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MoeMoney

What could I have done differently

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With the end of school comes time for more in-depth 403b discussions. I'm wondering what and if I could have done differently with this conversation. The gist of the outcome was teacher acknowledged that the  457 has lower fees but teacher chooses to stay with their 403b. Their advisor is not on the list of permitted sales reps to come in and give away donuts so, therefore, he is not charging the egregious fees, according to teacher . Teacher asked about Aspire's fees ($40/year) and then you choose to self-direct or use an Aspire-approved fiduciary advisor who uses Vanguard index funds with very little added expenses added on ( I think it's .40 basis points). Teacher knows the sales reps earn commissions and the company earns profits too but teacher believes that since his FA is not with the AXA's or Ameriprises or fill-in-the-blank, the fees are nothing like theirs and that they are "lower, valid and earned."

So, I brought up the effect of fees chart from this site. Teacher says well, 35 years won't apply to me and maybe my advisor is getting me more than the 8%. We were looking at the same chart and I pointed out the +$200,000 differences! Do we see what we want to see and hear what we want to hear??!!

At this point I pointed out I have no vested interest and I'm not a sales rep earning commisions.Teacher knows very well that's true and trusts me without a doubt, and knows I know my stuff. Teacher knows the compounded effect of 2.25% and 0.18 % in expenses.

But in the end, teacher believes their guy probably makes the same $40 like Aspire charges, (!!!! - he's not a fiduciary) and maybe more in expense ratio but that it is probably warranted because their returns might be 'better' and the guy's making a living. 

Teacher sat at my desk and read the posts from this site from teachers writing in with "these are my options, what do I do?" forums and left with the 457 enrollment packet I printed out and the 403b facts booklet I use. Teacher said they'd ask their advisor about their fees. 

It's fine line to not be overzealous while being passionate, and not pile on the resources while being informative and starting from where they are.

I'm asking, was it me or could I have done anything differently?

 

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Hi Moe,

We all have had the same experience talking with colleagues. I go back 30 some years ago and recall what I did to straightened myself out of the two fixed annuities that were sold to me. I was like everybody in the 403b world with k12 school districts, satisfied with my decision to start socking away some money.

Then it happened! I first heard that annuities were not a good retirement plan by just eavesdropping on two guys talking about annuities at a party. THATS all it took for me. I did some research and low and behold I was screwed. 

I think I share what most of us who post or lurk here have that our colleagues don't have, WE LISTEN. And we take the advice of others into consideration. But that's only a part of it. I have listened to a lot of ideas, great ideas, from others over the years and implemented some in my life. We have all noticed that when even our friends ask for help and we give them some suggestions, and they do NOT follow through! Wow! and they asked for help!!??

Even though your idea is great and is supported by data, it's your idea and NOT your colleague's. People are so resistant to taking ideas, even good ones, from OTHERS! It might be a cultural thing, an American value of radical independence, which is supported throughout our history. 

Case in point. I know one friend I told to get rid of a huge stake of his retirement nest egg in gold. He also heard the VERY SAME THING from a fee-only fiduciary financial adviser to sell that horrible gold and diversify his portfolio. My friend is 78 years old and he rejected this advice and has not brought up the subject to me again after four years, when at the time four years ago he was VERY pissed off big time at his broker when gold fell 30% and my friend lost money. As far as I know, he has never said to me that he sold his gold. PEOPLE DO NOT CHANGE even when they know something is wrong, and two people told him to diversify.  

PEOPLE DO NOT WANT TO CHANGE even when good ideas are presented to them.

We should all be fortunate that we listen and take care of our business and then try to help others. I know I am and I am a better person for taking in lots of other people ideas as I benefit in so many ways! Heck, that's what mentors do, and I had three as a young man. 

We have the mental and emotional capacity to CHANGE. That's all we can do, is try. 

