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Scottyd

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Everything posted by Scottyd

  1. I appreciate your responses and I think you have a cool program, but I'm trying to better understand it and few things are still alluding me. First, on a go-forward basis, my annual revenue numbers appear to be pretty close. My numbers were meant to be projections and barring a large drop in the market, I have a hard time seeing them being any lower than my above estimate. Regarding the financial advisors, you stated: Let's start out with terminology. Are VALIC's "financial advisors" actually "Advisors" in the sense that they are legally allowed to provide investment advice? In other words, are they Investment Advisor Reps with a full time fiduciary duty to the participants? It seems like they are actually Registered Representatives who help enroll and service the plan and who can also sell ancillary products, regardless of the reasons for which they actually meet with the participants. You make it seem like the VALIC reps would never voluntarily bring up ancillary products, but that would defy everything that we know about VALIC (and their representatives). Do the VALIC reps make additional income from the program based off selling ancillary products to the participants and if so, how is this monitored? Do the reps always have a fiduciary obligation to the participants (in every single encounter)? I'm not trying to undermine the plan with these questions, simply trying to understand the underlying economics. My experience tells me that VALIC doesn't make enough money on this program from the fee they charge (I could be wrong, but my experience tells me it's not enough income) and so the Reps are their to make the program profitable to VALIC by selling ancillary products. This doesn't mean that the plan participants are not getting a good deal on the 403(b) plan, but I do think it's incumbent on the Administrator to warn the participants that the program may not be viable IF the VALIC Reps can't sell ancillary products. It's a conflict of interest and should be disclosed, tracked and monitored closely. Again, if I'm wrong here, fine, but none of these questions have been answered satisfactorily. Participants and Plan Sponsors should understand the motivation of a VALIC Rep who works with the plan and they should fully understand how that Rep is compensated and what conflicts of interests exist. I've personally faced this issue in plans that I work with and it is a big issue. Another issue that I don't understand is the claim that going to a single vendor solves the compliance issue, it doesn't. The compliance issue is not solved since there are still prior vendors who are technically still part of the plan - who does the compliance on these vendors? I'm not looking to tear down your program, it seems that for most participants, they are getting a good deal. But you are claiming a level of transparency that I'm not actually seeing and at a minimum, everyone should be able to understand the economics of the plan and the motivations of those companies and reps who are working with it. Whether or not a rep is a fiduciary or a salesperson is also very important. I work with programs who have Registered Reps who service the plan and they are not fiduciaries, this is not an issue if conflicts of interests are eliminated. I commend you on the work you've done, but I also see some things that I don't understand and that you could be clearer on. Also, almost none of my questions on VALIC Rep compensation above were answered. ScottyD
  2. That cannot be correct. What it could be is that given his age, the payout on the money he has in the account amounts to 10% of the balance. But that is not a rate of return as it includes return of principal. ScottyD
  3. I guess I'm having difficulty with the understanding the economics of the plan from VALIC's perspective. The fees aren't high enough to compensate the VALIC reps at a reasonable wage without them having to resort to selling non-plan products. If the program has $125mm in assets and the fee is .32%, that generates $400,000 per year, plus the $20 annual fee on 5,400 participants (another $108,000) for a total revenue of $508,000. Now, about $110,000 of this goes to CBIZ. I assume some of the revenue goes to pay you (the Director, btw, how much do you earn from the program and how is that compensation structured?). That leaves about $400,000 to pay for recordkeeping services and salaries of the reps. A financial advisor who does not sell ancillary products will need a salary of at least $50,000 (higher in other parts of the country) and then you add in employee costs (office, car, travel, health insurance, ER FICA, etc.) and you are probably closer to at least $75,000 for someone who can meet face-to-face. There simply isn't enough revenue to cover more than maybe one full time salaried representative and still pay for all the plan costs. Thus, my point, the reps on the plan must not be paid to be full-time, salary only representatives (I'm inferring this, not stating this). So my questions are as follows: Are VALIC Advisors committed to selling non-plan products? (meaning have they signed an agreement that they must sell other products that VALIC offers) What percentage of their overall compensation is salary versus other compensation (product sales), on average? What is the salary paid to the VALIC representative? What conflicts (besides the poorly structured managed account conflict) do these representatives face and are these conflicts disclosed to the participants? What is the average total compensation a VALIC advisor to the plan makes? What is the highest earning advisor making, the lowest? How is the program administrator compensated? Why are the reps paid more money to push managed accounts? If a rep never sold an ancillary product, could they live a reasonable, middle class lifestyle on the salary alone? Please don't feel like I'm picking on you, the program cost structure looks great and I love the non-revenue share nature of the program, but I'm discovering the industry has a different definition of the term "salary" than what I and most people believe it to mean. ScottyD
  4. The big secret in the industry is that large plans can obtain good pricing at the expense of exposing their participants to wolves in sheep's clothing. The "salaried" reps are anything but and the money is made by the following: ancillary products (life, IRA's, etc.), rollovers out of the program (into higher cost, commission based programs or fee based programs) and by having access to the participants to get them to move their old money. These reps are not acting in a fiduciary capacity and they are NOT financial planners. The difficultly is that you want to offer a low-cost option and provide some help, but if you want a lot of reps...that comes at a price, those reps have to be paid from somewhere.
