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elliot

403(b) Vendor Reps

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It's true that the person who signs a contract for the 403b is responsible for their own actions. But given that a lot of the general public is financially illiterate, a high cost 403b "advisor" is simply a salesperson making a living off of taking advantage of other's ignorance.

 

For some reason cars were brought into the discussion. So let's compare a car salesperson to a high cost 403b salesperson. Both can/will take advantage of financial ignorance if given the opportunity. You will use the car for a number of years, then get rid of it. It is a tool to get you where you need to go. On the other hand, the 403b is your life savings that you will depend on to live off of in retirement (for perhaps as much as 30-40 years) and money you will be able to pass on to a loved one when you die. And if you put your retirement plan together well, you may even be able to retire earlier than you could otherwise. Imagine that! a high cost retirement salesperson with the ability to prolong the number of years an employee has to work!!

 

I pity those who sell high cost retirement products. Consciously or subconsciously, they spend their days taking advantage of other's ignorance. And unless they find ways to JUSTIFY their way of making a living, they wouldn't be able to sleep at night. That is, assuming they have a conscience.

 

 

 

 

 

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Sierra-

 

I'm familiar with NYC teachers' retirement options. The difference is the 50,000 teachers involved, so it's easier to have everything managed in-house. Plus, I would think there would be some overlap for all the other public employees of the city, which causes that number to balloon.

 

Elliot

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Guest Sierra

Sierra-

 

I'm familiar with NYC teachers' retirement options. The difference is the 50,000 teachers involved, so it's easier to have everything managed in-house. Plus, I would think there would be some overlap for all the other public employees of the city, which causes that number to balloon.

 

Elliot

 

 

Elliot: Did you know that broker/dealers are not allowed to sell to NYC employees including teachers. Why do you feel the City officials have made that decision?

 

Joel

 

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Guest TR1982

"TR1982, As a salesperson you earn a living by selling investment products that earn you a commission. Do you not see the conflict of interest? You claim that the commissions you earn are justified by the services you perform. This can only be true on ONE condition. If an investor was FULLY aware of his or her options. But the sad truth is that they are financially incompetent making them prime candidates for lousy investments. Your clients would be better served if you advised them on a fee only basis and put their contributions in a no-load index fund(s). "

 

Are you suggesting that the only context in which someone can purchase anything is if they are fully informed of all the options they may have? Under that scenario no one would ever buy anything since they would spend all their time researching their options. This is so ridiculous it's funny. I guess when you buy a car you research every possible option and then expect the salespeople at every dealership to understand all your needs and then recommend that you buy the car somewhere else? What world do you live in? Does the salesman for Dell computers have an obligation to explain all the competitors options to you first and then send you to Compaq?

 

I invite any potential customer to research their options and due their own due diligence. I will not do their research for them and I will not represent firms that I don't want to represent. I am not someone's mother. Just because people chose not to explore every option they have does not make me morally or legally liable for choices they make or don't make. I don't expect that from my children's teachers and I don't blame them for my children's mistakes.

 

IGNORANCE IS NOT AN EXCUSE FOR MAKING MISTAKES.

 

I would suggest you spend less time criticizing the people who you think are morally inferior to you (but who, by the way, don't CURSE at you) and try to change the system you think is so broken. I don't waste my time attacking bad teachers. There will always be bad teachers. I'm going to do the right thing for my clients because I have to sleep at night and I will answer to God for what I do. I would suggest you do the same.

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If there is a rep on site, there is an expense associated with it. You should receive value for the expense. The person should sit with you to discuss risk aversion, goals, desired retirement age, etc.

 

Don't assault how someone conducts their business because you have had a bad experience with someone else in their field.

Elliot

 

 

Elliot,

 

Based upon the people who come to this forum and the experience of my colleagues, I question how much salespeople actually sit down with clients and "discuss risk aversion, goals, desired retirement age, etc." Indeed, a case can be made that this is not their function at all. Rather, as Sierra reminds us, their main job is to make sales. This is the core of the problem: the salesperson, naturally, wants to make as much money as he can off of sales. The client wants/needs an appropriate portfolio that meets his/her needs. These are two competing interests that are difficult to reconcile.

