,000 FB members who have organized local meetups. The point is that people like you, and those here, are aware of the detrimental effects of fees and overspending in general, as well as the power of compounding. Teachers and most people keep up with- and spend like - the Joneses. As a result, the rest of us feel like we are alone with our higher savings rate and find kinship with like-minded spenders/savers. If you are not already a listener, you might try it. For example, today's podcast talked about the high costs of 403b's and 457's and called on the Millionaire Educator himself to answer. www.choosefi.com

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On 1/30/2018 at 6:01 PM, tony said:

 

 

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. 

Tony

4

Why is it a fantasy? Consider it community service. Or if it was a business, how would you compete with the sales rep? How would you get your foot in the door? I believe you can do it as you have the credibility of a retired teacher and you can even use the fact that you are NOT a certified planner to make your point. What is stopping you Tony? (Not really meant to be answered, really it's just a thought-provoking question:)

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On 2/1/2018 at 9:51 AM, Ken F said:

In one word  "frustrating"  trying to get through to teacher union presidents, district businesses office &  superintendents is one of the hardest task I've taking on in my 23 year career.

But I'm beginning to make progress.  I think the key is discussing the Model disclosure form

Please read this letter & give me some feedback: Why is there no school districts that apply this process if that was the goal?

https://www.sec.gov/divisions/investment/noaction/2015/american-retirement-sssociation-021815-482-incoming.pdf

 

 

Ken,

Is the Model Disclosure mandatory? What I mean is, are districts required to be disclosing the form, or requiring their TPA's to do so? If so, who's checking compliance? And if not, is it required?

You and a couple others are making progress and will continue to do so. It's amazing how draining it is when you're working against false understandings though. Hang in there.

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Moe,

Thanks for the nudge but I am retired and have no interest in entering that particular arena again in any capacity. I think I will stick with mouthing off here until Dan blocks me :)  I found  many teachers unwilling to listen to folks like me. Seems like they only listened to folks who have doctoral degrees or some expert designation after their names. To them i was just a teacher running my mouth. Trying to change the 403b culture made me more enemies than friends!!  Everything 403b salesman mentioned in his posts is true. There really is so much ignorance and people don't want to be told that they are doing something wrong.

If I decided to do it I would need to write a book or two, get a doctorate, and be a certified financial planner and wear a suit.Too much work at this stage of my life.The truth is its very difficult to change established thought. The 403b  annuity market is so well established in school districts that is almost considered blasphemy to speak against something most educators have been led to believe is good or just. 

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Couple more points:  I overheard there was study done and that Iowa 403b participation is down 50% since they went to the lower-cost state sponsored plans and replaced the 403b-1 annuity insurance companies.  Now some are claiming this is a failure and yearning for the 403b-1 to make a comeback.  It doesn't take a genius to figure out why participation is down.  They don't have insurance agents knocking on teacher's doors selling them high-cost products now and the salaried or non-commissioned agents that replaced them are not as pushy since commission is not involved.  

Also, I spoke with a couple of agents in different states with self-directed state sponsored 403b plans and they love them, because they can pick them apart saying they are not actively managed and that there is no face-to-face contact and that they have no problem in rolling them over to higher cost products.  I think this is a problem too.

 

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13 hours ago, MoeMoney said:

Ken,

Is the Model Disclosure mandatory? What I mean is, are districts required to be disclosing the form, or requiring their TPA's to do so? If so, who's checking compliance? And if not, is it required?

You and a couple others are making progress and will continue to do so. It's amazing how draining it is when you're working against false understandings though. Hang in there.

"Model Disclosure mandatory"  Moe I'd put it in the "best practice" category.Not yet mandatory but advised by the Taskforce  .My guess is 99% of school districts don't even know it exists.

my plan is to build a better 403b compare using this model disclosure criteria. Maybe I can post it on google docs so that anyone here can also fill in the blanks.  I think 403b compare does not have all the fees I'm seeing in prospective client contracts.

example : AXA

https://www.403bcompare.com/products/153#/fees

some mutual fund expenses in contracts are closer to 1.5-2.0% & the M&E charge on 201 series is 1.34% (called the service line last week w/ client). The AXA rep says she only gets paid 1.25% commission on this contract which I would really like to know if that's true. (thinking 5-6%)  but they wont tell the client w/ out the AXA rep on the line.

Here is one of few districts that have  the form completed

https://www.isd622.org/cms/lib/MN01001375/Centricity/Domain/36/North_St._Paul_Checkup_Final_2014.pdf

 

 

 

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22 minutes ago, 403bannuitysalesman said:

Couple more points:  I overheard there was study done and that Iowa 403b participation is down 50% since they went to the lower-cost state sponsored plans and replaced the 403b-1 annuity insurance companies.  Now some are claiming this is a failure and yearning for the 403b-1 to make a comeback.  It doesn't take a genius to figure out why participation is down.  They don't have insurance agents knocking on teacher's doors selling them high-cost products now and the salaried or non-commissioned agents that replaced them are not as pushy since commission is not involved.  