  5. Here is my biggest concern because I know for a fact that VALIC parades "Advisors" who are not Fiduciaries as "salaried", but then uses the plans assets to roll into IRAs that makes VALIC money. G) Do the VALIC reps use their status to sell other products which do have commissions, such as annuities, insurance, IRAs, taxable brokerage accounts, etc.? If so, is this what is paying for the low cost of the CSD-RT plans? If so, would this cancel out the low-cost benefit of the 403b/457 plans? What say you?
  6. Scottyd

    Aspire?

    I'd certainly consider using NEA Direct, but it would never be my first choice. It's certainly not the best 403(b) in the U.S. and part of the reason the product exists is to create a pool of potential NEA Valuebuilder clients, so participants need to be careful when using the product that they are not bait and switched. Security Benefit has no intention of doing what is right for participants. They are not interested in a Fiduciary Standard and their reps are not fiduciaries. This is simply an opportunity for people stuck with really bad providers to find a release valve and a decent one at that, no reason not to use it and benefit from it...as long as one understand who is behind it and to always be wary. I'd consider TIAA for Real Estate and Fixed Income (TIAA Traditional if the liquid version). As for ASPire, they are a good option if you are looking for more open architecture and need more asset classes to choose from. ScottyD
  7. If in fact Fidelity is only available via ASPire, it's not as good an option. I concur that Fidelity is actually the cheapest option available (if it was at Fidelity, not Aspire) given it's lower annual fee and very low-cost index funds. Different story when talking about their actively managed options or fixed income. I won't answer for Dan, but it's difficult for me to recommend Security Benefit precisely because of who they are owned by, the history of the program and the fact that it promotes the name of another program that has been ripping off educators for decades. The NEA is not serious about 403(b) reform and Direct Invest was a bone to those of us fighting for it and against NEA Valuebuilder. This is not to say that I don't think the NEA Direct is a poor product or that I wouldn't recommend it in a certain situation, I have and I would. That said, if another option presents itself that is similar and has a better history...even if it's slightly more expensive, I'd explain the differences and let the client decide. With my own money, I'd be willing to pay slightly more to avoid giving any assets to an NEA program until they do away with Valuebuilder. As a Fiduciary for a client, I'd present the options and the pros and cons and let the client decide. Security Benefit certainly has a dubious history of offering terrible products to educators. They are not a company I respect and they actively work against fiduciary in the arena. TIAA doesn't have such a dubious history, though unfortunately they've been working to catch up. Even at its worst though, TIAA is a MUCH better player in the space than Security Benefit. The good certainly outweighs the bad. With that said, in this scenario, I'd probably lean toward the equity portion being at Security Benefit and the fixed income portion being at TIAA (depending on the TIAA Traditional option being offered, i.e. liquidity versus rate is important). TIAA's equity options are priced differently with different employers, so depending on the pricing with particular employer, I'd consider having everything at TIAA, but only if the pricing on the equity mutual funds was very similar. That said, TIAA is still in the dog house with me and their lack of a real response to the recent NYTimes articles is disappointing. Their defense of their actions is disturbing. It's also very clear that the profits earned on their mutual funds and managed accounts and other products go to subsidize interest rates in the TIAA Traditional options. This makes me not want to keep money in those equity mutual fund options (which were never amazing anyway), but depending on the interest rate environment, HAVE money in the TIAA Traditional. In this current environment, the TIAA Traditional (liquid version) makes a lot of sense. Generally, there is a 3% guarantee and a rate that is around 3% or maybe higher with full liquidity (other less liquid options pay more, but take 7 - 10 years to get out or have a surrender, they must be evaluated differently) and zero risk of loss if rates go up..this is a good tradeoff compared to the typical Bond Agg right now (might not be in the future). Security Benefit is certainly dubious (they are morally suspect in my opinion) and have been for decades and there is no sign this will stop, but if they are one of my options and that option is NEA Direct, I'd still have to consider sending money there...it's in my interest to do so...and then monitor closely. You have to deal with the options given to you. Not sure that helps, but it's how I've come to approach these tough choices in 403(b) plans. ScottyD