 

Perhaps this conflict is not terribly unusual. I suppose that it exists whenever a commissioned salesperson tries to sell cars, electronics, or other consumer goods. The difference, though, is in the stakes that are involved. A person's quality of life during retirement is substantially more important than a home entertainment system. The salesperson-client conflict of interest as it pertains to retirement plans can be a threat to the client's long term financial well being, far more so than the conflict of interest a consumer has with an electronics salesperson.

 

This is not to indict all 403b salespeople. It is, however, to question the premise upon which they base their business. Those are pretty strong words, and I know that there is another side to this. I look forward to hearing it.

 

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Sierra-

 

First, I am familiar with NYC. I can imagine several reasons why they don't allow B/D to approach employees, at least in school buildings and through city resources. One of course, is the union doesn't want it. The second is it hurts the city's ability to administer their own plan. They can do what they do because they have 50,000+ participating members. Yes they offer low-cost options and such. However, their ability to do that comes from lack of competition. Thankfully, the monopoly (for lack of a better word) does serve the members well. Another reason could also be there are just too many schools, and it would be too many vendors, reps etc. That would a huge headache that is simpler to avoid.

 

The ultimate point is NYC is unique, and very difficult to duplicate.

 

AP-

I agree with you many don't sit down. I actually intend to, and to add value. This in turn should provide me with more clients, doing more for my clients which will lead to more money. In theory. Much of how things should be is sadly theory, because very few practice it. That is a problem. But it is a problem with the mechanism of the reps/vendors, not necessarily with the system itself. Although the system is far from perfect given how reps are able to operate.

 

 

And my two cents on exploring all options is simple. Yes, investing for retirement is serious business. However, for someone to argue that the hypothetical $250 dollars in upfront fees (all ongoing expenses being equal) is not as serious as overpaying for a car or repeatedly purchasing inappropriate electronics is a bit short-sighted. If you get value for the $250, the investment choices, and advice may pay for itself. If you buy a car and go 10% higher than you should, and repeat many times over your life, that's worse. For a $25,000 car, you pay $27,500 (I'm assuming you are talked into options, or buy a different brand which costs more, etc, not just completing bad negotiating), that is 10 years of load expenses. Even 5% more would be five years. So unless you keep your cars for 10 years, it is just as big. It all adds up, whenever you pay more than you should as that is money you won't have to invest, or pay off loans, or otherwise could put to better use. But it comes to if what you receive for your money is worth it. A new Lexus for $27,500 vs a Kia for $25,000 is likely worth it (not to put down Kias, or build up Lexus, but there is a difference).

 

Anyway, you get the idea. Anytime your money leaves your name, you should know what you get.

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Guest Sierra

Sierra-

 

First, I am familiar with NYC. I can imagine several reasons why they don't allow B/D to approach employees, at least in school buildings and through city resources. One of course, is the union doesn't want it. The second is it hurts the city's ability to administer their own plan. They can do what they do because they have 50,000+ participating members. Yes they offer low-cost options and such. However, their ability to do that comes from lack of competition. Thankfully, the monopoly (for lack of a better word) does serve the members well. Another reason could also be there are just too many schools, and it would be too many vendors, reps etc. That would a huge headache that is simpler to avoid.

 

The ultimate point is NYC is unique, and very difficult to duplicate.

 

AP-

I agree with you many don't sit down. I actually intend to, and to add value. This in turn should provide me with more clients, doing more for my clients which will lead to more money. In theory. Much of how things should be is sadly theory, because very few practice it. That is a problem. But it is a problem with the mechanism of the reps/vendors, not necessarily with the system itself. Although the system is far from perfect given how reps are able to operate.