Also, I spoke with a couple of agents in different states with self-directed state sponsored 403b plans and they love them, because they can pick them apart saying they are not actively managed and that there is no face-to-face contact and that they have no problem in rolling them over to higher cost products.  I think this is a problem too.

 

auto enroll would end this problem.  put everyone in a QDIA and participation rates would be close to 100% because very few would opt out. problem solved.

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Quote

 I overheard there was study done and that Iowa 403b participation is down 50% since they went to the lower-cost state sponsored plans and replaced the 403b-1 annuity insurance companies. 

This has been an argument that school administrators are buying into.I know my past administrators worried about this. Even when they do consider changes in favor of better low cost self directed plans, The sales industry chimes in and warns  them that teacher participation would plummet without active sales agents and without active hand holding bad choices and /or mismanagement could be made by novice teachers. This prevents some progressive school systems from ditching 403b insurance industry annuities and products. The salesperson component is seen as needed.The other problem is so many folks already have insurance sponsored 403b plans. If you eliminate them from the vendor system, this would leave many teachers in limbo.What if teachers are blindly satisfied with their current 403bs and a there is no interest in a QDIA and in being dumped in a target fund instead which is often the default investment.

 

So would eliminating insurance choices actually backfire and hurt participation and contribution levels?

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1 hour ago, 403bannuitysalesman said:

Also, I spoke with a couple of agents in different states with self-directed state sponsored 403b plans and they love them, because they can pick them apart saying they are not actively managed and that there is no face-to-face contact and that they have no problem in rolling them over to higher cost products.  I think this is a problem too.

 

I watched a Security Benefit guy do his pitch during a free pizza lunch in our school library.  He had a lot going for him: he was the husband of an employee in our district and he dropped that in to the first two minutes of his intro, he explained how SB was sponsored by the NEA, and he had a flier in the office that had him billed as a retirement specialist who was there to provide information for teachers who were ready to retire.  His pitch started with I’m not here to sell you anything.

He mentioned DirectInvest first but followed it with this line, “Imagine your sick and you have 100 medicines to choose from.  Do you feel comfortable that you’re gonna choose the right one?  No you ask a doctor.  Well if you choose this plan you won’t be able to call me and talk to me.  I’ll come to your house, I live in town, my wife is a teacher,” etc.

So basically, you’re too stupid to understand this you need me.  Oh and by the way I’m not a fiduciary and I can’t legally give you the Investment advice you’re looking for anyway.  I actually asked him about the fiduciary thing after he s down teachers ability to handle DirectInvest and he countered with, “it’s true that government regulations have made it hard for people like me to help you but I have ways around this.  I could say, ‘my friend is invested in this maybe you should look into this’

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Most of us are selling as brokers, earning commissions.  We are not wearing the advisor hat when selling you a high-cost product. Most don't know the difference and the financial representative will not tell you the difference.  It is mind boggling we have "advisors" on our business card, when 99% of the products we sell are as brokers with no fiduciary responsibility.

We are technically not supposed to pick the funds for you, when we sell as brokers, because they are not investment advisory accounts.  The teacher doesn't know the difference however.  Many of us have over 1300 contracts to look over.  Do you really think the representative is going back to look over the risky investments he placed the teacher into every year or is he going after new clients for new commission.  I have seen teachers in their mid 40s who said they were conservative investors, but placed the year before into a 50% small cap, 20% international, 5% large cap index, and 25% fixed account.   Is the rep going to go back to correct this travesty?

Brokers love to bash those in target funds.  They call them lazy funds that don't do their job.  They promise the naïve that they can do better.  How long will they be around to check with the client to see if they are investing correctly with their actively managed funds. I have a hard time believing someone with over 1300 contracts is meeting with every client once a year.

 

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A logical choice, if you have zero investment experience, is a low-cost index target date retirement fund.  It is not  a "cure all" and not for everyone, but if you don't know what you are doing, this can be a good choice, in my opinion.  If a broker bashes your choice and says he can triple your return, by moving you out of it, is he really going to be around every year to make sure you are invested according to your risk tolerance and time horizon?  I think not.

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I would argue a low cost properly constructed  index fund target date retirement fund would be a good choice for everyone. Bogle always said to invest in index funds than leave your money alone. Seems to me advisors of all kinds encourage too much buying and selling . Target funds eliminate a lot of problems  and keeps things simple. Something the industry hates. They love complexity so they can convince you that you don't know what you are doing when the fact is investing is quite easy as long as you understand a few basic principles. One of those principles should be don't trust "Experts".

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