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elliot

403(b) Vendor Reps

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Hi elliot,

We have had some beginning pros come here seeking suggestions such as you asked and the discussion ends up with an argument between the pros and the educators. Yes, it becomes ###### because for all of the bad experiences we had. Getting ripped off by $6000 surrender fee is something I will never forget. Oh sure, I signed the contract and I didn't do this or do that. Yes, it is my responsibility but I do have a valid reaction to what happened.

 

I came from the private sector and we had presentations by the companies telling us what is available. I still remember the graphs they showed us. Nothing like that has ever happened in education. The research that I have undertaken and the experiences that I have done with trying to have a conversation with district staff, who are the most unreasonable, rigid, demanding of people, and lobbying state legislators, changing my own union, getting on the 457 oversight committee for my district, conducting workshops for colleagues, writing articles in my union newspaper, talking with the media again and again, etc, etc, etc, I have learned that their are powerful industry interests in keeping the status quo, which includes the national teacher unions and school district staff who will never admit that they are dead wrong on this issue.

 

Much of this is backed up for our state insurance code, which was passed by the insurance lobbyists, I began to realize that unless you take on the establishment with all of its power, money and history, millions of more educators will get a bad experience with the current system and realize that their lifetime savings will not be enough. Somebody has to do this and we believe that more positive change is coming. Significant changes were accomplished last year that did not happen accidentally, but from years of coming back again and again. We have too many friends in the mainstream media these days that are waiting for any break in this system.

 

To be brutally honest with you, unless you want to challenge your own industry and become reeducated (becoming teacher friendly by charging only an hourly fee and realize that this system is bad for all), don't get into this profession. The system is corrupt. It is beyond repair. Working with any insurance company is equivalent to keeping the status quo. One cannot work for an insurance company and do the right thing for educators. That combination is DOA. Sorry, but these are the facts as many of us see them. We have been in this as advocates for many years and we have had many conversations and discussions that go no where. Only the media and my teachers union (finally because of a change in leadership) has responded to our concerns.

Best of luck in your decision,

Steve

 

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Guest Sierra

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.

 

 

You seem to be a little mixed up. If you are serious about going with B/D you better get no-loads out of your head. They go together like water and oil!! Conversely, if you feel no-loads are best for the investing public then you better get B/D out of your head. If you really like this business of helping people with their financial futures and have time on your side then go the no-load route and charge the client a fee for being a Registered Investment Advisor. If you have very little time to build up a book of business and don't mind p........ yourself and fooling yourself by saying "if I didn't sign this sucker up another guy would" then go the broker/dealer route. But before you do, ask yourself: "Would I sell a loaded mutual fund to my sister every two weeks for 30-40 years"?

 

You said: "You get the annuity sale", very interesting remark. Do you know that the immediate payout annuity is one of the best ways to make a commisssion in this industry? But is it good for the client? Do you know that when a retiree annuitizes his pot of gold he/she no longer has that pot of gold. The pot with the gold becomes the property of the insurer in return for a lifetime income. Would you advise your mother to do this with her 403(b) or would you tell her to keep the 403b capital in her name and withdraw money based on her life expectancy? This distribution method enables your mom to make additional withdrawals if the need arises. She cannot do this if she annuitizes!! Did anyone representing a B/D tell you this? Assume a stranger and your mother are similarly situated would you advise them differently or the same. A true advisor would give each the same advice. A commission salesman would sell the immediate annuity to the stranger (somone else's mother). WHAT ARE YOU ?...THE ADVISOR...OR THE SALESMAN?

 

Peace and Hope,

Joel

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First, I want everyone to be clear with regards to how I am entering this field - I will not be working for an insurance company. I do plan on trying to balance the sales and what's best for the client. Unfortunately, the way the system works, I must work for a B/D, at least initially. I need to be licensed, and gain experience before I can be an RIA and go completely on my own. Unless everyone here will feed me clients, I need to start somewhere.

 

As to Sierra's comments about an annuity. Yes, it's possible if it's the right investment, I would recommend an annuity to a relative or a stranger. I would never suggest someone buy an annuity with their entire nest egg. But take someone who maybe doesn't have a pension (doesn't really apply to most teachers). They would like some predictability of their income. Annuitizing some of their nest egg could be the right decision. I am not too informed about annuity products, yet. I can't say which is good/bad, etc and what I would receive as payment. Payment is not my concern, for the most part.