  8. Ed, I'll trust your recommendation in Florida and I'm not arguing for TIAA in Florida K-12. In fact, the last product they had there was beyond bad (though that was a function of the IBC Model Plan). Looking forward to continuing the fight and yes, we shouldn't put any company into cult status. No sacred cows. That said...I still have a pretty big crush on Vanguard (which is why their opposition to the Fiduciary Rule burns me so much, they know my position). Let's keep on reforming! ScottyD
  9. Ed, I’ve supported and admired everything you’ve been doing and will continue to do so, but I don’t feel your position is balanced or completely informed. I don’t feel any need to convince you otherwise as it appears there’s no point and I’ve got better things to do than to defend TIAA. With that said, we all have to make decisions and you’ve decided to work with a company that has actually done real harm to public k-12 teachers (Security Benefit) and yet...I agree with you. Sometimes you work with the lesser of two evils and believe it or not, I’ve also recommended the NEA Direct Invest product even though I can’t stand what the NEA and Security Benefit has done to teachers over the years. I can’t say with any certainty that NEA Direct is available because of Dan and I (more so Dan), but the effect 403bWise had on the NEA Valuebuilder conversation (and my Secrets of the NEA post) certainly caused concern over there (according to the people who ran it at the time). It was that concern that led the NEA to come out with Direct Invest. Vanguard now charges $60 per year for their 403(b), making it one of the most expensive of the low cost providers for smaller account balance participants, meaning the actual costs are way more than a TIAA account and one would not have access to the TIAA Traditional or TIAA Real Estate option. Vanguard also offers a fund that charges 1.60%...but so what? We can find aspects of any good company and try to tear them down. TIAA has been a “good” company in the past and there are good people working there now. They have some plans that look great and others that look terrible. But they also offer a fixed account that can’t be beat (in many, but certainly not all cases). I’ve been incredibly vocal about my disappointment with the TIAA article and have been taking it seriously, but I also know that I have to live and invest in the real world and if I say TIAA is off limits then I have to say Vanguard is as well (they opposed fiduciary rule). I’m not willing to do that. The past is not irrelevant, the past matters. Let’s simply agree to disagree on TIAA and focus on what we do agree on - which is reform needs to happen. You shouldn’t have to put your wife’s money in Security Benefit. We need real reform, not just in 403(b), but in financial services. We need good leaders with real ethics...that are not paid $15+ million per year. We’re on the same team Ed and I admire your work, let’s keep the focus on what we are trying to do. Punch TIAA when the up and keep pressing their ethics, I’ll do the same. ScottyD
  10. I’m very disappointed in the article and so far, even more disappointed in the response, rather the lack of one. With that said, to say that TIAA is “crooks” and to compare them to the worst players in the industry is simply not in evidence. TIAA is not perfect and the allegations are disturbing, but as Steve Schullo said, they’ve got a long history of doing good. This is not a defense of TIAA’s purported actions, of which we are still trying to understand the exact details, but I certainly wouldn’t throw them to the curb. They have some real explaining to do and quite likely some reform. Would I choose Vanguard over TIAA? For mutual funds, in a second. But the TIAA Traditional has many benefits that I’ve found incredibly valuable for myself and my clients. K-12 employees could do (and they do) much worse than TIAA. The acts committed against k-12 employees by other companies are criminal compared to TIAA. This doesn’t mean that we shouldn’t hold TIAA (and Vanguard) to the highest standards and that’s why this article hurts so much. The lack of a response by TIAA is also making it worse. TIAA is not a criminal organization, but they have a lot to answer for. Of course, most of the 403(b) industry is criminal and they never have to answer for it...even when the NYTimes exposes them (last year). The $18.5 million comp package of Roger Ferguson is outrageous, but the Vanguard CEO makes nearly as much. I’m disappointed in both. ScottyD