Thanks for sharing your story,

Steve 

 

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Steve always has good insight. I agree. You Moe,did what you could to introduce a needed change to this person. You did your job. Its now up to him to do the needed extra steps to get it done. He probably won't follow through. I've seen this happen over and over again. I've stated before I actually made enemies trying to help people see the  light. Consider how hard it is to change yourself and you'll understand what little chance you will have in changing others. I know that sounds pessimistic but its true. Most folks learn the hard way.  I think Steve is correct, those of us on this board do take advice from others  and each other on this board who we trust. We are also good here at catching imposters. Incidentally, I will pat myself on the back. I did change. I took the advice offered here from Dan and Steve and others. I am better for it. Others who failed to follow through on the recommendations made here are still silently and unknowingly paying for their financial advisor's expensive car and vacations and hurting their chances of a better and possibly earlier retirement.

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Possible Improvement #1
As I understand it, you don’t know what fees they’re paying in their current plan. So when you point to the 200k delta, they probably discount such a dramatic figure because they assume their actual costs/performance combination is much better than what you used for their calculation. They also probably discount the calculation because you did it and not them.

You could do the leg work of researching the plan/adviser they're using and compiling the actual fees, re-running the calculations, and then passing on the final result to your friend.

Possible Improvement #2

Your friend doesn’t buy into the fundamental belief that our “expert” can’t beat all of the other “experts” to such a degree that they can afford to take away a quarter of our real return for themselves and still have extra money to share with us.

As an antidote to this thinking, I found Buffett's allegory of the Gotrocks family to be helpful. I also enjoyed John Bogle's "research" from 2005 that examined the actively managed funds that existed in 1970. In the beginning there were 355 funds:

  • 223 funds, 62.8%, were closed before 2005 rolled around. 
  • 60 funds, 16.9%, lagged the market by 1% or more.
  • 48 funds, 13.5%, were within + or - 1% of the market (slightly more on the losing side of that coin). 
  • 15 funds, 4.2%, beat the market by 1%. 
  • 9 funds, 2.5%, beat the market by 2% or more. 

A fun fact about the 9 big winners, the majority have lagged the market significantly in the final 15+ years and attribute their performance to a period of early dominance (perhaps lucky dominance).

A Couple Thoughts

I try to kill my ego every day and part of that is knowing I'm extremely unlikely to save everybody and in reality I may only save a few. I think 403b/457b advocates will drive themselves crazy if they fail to embrace this perspective because everything will feel like failure.

In my view, educators have all of the power they need to navigate and reform this system. I believe the system exists as it does today because its victims tolerate and/or embrace it. For me at least, this opinion pushes me towards exasperation and tempts me to grow frustrated with and give up on folks like your friend. I think it is important to resist that temptation and just be there for people with objective information, understanding, and good intentions.

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Thank you all for your thoughtful responses. I think it's true that the system exists as it is today because it is tolerated. And while it is frustrating and exasperating, we'll persist in spreading the word. 

I'll probably never know what if anything teacher decides to do because unless I'm told, I'll assume it was nothing. 

Heading in for the last day of school!!!

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I think people are afraid to not have that “expert” advisor helping them.  To them, 2% fees are worth paying because they don’t trust their own ability to choose investments.  

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On 6/22/2018 at 6:51 AM, jebjebitz said:

I think people are afraid to not have that “expert” advisor helping them.  To them, 2% fees are worth paying because they don’t trust their own ability to choose investments.  

Amazingly still, it was the answer - partly made in jest but not really - that teacher countered with - "I want someone to blame if the value drops!" This is our culture, always looking to pass the blame and defer from responsibility. That's why we hire credentialled advisors (or so we think) so we can blame someone else. What happened to personal responsibility? And besides that, did you see the chart of the effect of fees? Hundreds of thousands of dollars in lost savings as a result of not being able to learn the basic tenets of 403b/investing principles. 

So, I'm trying to approach this as I would any other concept in school.

Learning objective: how do I know I'm (my advisor is) making the best choice for my retirement savings?