 

 

And my two cents on exploring all options is simple. Yes, investing for retirement is serious business. However, for someone to argue that the hypothetical $250 dollars in upfront fees (all ongoing expenses being equal) is not as serious as overpaying for a car or repeatedly purchasing inappropriate electronics is a bit short-sighted. If you get value for the $250, the investment choices, and advice may pay for itself. If you buy a car and go 10% higher than you should, and repeat many times over your life, that's worse. For a $25,000 car, you pay $27,500 (I'm assuming you are talked into options, or buy a different brand which costs more, etc, not just completing bad negotiating), that is 10 years of load expenses. Even 5% more would be five years. So unless you keep your cars for 10 years, it is just as big. It all adds up, whenever you pay more than you should as that is money you won't have to invest, or pay off loans, or otherwise could put to better use. But it comes to if what you receive for your money is worth it. A new Lexus for $27,500 vs a Kia for $25,000 is likely worth it (not to put down Kias, or build up Lexus, but there is a difference).

 

Anyway, you get the idea. Anytime your money leaves your name, you should know what you get.

 

 

Elliot: L.A. is the largest SD in the nation based on geographical size and second based on employees, yet they have not followed the NYC model. Why?... because they couldn't care less about their employee's future. The same holds true for the next 18 largest SD in the nation...no one cares...no one is looking out for the folks...I'm going to get a call into Bill O'Reilly.

 

You say the NYC model has served the employee well. Do you really feel you can serve them better and at the same time make at least $100,000 per year for yourself in fees/commissions? To thy own self, be true!

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TR1982,

 

Your arguements are weak and do not hold water. You take advantage of participants and I will expose you and other agents such as yourself that put people in annuity products when these people have better choices in their 403b programs such as Vanguard, Fidelity or TIAA-CREF.

 

I am doing my part to try and change the system and I will not rest until the message is loud and clear, beware of agents that try and sell you annuity's. TR1982 you are an educators worst nightmare. Some folks such as my wife and I were lucky to escape with just a nick but there are many less fortunate people that have spent years in such horrific plans, that were not as fortunate as us and have wasted alot of money in fees they would not have paid in no-load funds. This is not just due to their own financial ignorance but to the greed and aggresive sales tactics of the agents.

 

They masquerade like they are your trusted advisor and line their pockets with investors hard earned money. Knowledge is power and this is what you are most fearful of TR1982.

 

I

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This was a great post and hits the nail on the head. I couldn't agree more with everything you said. Thank-You

 

The system is broken and needs reforming. The companies that push these advisor sold products should not put the advisors in a position that they have to be sharks in order to meet a quota and in order to keep

their jobs.

 

Why would the advisor give you the facts? If he'she did even the most ignorant teacher would run for the hills. Its in their best interest to keep us in the dark.

 

 

 

Please explain to me how you were fleeced. No one forced you to meet with this person. No one lied about the products you bought. No one forced you to sign a contract. No one failed to disclose anything. The person who is responsible here is YOU, YOU, YOU. Why do people insist on blaming other people for their mistakes? Why don't you start taking responsibility for your own actions and stop blaming someone else who is doing their job?

 

TR1982 we took full responsibility for meeting with this agent and signing a contract that placed us into an annuity with mutual fund sub accounts but this does mean we had to like being taken advantage of. The agent who sold us this 403b tax sheltered annuity never spoke to us about our personal situation in regards to risk tolerance or any other investments that we may have held outside the 403B that may have had an influence on which mutual funds he was going to advise us to invest in. He drew up a contract, selected several funds, we shook hands and that was it. We did not receive any value for all those additional expenses we would have paid. The meeting took place with one purpose and that was to get our business and no other financial aspects of our lives were discussed. Looking back it was kind of like a "hit and run".

 

We made the mistake of putting our trust in him. When he made mention that he was a retired school administrator, we placed our trust in him but never envisioned him as the salesman that he in fact turned out to be. He made us feel like he had our best interests in mind. We had no idea what we had gotten ourselves into. He was charming, well spoken, polite and like Allstate, made us feel like we were in good hands. Is this our fault? Yes to some degree because we had not done our due diligence. There are countless scores of other people out there with a similar rendition of how they got started in their 403B's. This is not a coincidence.

