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Spitzer May Look Into Nysut Ing 403(b)

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Teachers union criticized for pushing retirement plan

 

Excerpt:

 

... a group seeking to reform education in New York is pressing Attorney General Eliot Spitzer to investigate the deals. A letter from Thomas Carroll, president of the Foundation for Education Reform & Accountability, also asks Spitzer to seek restitution for investors who say they've been harmed.

 

"NYSUT's endorsement of selected funds of the firm, including the Opportunity Plus variable annuity, appears to disregard the best interest of individual investors," Carroll wrote in the letter dated April 28.

 

NYSUT spokesman Dennis Tompkins did not immediately return a call seeking comment. He told the Times the arrangement benefits members because it helps pay for the union's benefits department and other services.

 

Carroll's letter also asks that NYSUT be prohibited from accepting payments from investment firms whose investment products are endorsed by the union.

 

Marc Violette, a Spitzer spokesman, said the attorney general's office has received the letter and will review the situation thoroughly.

 

Dan Otter

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Let's revisit Kathy Kristof's Times article from last week:

 

"The most recent disclosure on file with the Labor Department shows that the NEA received $49.6 million from Security Benefit Life Insurance, the provider of Valuebuilder, and other endorsed companies in 2004."

 

Dare we hope that the appropriate authorities look into this, as well?

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I won't pretend to be a mindreader, but I imagine both NYSUT and ING would welcome such an inquiry. Since the entire fee arrangement is disclosed in the prospectus from ING, and NYSUT puts disclaimer language on every piece of mail I get from them, there's nothing going on "under the table." That being the case, they should both welcome the opportunity to end the whisper campaign and get the blessing of the guy who has been a whistleblower against so much of what is wrong in the financial services industry.

 

(For that matter, the NEA probably feels the same way, unless they have not been as forthcoming in their disclosures as NYSUT.)

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Guest TR1982

Let's revisit Kathy Kristof's Times article from last week:

 

"The most recent disclosure on file with the Labor Department shows that the NEA received $49.6 million from Security Benefit Life Insurance, the provider of Valuebuilder, and other endorsed companies in 2004."

 

Dare we hope that the appropriate authorities look into this, as well?

 

 

Do the endorsements mentioned include all endorsements the NEA gave out for all products and services? If so, the 49.6 million figure for SBL is pretty misleading. Who knows what they actually paid the NEA? It might be far less significant then what is "quoted" here.

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TR,

 

I think Kristof meant that NEA received a total of $49 million from SB and other companies that got NEA's endorsement. My understanding is that the NEA received $2 million from SB. The other $47 million apparently went to other companies.

 

However, I still think that the payments are improper, and I sure hope that the appropriate authorities will investigate. If they do, I hope that they come down on NEA far harder than SB. SB does not purport to look out for the interests of teachers, but NEA does.

 

How sleazy can the NEA get? "Tell you what, Financial Services Company , why don't you pay us a couple of millions of dollars and you can get our endorsement. Our members will think that your products are terrific (otherwise why would we endorse them?). It's a win-win situation. We get $2 million, you get the business. If teachers get screwed in the meantime, nobody will be the wiser."

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Guest Sierra

I won't pretend to be a mindreader, but I imagine both NYSUT and ING would welcome such an inquiry. Since the entire fee arrangement is disclosed in the prospectus from ING, and NYSUT puts disclaimer language on every piece of mail I get from them, there's nothing going on "under the table." That being the case, they should both welcome the opportunity to end the whisper campaign and get the blessing of the guy who has been a whistleblower against so much of what is wrong in the financial services industry.

 

(For that matter, the NEA probably feels the same way, unless they have not been as forthcoming in their disclosures as NYSUT.)

 

===============================================================

FT you might find the following informative; It is required by law to be printed at the beginning of every Prospectus:

 

"NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE"

 

So just because your New York State United Teachers and ING have disclosed their $3 million fee arrangement in the Opportunity Plus variable annuity prospectus doesn't mean the SEC or the NYS regulators approve of it.

 

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FT you might find the following informative; It is required by law to be printed at the beginning of every Prospectus:

 

"NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE"

 

So just because your New York State United Teachers and ING have disclosed their $3 million fee arrangement in the Opportunity Plus variable annuity prospectus doesn't mean the SEC or the NYS regulators approve of it.

 

 

I wasn't trying to imply that the SEC or anyone else "approved" of the fee arrangement. But I'd be pretty surprised if the NEA and NYSUT were both foolish enough to enter into an agreement that was illegal.

 

You have suggested several times that you believe the unions may be in violation of securities law with these arrangements. Can you cite a specific law that they may be violating?

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Guest Sierra

Sharing in commissions without being licensed. Pay to play schemes. Anti kickback laws. I won't be surprised if he passes insofar as he is a key political ally of your New York State United Teachers---and the beat goes on.

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Sharing in commissions without being licensed. Pay to play schemes. Anti kickback laws. I won't be surprised if he passes insofar as he is a key political ally of your New York State United Teachers---and the beat goes on.

 

 

If I read the prospectus correctly, NYSUT does not receive commissions, but a fixed-dollar amount per member, which is a different thing. "Pay to play" hardly describes this, insofar as literally dozens of financial service firms (including your beloved no-loads) are available in New York without paying a dime to NYSUT. And you can hardly describe a fee that is fully disclosed in a prospectus as "kickback"!