  11. Glad to see this worked out!
  12. DK, 403bCompare is undergoing a complete redesign and will re-launch later this year. With that said, keeping the vendor information up to date is the responsibility of the district (and/or their compliance administrator). If the CTPA/District don't update it regularly, it will still be incorrect. ScottyD
  13. Krow36, A vendor does not have to offer any particular product that they offer outside in California, but any product sold in California must be disclosed on Compare. If they do not disclose it, then code section 25107 would be applicable, it states "A vendor may not charge a fee that is not disclosed." A literal reading would indicate that if a company chooses to sell a product, but does not list that product, any fees charged would not be legal. But to answer your question, no, Compare can't force a company to offer a product, only threaten to remove them if they are caught selling something not disclosed. Does that help? ScottyD
  14. MagMason, PlanMember obviously has an issue with telling the truth. CalSTRS Pension2 is a great option and among the lowest cost options in California. It's a combination of a 403(b)7 (meaning mutual funds) and a 403(b)1 (an annuity). The annuity portion of the program is the fixed account that is offered. Any money in the fixed account is in the annuity portion (it's a fixed annuity). Unlike almost all annuities sold in the 403(b) market, the fixed account portion of Pension2 has no surrender charges, no commissions and pays a reasonable rate of return with no market value adjustments. The program itself charges .25% to pay for record keeping and administrative functions (putting people in the field to help participants), a very low fee. The admin fee is NOT an M & E fee and CalSTRS does not charge an M & E fee. M &E is a very specific insurance term that means Mortality and Expense fee and it covers certain insurance costs as well as commissions and other expenses. VOYA is the record keeper of the CalSTRS Pension2 program and they are in fact an insurance company, but that has nothing to do with whether the program is an annuity. Anyone in the mutual fund portion of the product is in a Mutual Fund Custodial Account. Annuities are not good or bad, they are just products that can be made good or bad by an insurance company. Most annuities in the 403(b) space are bad, but that doesn't mean all annuities are bad. Dan mentioned TIAA, they were the prior record keeper for Pension2 and one of the good annuity companies. Vanguard and Fidelity both offer low-cost annuities. Pension2 offers the fixed account (the fixed annuity portion of the product) in order to provide participants with a stable option that pays more than a money market or bond fund, it's a very popular option within the program. You are right to tell people that Pension2 is low-cost, PlanMember is simply incorrect. Full disclosure: I consult for the Pension2 program. I'd be happy to arrange for someone from Pension2 to come to your district to present. If you are comfortable, please message me with the name and info of the representative. Scott
  15. Mkohlhaas, I would definitely take Tony's advice about calling AXA to make sure she qualifies for a surrender charge free withdrawal. With that said, www.403bcompare.com seems to support what you said about the withdrawal being free of surrender, https://www.403bcompare.com/Employee/Products/VariableAnnuity/Fees.aspx?pid=4149. Tony and Dan outlined some great options, I'll expand slightly. Since your mother is over 59 1/2 she has the option to roll her money to an IRA if she desires, it doesn't have to stay in the 403(b). If you roll to an IRA, I'd concur with Tony and Dan - Vanguard is a great option. Depending on her risk profile though, you may want to consider something other than the Target Date options. I love Vanguard, but consider the target dates to be aggressive in or near retirement. If your mother wants and can handle the risk, then great, otherwise I'd consider a different portfolio or set of funds at Vanguard. She also has the option to keep the money in a 403(b) and if she is still contributing this might keep things simple. CalSTRS Pension2 is a great option as is the Vanguard 403(b)7. The CalSTRS P2 Easy Choice portfolios are slightly more expensive than Vanguard target dates due to the fees to run the program, but those fees also support salaried representatives in the field that can assist with paperwork and getting things in the right place (as well as fiduciaries who run the program). The fixed account at the Pension2 program can't be beat, so if that's important...you should consider P2. You should know that if you choose Easy Choice, the entire account must be invested in that portfolio (you can't make your own allocation