 

The majority of school teachers have a fault which makes them prime candidates for 403b Annuity Agents. They are financially ignorant. I do not mean that in a mean spirited way but in an factual way and I extend this lack of personal finance to others beyond teachers. The school system has failed in a miserable way to educate our students on money matters. Whether you send your kids to private schools or public schools one common denominator remains, the lack of education in the area of personal financial management. We have students graduating high school in which some go to college and others do not and the majority of them do not know the difference between a 401k and an IRA, between a Loaded Fund and a No-load Fund, or how to shop for a mortgage just to name a few.

 

Teachers happen to be a product of this system and they come from private and public schools. I believe the majority are hard working individuals that have dedicated their lives to teaching our kids, but unfortunately when it comes to investing the majority are in the dark. When some of them do sign up and start investing in their 403b program the majority do so via an annuity with mutual fund sub accounts. This does not happen because it was by choice, it happens because an agent put a flyer in their school mail box, sent a letter to their home or approached them at school. Do you honestly believe that these teachers are fully aware of the costs and of the no-load low cost alternatives. Trust me they are not.

 

The school districts compound the problem by offereing little or no information to their employees on their 403b choices and the impact of fees. In addition, my wife's pay check stub has "TSA" instead of "403b" which misleads teachers into thinking they have to invest in a Tax Sheltered Annuity.

 

I have spoken to several of my wifes colleagues and they were astonished to learn of the alternatives offered by the school district. Not one of them said anything positive to indicate they would still continue to invest in their annuities. Four out of five of them rolled their money into Vanguard and one of them did not want to pay the surrender charge, so she froze that account and started a new one with Vanguard. All of them were very disappointed and genuinely felt taken advantage of. All five of those teachers said they followed the agents advice and felt they were taking the right step in saving money towards their retirement.

 

I will continue to beat the drum for investing outside of annuities and directlly with No-Load providers like Fidelity and Vanguard. There are new visitors that come to this site seeking information and they need to know the truth about their options which 403b agents and school districts do a poor job of disclosing. Annuities and loaded funds, are not a wise way to invest. The rules have not changed. Diversify, Index and Minimize expenses, you will be wealthier and hopefully have more wealth to pass on to your kids or heirs.

 

TR1982, As a salesperson you earn a living by selling investment products that earn you a commission. Do you not see the conflict of interest? You claim that the commissions you earn are justified by the services you perform. This can only be true on ONE condition. If an investor was FULLY aware of his or her options. But the sad truth is that they are financially incompetent making them prime candidates for lousy investments. Your clients would be better served if you advised them on a fee only basis and put their contributions in a no-load index fund(s).

 

Teachers and others investing their retirement money in their 403B's deserve to be in funds with minimal expenses. Annuities and Load Funds do the opposite. They saddle you with HIGH costs which put a drag on your net return. Reliance on agents like TR1982, will have you paying more in expenses and getting less in return. Remember when you pay 5% upfront in the form of a load, you are already down 5% ! You need to earn 5% just to break even. Annuities that have mutual funds as sub accounts also face a similiar dillema. On average the total yearly expense of owning these annuities most teachers are sold is 2.5%,(250 basis points) plus they come with surrender fees. If my account total is 50,000.00, at the end of the year my expenses with the annuity are $1,250. With Vanguard, my expenses would be around .25 basis points by using their index funds and this translates to a fee of $125.00.

 

These are the numbers an agent won't show you because you might wisen up send your hard earned money directly to Vanguard or another No-Load Family.

 

 

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Guest TR1982

TR1982,

 

Your arguements are weak and do not hold water. You take advantage of participants and I will expose you and other agents such as yourself that put people in annuity products when these people have better choices in their 403b programs such as Vanguard, Fidelity or TIAA-CREF.