 

I like the circular logic at the end, here: if Spitzer pursues this, he's a hero. On the other hand, if he reads this situation the same way I just did, and concludes that there is no evidence to warrant an investigation, then it's just "politics as usual." Heh.

 

At the end of the day, I hope he does investigate. If NYSUT has something to hide, it should be brought to light. If, as I suspect, there's nothing to hide, it'll be nice to see you acknowledge that here.

 

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Guest Sierra

At the end of the day, I hope he does investigate. If NYSUT has something to hide, it should be brought to light. If, as I suspect, there's nothing to hide, it'll be nice to see you acknowledge that here.

====================================================================

I am in full agreement with you. Now tell me how you consider the TC/advisors a potential conflict of interest but you can't see the conflict of interest present with the ING/NYSUT arrangement.

 

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Now tell me how you consider the TC/advisors a potential conflict of interest but you can't see the conflict of interest present with the ING/NYSUT arrangement.

 

 

If NYSUT demanded that all companies pay in order to be approved on their vendor list, and therefore ING was available while other companies were not, I would see the conflict of interest.

 

If NYSUT mandated the use of their endorsed carrier, to the exclusion of all (or even most) others, I would see the conflict of interest.

 

If it were as difficult to get a no-load provider on the vendor list in New York as it appears to be in California, I would see the conflict of interest.

 

A question about TIAA-CREF's possible conflict of interest (and I say "possible," because I have no idea how it's actually set up). If TIAA-CREF hires "advisors" whose job it is to steer people into TIAA-CREF funds (and not to provide advice), will YOU be consistent and criticize them as heavily for their failure to provide impartial advice and their "real" status as SALES advisors, the same way you have criticized other full-service providers?

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I do not pretend to have all the information regarding TIAA-CREF advisors but it is my understanding that these are non-commissioned, full-time TIAA-CREF employees who are available to clients of TIAA-CREF. So participants would be using TIAA-CREF investments but instead of investing entirely on their own they would have access to these non-commissioned advisors. Fee structures, which are among the lowest in the industry, would not be altered. It is my sense that this an added value that TIAA-CREF is bringing to their clients. One could say that these advisors would be biased toward TIAA-CREF products. One could also say that access to both low-cost products and a non-commissioned advisor is an attractive approach to those in need of aid.

 

Dan Otter

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I do not pretend to have all the information regarding TIAA-CREF advisors but it is my understanding that these are non-commissioned, full-time TIAA-CREF employees who are available to clients of TIAA-CREF. So participants would be using TIAA-CREF investments but instead of investing entirely on their own they would have access to these non-commissioned advisors. Fee structures, which are among the lowest in the industry, would not be altered. It is my sense that this an added value that TIAA-CREF is bringing to their clients. One could say that these advisors would be biased toward TIAA-CREF products. One could also say that access to both low-cost products and a non-commissioned advisor is an attractive approach to those in need of aid.

 

 

Dan, if they're setting it up that way, then I agree that this is an attractive approach. The Wall Street Journal article seemed to place it more in the context of positioning such "wealth advisors" as a key component in an asset retention strategy, which would run counter to what you are suggesting here.

 

One other caveat: while you say here that "fee structures...would not be altered," the fact is that they already have been. Fees on mutual funds skyrocketed last year (again according to the WSJ), which may or may not have been in anticipation of the hiring spree TIAA-CREF was about to embark on with these agents.

 

It will indeed be interesting to see how it plays out, and whether this is a tactic that other no-load providers turn to in an effort to retain assets. Some variation of the full-service model may one day be apparent even within the no-loads.

 

 

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Guest Sierra

I oppose the TC/Advisory set up because the welfare of TC comes first (retention of assets under management) while the client's welfare is last or second. And as noted these TC employees that act as advisors are being paid via higher fund expense ratios. Any TC client that enters into such a relationship is no-longer in a no-load environment and must take all advice given with a grain of salt!

 

For the exact same reasons as stated above I would advise you to can your relationship with Opportunity Plus/ING! You have no fiduciary relationship with them. Retention of assets under management is their primary concern just like with the TC/Advisory set up.

 

This is why I encourage all to invest in pure no-load funds and learn all you can about investing based on your station in life. If you need a financial exam once a year or two or upon a life altering event seek out a fee only planner/Registered Investment Advisor and pay him/her for TRULY UNBIASED ADVICE.

 

Peace and Hope,

Joel L. Frank

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Hey FT and Sierra,

 

As stated I do not know the exact specifics about TIAA-CREF's advisory services. I do know the local advisor in my area. He has been a long-time TC employee. He primarily serves the colleges/non-profits in this area. He works with all TC clients in this area on a non-commission basis. I understand that TC has been opening offices near college campuses to better serve clients and retain market share. I think, and this is only my guess, that TC is adapting, especially to the college market where Fidelity and to a lesser degree Vanguard, are aggressively encroaching on the college/university market that TC has long dominated.

 

I have heard that some of TC fees have gone up. But it is my understanding their fee structure is still well below 1 percent. From my perspective I would rather utilize the TC option (advisor + low cost products) than the ING/AIG-VALIC, etc. option (advisor + product with total expenses north of 2%--if these companies offer a fee structure in line with TC model then it would probably be wash). I agree that the purest way to invest would be to use a product suggested by a fee-only planner.

 

Dan Otter

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