decisions). Whether Vanguard is cheaper depends on how much money you have and how many funds you want to own, Pension2 uses Institutional share classes of Vanguard which are cheaper than the share class Vanguard uses in their 403(b), but P2 charges an additional .25% to pay for program costs. Either way, you can't go wrong, but if your mother tends toward the more conservative end of the risk spectrum, Pension2 is likely your best option. Full disclosure - I do consulting work for Pension2 and created the Easy Choice portfolios, so decide for yourself my bias. Again, both companies are great, it really depends on what you are looking for. Lowest possible fees with an 800# to call - Vanguard. Low fees with personal help and a great fixed account - Pension2. - Scott
  16. Thanks for posting that doc. "Scientifically constructed portfolios"... good grief, these guys need a lesson on what science is. Scott
  17. Sorry Dave, I completely missed the .90% fee. I have an e-mail from a Lincoln rep stating the only fee is $35 which is suspect. Why would you use Lincoln with the .90% fee over Fidelity? Scott
  18. That's what I meant. You have an agreement though, other teachers wouldn't and Lincoln for sure would be preying on them. I'm fine with that as long as we make sure they are informed and don't fall for the upsell that we all know will come. Lincoln doesn't and can't make money on this product, it's a loss leader and not advertised (it's literally nowhere that I can find on the web). It's genius on their part though. If Lincoln wants to make a commitment to 403bWise that they will play nice with this product...then maybe! Access to Vanguard Admiral share mutual funds for $35 per year is cheaper than Vanguard direct and the absolute cheapest account in the United States for 403(b) that I'm aware of. But if the string is that the participant is simply getting ready to be picked off for their 150 bps product...I'm not interested. Thoughts? Scott
  19. Dave, Do you have experience with this Lincoln product? It looks like a way to get participant info and market more expensive services to them. They don't advertise it anywhere and I can't find any info on it. What can you tell us? Scott
  20. Lui, You do not need to do an exchange, you can remain at Fidelity if you prefer. The district cannot force you to change. With that said, there may be some reasons to consider making the change. Fidelity charges $24 annually to maintain an account, plus the fees of the underlying funds. At IPX, I don't know what the fees are, but if they are less than the $24 annual fee and give you the same investment options (plus the ability to invest in other options) then it might make sense. You should find out what the account level fees are an report back to us. The IPX system is designed to make compliance easier for the school district without taking away your choice of what advisor or investment options you want to invest in. Scott Dauenhauer
  21. I agree with krow36, both look good. Aspire is a little more flexible in terms of investment options, but the MNDCP is much lower in cost and has a decent fixed account offering. Stay away from the other vendors. ScottyD
  22. Hardship withdrawals are an optional feature and a plan can offer any of the provisions or all of them as long as the plan document is clear about it. So changing the provisions shouldn't create any complications with the IRS. You don't need to notify the IRS. While not directly applicable to your question, there is some good information in this article (note it's a 401(k) article, but the provisions are the same as 403(b)). Remember, this forum does not provide legal advice, so you'll want your counsel to review the decision, but this seems like a very minor change. ScottyD
  23. socalteacher: You must use the FBC to get your 403(b) started (and they are the only vendor for 457(b)), but you don't have to use them as your vendor. As Dan pointed out, CalSTRS Pension2 is available and is objectively a better program (even though it has similarities to the FBC in that it is a third party sponsoring a product). You'll need the FBC Salary Reduction Agreement to get started, but you can do the CalSTRS application here. CalSTRS charges .25% plus any compliance fees and you have access to Institutional Vanguard funds as well as a fixed account. (full disclosure: I am the plan consultant for Pension2) ScottyD
  24. amymad03 - Generally Omni charges $3 per deferral, but it might be different in your district. Expect $30 - 36. Aspire will pay a portion of this from their $40 (I don't recall, but somewhere around $20) and I'd assume the rest would come out of your account. ASPire should be able to tell you. Stay away from Edward Jones. -Scott
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