 

I am doing my part to try and change the system and I will not rest until the message is loud and clear, beware of agents that try and sell you annuity's. TR1982 you are an educators worst nightmare. Some folks such as my wife and I were lucky to escape with just a nick but there are many less fortunate people that have spent years in such horrific plans, that were not as fortunate as us and have wasted alot of money in fees they would not have paid in no-load funds. This is not just due to their own financial ignorance but to the greed and aggresive sales tactics of the agents.

 

They masquerade like they are your trusted advisor and line their pockets with investors hard earned money. Knowledge is power and this is what you are most fearful of TR1982.

 

I

 

 

I will let the hundreds of K12 employees that I have helped over the last 20 years be the judge of the value I have delivered. They tell a very different story from people like you. By the way, why do you feel the need to curse at me?

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I can't speak for whoever may have cursed here, but I can tell you that I have silently cussed out my salesperson many, many times because of the poor job that he did with me. The hostility towards salespeople that you read on this forum is probably for the same reason.

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Hi,

My anger has changed and evolved over the years. Currently, the best thing that my two TSA sale advisers gave me was a personal mission: to help my colleagues to stay the hell away from TSA agents and to learn some basics in investing. Personal missions to change corrupt systems is truly a gift.

 

And there is nothing wrong with a little guided anger towards any pro who defend this immoral and unthetical 403b system to benefit their bottom line. But even then my anger is much less at the few pros who make posts here defending this system and blaming the educators, but the hundreds of pro lurkers. I shutter to think how many of my colleagues they are still fleecing. At least, the pros who post here give invaluable information confirming exactly what we educators are saying: agents generally know very little about investing. Furthermore, the pros who debate us are most likely to change; they will NEVER admit this, of course. The posting pros know exactly what we are talking about and they know that we have a point, actually many valuable points.

My anger continues to rage at the teachers' unions and our school districts who do little or nothing but keep the status quo going.

 

The media and a few educator friendly pros have been our only friends all of these years because they are the only ones who listen to us.

Steve

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My anger continues to rage at the teachers' unions and our school districts who do little or nothing but keep the status quo going.

 

Steve

 

 

Yep, the National Education Association's endorsement of Baloney Builder/Bull**** Builder/Value Killer still rankles me, especially when NEA Member Benefits gets a nice $2 million per year from Security Benefit in exchange for the NEA endorsement.

 

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TR1982 I cursed at you because agents like yourself love placing teachers in annuities because the commissions are great for YOUR nest egg. You act as if what you are doing has no financial implications down the road for these folks your suppose to be looking out for.

 

Enough said.

 

We here understand that you have to defend your position till the end because when newcomers log on to investigate, if the annuity they invest in within their 403b is a rotten choice, you fear they will see the light and drop you like a bad habit.

 

I know this creates more work for you, another trip to the teachers lounge, with another tray of cookies or pastries, or more fliers in the mail. You cast your hook and wait to catch the next sucker. Fortunately for you fishing has been great but we hope to change that one post at a time.

 

I'm sorry for the colorful adjectives, sometimes that's what happens when passions run high.

 

 

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Sierra-

 

I can't say why LA and others don't duplicate NYC. Perhaps it's because of how their systems evolved. Nor am I saying that, when I am a licensed professional, I could do better for NYC employees. I only stated NYC is difficult to duplicate, and that I am familiar with it. I am thrilled with their system since it's the reason I don't have to worry about my mother, who taught there for 35 years.

 

 

To everyone- I wish both pros and teachers would act a bit more civilized. I think any reasonable person should admit that putting someone in an annuity through a 403(b) is bad. A tax deferred investment in an already tax deferred account is silly. If any pro says otherwise, you may have helped people over the years, but you could have helped them more. The tradeoff would have been few dollars in your pocket. A wiser way to go would be earn the trust of a client by putting them in no-load funds. Then, over the years providing good advice. When it comes time to figure out what to do with their nest-egg, you get the annuity sale to help them manage their withdrawals and tax payments.

 

If I'm a bit off on this one, please someone tell me. I'll be honest, I'm questioning if I'm making the right career move because I could not put someone in a bad investment simply because I'd get more money out of it.

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