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Convincing Top Brass To Switch Vendors

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For about a year now, I've been pushing to change our 403(b) vendor. I'm making a plug to switch to TIAA-CREF (our present company is Valic). I believe I have a confincing arguement. I put together good factual information that explains why investing in a good low cost product is better. I did a mini presentation to the CEO and CFO. It went well. However, I don't think they are looking at it from the employees perspective. I got this from talking later with the CFO. They are looking at it only from their own personal perspective. They don't have a problem investing in high fee funds. The CFO puts her money in the fixed account. For them, Valic is okay. I think the problem is that they don't want to go through the hassle of making a change. I'm doing another presentation to our executive staff tomorrow. I think it's a no brainer to switch. But, tyring to convice others whom some of them don't look out for the best interest of the employees does present a problem. Any suggestions would be helpful.



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I offer little in the way of suggestions, but do offer this:


I too have been educating our financial decision/policy makers and have encountered empathy and constructive criticism for wanting to initiate a changing of guard in retirement programs. My CFO and Exec. have little motivation in pursuing change as it seems it is a hassle or may disturb the peace or security of our daily bliss.


A recommendation is to possibly develop an ally or allies within your finance committee or gather support from board members who maybe willing to initiate at least a motion to re-address the current providor or providors of the organizations deferred compensation policy.


If your organization has, within the past several years, been converting a non-compliant plan with vested funds not yet dispursed, into a conforming plan, it can cause a chaos of transition fees and paper work. Although a decent TPA(Third Party Administrator) should be able to handle this.

This is my opinion only! There are others on this forum that have a better handle on these compliance issues.



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Guest Daniel Clark

Following is just my opinion, feel free to inquire further.


There are specific steps that you need to follow:


Step 1: In my experience you will need to show the "brass" that they have a responsibility (both ethical & formal fiduciary) to monitor investment performance and expenses for the plan.


Step 2: Assuming your management accepts that responsibility, you need to find out what has been done to document a formal fiduciary process governing the operation of the plan.


I believe your plan is an ERISA Plan and therefore subject to Department of Labor oversight. There is a federal case - Martin v. Tower where the DOL actually provides some concrete guidance about what it expects plan fiduciaries to do to demonstrate competent plan oversight.


At the very least, your plan should have an investment policy with minimum performance standards and there should be a record of selection criteria for the decision to retain VALIC and the funds that are offered to participants. There should also be reporting showing rationale for adding or eliminating investment choices.


Hopefully there will be minutes of regular oversight meetings demonstrating that plan fiduciaries have been diligent in administering the plan's investment policy.


Step 3: Fees are a factor in every investment program as fees generally come off the top and reduce net investment performance. As a result, large fees will generally reveal themselves as chronic underperformance of investment instruments.


The ups of this is that fees are a crucial part of investment performance analysis.


Finally, I would do some digging to find out how VALIC won the contract. In my experience VALIC is sold by insurance intermediaries. The broker may also handle your organization's P&C coverages, other employee benefits, or could be an individual with some political or other ties to the organization. You'd be wise to know what you are really up against here because it is often much more than is visible at first glance.


Good luck!







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I made the pitch to the executive staff at my company. It's amazing to learn how little they knew about our plan. They were amazed to find out how much everyone was paying in fees. They had no idea. I suggested we move our money to TIAA-CREF. A few people heard of the company, but many of them haven't. However, they all agreed that we needed to do something. The next step is for the CEO to present it to our Board and with their concurrence, we will invite TIAA-CREF to come in and do a presentation. I'm very excited about this change. I think everyone will benefit form it. It really wasn't a hard sell. If you present the facts and put it in an organized format with a lot of charts and graphs, it basically sells itself. I wish that more companies would take a look and review their plans and see if that maybe they could do better. It was worth the work and wait.

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Guest slr3752

The one thing you have not mentioned is that some employees may want personal service.

The difference between VALIC and TIAA is the same as the difference between no load mutual funds vs load mutual funds. No load means no help.


VALIC is full service. You meet personally with a rep. TIAA is do it yourself. When you add service, you are going to pay more. Like most things, you get what you pay for.

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The one thing you have not mentioned is that some employees may want personal service.

The difference between VALIC and TIAA is the same as the difference between no load mutual funds vs load mutual funds. No load means no help.


VALIC is full service. You meet personally with a rep. TIAA is do it yourself. When you add service, you are going to pay more. Like most things, you get what you pay for.





Please tell us how the payment of a 1% Separate Account Fee (in addition to about a 1% fee for sub-account expenses) is in your clients' best interests. How are 12b-1 fees beneficial to your clients? How could the payment of 2% in fees be in the best interests of your clients when TIAA-CREF charges .50%?