What's the hook? (2-5 minutes)

What is the teaching process? (direct instruction/teacher video) (15- 20 minutes)

What's the activity? (15-20 minutes)

What is the wrap-up? (1-3 minutes)

What manipulatives work best?

What prior knowledge is needed?

Assessments?

Help me out here, if you will. Or maybe I'll start a new thread.

 

 

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For “the hook” I might try to relate choosing your 403b provider with making a big purchase.

Take buying a car as an example.  When you go to a dealer to purchase a car you probably wouldn’t start by saying, “ I don’t know anything about how to buy a car.  You’re the expert.  I’ll give you my money and I trust that you’ll pick out the car that’s best for me.”

Not a great example but, that’s the way a lot of teachers approach their first meeting with the reps.  When you buy a car you do some research into the make and model that’s right for you and your needs.  You compare prices between dealers, read through customer reviews etc.  All the information you need is at your fingertips.  Why don’t you trust yourself to follow this process when it comes to investing in your future?

 

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1 hour ago, jebjebitz said:

For “the hook” I might try to relate choosing your 403b provider with making a big purchase.

 

 

That is an awesome example! And you are spot on - I know many teachers who want so badly to believe that the sales rep is going to do what's in their best interest. But car dealers? No way, we know they want to make a commission and we're determined to whittle it down from them.

I even used shopping for a home mortgage where all things being equal, you sign up for the mortgage with a rate 1 or 2% higher because you didn't shop around and ask. That has lasting compounding repercussions too.

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46 minutes ago, MoeMoney said:

That is an awesome example! And you are spot on - I know many teachers who want so badly to believe that the sales rep is going to do what's in their best interest. But car dealers? No way, we know they want to make a commission and we're determined to whittle it down from them.

I even used shopping for a home mortgage where all things being equal, you sign up for the mortgage with a rate 1 or 2% higher because you didn't shop around and ask. That has lasting compounding repercussions too.

I second that! 

But TSA sales folks are very good at reassuring teachers that there are no costs (we know there are), that they will never lose money in a down stock market (what teachers do not know is they will be losing money by not keeping up with inflation and the standard of living), the salespeople offer 10% bonuses, and return guarantees (its hard to reject those types of misleading pitches and that return can be reset every year).

NEVER underestimate the power annuity salespeople have over the most vulnerable people, our PreK-12 educators, who end up purchasing those terrible plans. 

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10 hours ago, sschullo said:

But TSA sales folks are very good at reassuring teachers that there are no costs (we know there are), that they will never lose money in a down stock market

Teachers need to be aware of this.  You can convince someone that they’re in a horrible plan.  For many, the next step they take is a call to their rep, or a rep from a different company, who takes them and their money Into another bad(or worse) plan.  There is a rep in our district who has done pretty well by scooping up people looking to leave AXA and putting them in an annuity under the premise that they will receive a guaranteed 4% return.  In reality it’s a complicated income insurance product that most teachers can’t explain or understand all the details of.

10 hours ago, sschullo said:

NEVER underestimate the power annuity salespeople have over the most vulnerable people, our PreK-12 educators, who end up purchasing those terrible plans. 

Well said!  Teachers don’t trust that they can research their own investments.  Salesmen know this and use the fear of market downturns and losing everything to get teachers to second guess themselves. So, maybe if you’re doing this as a presentation, you do it where everyone has access to a computer.  You show them how to navigate the sites a lot of us are using to get information.  You demonstrate how to navigate this site.  Show them the discussion board, threads you yourself have started and talk about some of the contributors who have given you useful information.  For me, those contributors were people like krow, Steve, Tony and Ed(thank you).

I would definitely Show teachers how to use 403b compare.  This is probably the only place they will be able to see what fees they are paying.  Once they get a handle on these numbers they can use any number of compound interest calculators online to see how fees are eating their investments.

So, let people learn by doing this for themselves.  Let them see that this process is not that different from putting time into researching a purchase like a car, a new roof, a washing machine etc.  I would add the Bogleheads site as a place where they can receive help and info as well.

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