Joel L. Frank

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Your post is spoken like a true Valic sales person. You need to learn to be little bit more subtler around here. We don't buy your age old sales pitch comparing the "personal service" of Valic or any large insurance company annuities compared to the “no service” you claim of TIAA CREF and no loads. Since you were not subtle about your love affair with Valic, I won't be subtle about my contempt.

You are wrong on all counts. TIAA CREF does have personal service and workshops to boot. Any no load company offers phone service for its clients, its not just a do it yourself. But even after saying that, what amount of service justifies the horrendous rip-off fees that Valic charges for insurance coverage that is useless. The effects of compound interest on Valic’s typical 2.25% fee adds up to about $150 a month every month for 20 years from an educator who contributes $400 a month at an hypothetical 8% interest rate per year. Lastly, we encourage folks to "do it yourself." Its great being in control.

The "you get what you pay for" is very wrong in the 403b world. Lower fees mean more money in my pocket, not yours.



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SLR---if you are still online:


July 20, 2003




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An Assortment of Advice, but at What Price?




LAN M. JACOBSEN says he became concerned that his financial adviser was more interested in earning high commissions than in protecting his investments.


On top of annual account maintenance fees averaging 1.3 percent of the $350,000 in his portfolio, Mr. Jacobsen said that over the five years of his investment he paid an additional $12,000, including sales charges on mutual funds and fees associated with a high-cost variable annuity.





"The costs were really driving us nuts," said Mr. Jacobsen, 64, who lives in Waterloo, Iowa, with his wife, Judith. So, in the summer of 2000, he severed ties with American Express Financial Advisors and with Terry Kuntz, his adviser there. He switched to Jon A. Ford, an independent financial adviser in Cedar Falls, Iowa, who charges an annual fee of 1 percent of the value of his portfolio, with no additional costs.


Mr. Kuntz and American Express declined to comment about Mr. Jacobsen's complaints, but David E. Kanihan, a spokesman for the company, said, "We have never been about trying to make money off clients in the short term."


In recent years, many people have become angry about the cost of investing through stockbrokers, who often bear the titles of financial advisers or financial consultants. The widespread adoption of these titles confuses some consumers, who are unable to "differentiate among the blurring traditional channel segments of the advice market," according to a recent study by Cerulli Associates, a Boston consulting firm.


Investors should understand that their interests aren't always aligned with those of financial advisers, particularly those employed by big brokerage firms, said Barbara L. Roper, director of investor protection at the Consumer Federation of America.


"While I do think the big houses have changed somewhat in the way they do business, in the end these are still primarily salespeople who are marketing themselves as advisers," she said. It's important, she added, to remember that advisers at large firms "are ultimately beholden to their employers."


Most small investors can manage quite well on their own with no-load mutual funds, Ms. Roper said. Those who feel they need help, she added, would be better off using independent financial advisers whose income comes solely from fees — not commissions.


Large Wall Street brokerage firms say their fees are fair and straightforward, and that their analytical resources far outstrip the capabilities of any independent financial planner. In the last five years, the brokerage firms have generally moved away from relying primarily on commissions and now charge most customers annual fees based on assets under management. These fees generally range from 1 to 3 percent of assets.


Brokerage firms typically charge lower percentages for larger portfolios and are often willing to negotiate terms with wealthier clients. The smaller an investor's portfolio, however, the less flexibility he is likely to have in negotiating compensation with a broker.


In return, the brokers set up investment strategies and often offer tax management, estate and retirement planning and advice on college savings plans. While asset-based fees generally cover most direct costs borne directly by the investor, additional commissions are sometimes charged. And many advisers collect additional sales commissions from insurance firms, banks and mutual fund companies.


Brokerage firms say they train their advisers to focus on a client's long-term interests. Mr. Kanihan, the spokesman for American Express Financial Advisors, who said he could not comment about Mr. Jacobsen's situation, said that the company wanted to "build long-term relationships with clients."


At Merrill Lynch, the biggest brokerage firm, roughly 14,000 financial advisers rely mainly on asset-based fees, but they can earn commissions, depending on the arrangement with their clients, according to Erik Hendrickson, spokesman for Merrill.


"What we say is there is no one right way in terms of the compensation structure," Mr. Hendrickson said. "It's up to the client and to the adviser to decide." Mr. Hendrickson added that Merrill takes measures to ensure that advisers are fair to clients. Fundamentally, he said, "financial advisers prosper as his or her clients prosper and as the number of prospering clients grows."




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