 

And please don't take something I write out of context. Look at my entire point. I essentially stated that if you do right by the client early on, when the time comes, if appropriate, you get the annuity sale. The reason a rep would get that is because they have done a good job and continually recommend the right moves to a person. The lesson is if you do the right thing by the client, eventually the money will be there. Please don't torch me given that I could never put someone in a high cost annuity product, which is tax-deferred, in a tax deferred account. That's dispicable, unnecessary, and the reason I am looking to join the firm I am joining.

 

As for load funds vs. no load. Yes, the load is a commission. But please realze, not all load funds are bad. Just like not all no-load funds are good. The correct thing to do is recommend good funds, regardless of what the fees are for the client.

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As for load funds vs. no load. Yes, the load is a commission. But please realze, not all load funds are bad. Just like not all no-load funds are good. The correct thing to do is recommend good funds, regardless of what the fees are for the client.

 

Uh, that last clause is going to get you into trouble here. Fees are one of the few things that an investor can control. They are an extremely important consideration in selecting investments. This is especially true with bond funds, where fees can eat up a substantial portion of return. I can't imagine paying a 5.25% load for a bond rund that returns 5-6%. Does anyone here actually sell such funds?

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Hi elliot,

I know you will never believe this, but this discussion thread has been fairly civil. You came here asking questions and we responded but you are still defending your position (annuities and loaded mutual funds which is DOA around here). We gave you suggestions on how to move forward, but, and there is a but, you are not listening. You have that right. As with many other threads, the discussion ends with the potential pro leaving and apparently learning very little.

Steve

 

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Guest Sierra

First, I want everyone to be clear with regards to how I am entering this field - I will not be working for an insurance company. I do plan on trying to balance the sales and what's best for the client. Unfortunately, the way the system works, I must work for a B/D, at least initially. I need to be licensed, and gain experience before I can be an RIA and go completely on my own. Unless everyone here will feed me clients, I need to start somewhere.

 

As to Sierra's comments about an annuity. Yes, it's possible if it's the right investment, I would recommend an annuity to a relative or a stranger. I would never suggest someone buy an annuity with their entire nest egg. But take someone who maybe doesn't have a pension (doesn't really apply to most teachers). They would like some predictability of their income. Annuitizing some of their nest egg could be the right decision. I am not too informed about annuity products, yet. I can't say which is good/bad, etc and what I would receive as payment. Payment is not my concern, for the most part.

 

And please don't take something I write out of context. Look at my entire point. I essentially stated that if you do right by the client early on, when the time comes, if appropriate, you get the annuity sale. The reason a rep would get that is because they have done a good job and continually recommend the right moves to a person. The lesson is if you do the right thing by the client, eventually the money will be there. Please don't torch me given that I could never put someone in a high cost annuity product, which is tax-deferred, in a tax deferred account. That's dispicable, unnecessary, and the reason I am looking to join the firm I am joining.

 

As for load funds vs. no load. Yes, the load is a commission. But please realze, not all load funds are bad. Just like not all no-load funds are good. The correct thing to do is recommend good funds, regardless of what the fees are for the client.

 

BY DEFINITION ALL LOADED FUNDS ARE BAD, WHY? BECAUSE THE INVESTOR PAYS A COMMISSION. YES IT'S THAT SIMPLE! AS A REGISTERED REP OF A B/D YOU CAN BUY THE BEST PERFORMING LOADED FUND FOR NO-LOAD (NAV). THAT'S ONE OF THE BENEFITS OF BEING A REGISTERED REP. AND YOU ARE GOING TO STAND THERE AND ASSERT YOU'RE DOING RIGHT BY YOUR CLIENT BY COLLECTING A COMMISSION FOR SELLING HIM THE SAME DAMN FUND. GIVE ME/US A BREAK!

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I'm getting attacked on a couple of fronts here. First, when I say not all load funds are bad, I am not talking about the commission and load itself. I am talking about the actual fund. In some cases, and since I'm not a pro yet I don't exceptions, you cannot get around a sales load to invest with a particular manager's mutual fund. Bill Miller's Legg Mason Value Trust is a load fund. If anyone here can tell me that they would have rather invested in a no-load fund instead of his load fund for the last 16 years, fine. But it is a great fund run by an excellent manager. Legg Mason doesn't advertise much, so the load is essentially their advertising, which is compensating a sales rep instead of an ad agency.

 

As for annuities, I don't like them. Please get this straight. Certainly without question in a 403(b) annuities are bad. They are stupid, and an inappropriate investment. I could not do what I want to do on behalf of an insurance company because I would be putting people into an annuity in a 403(b), which is bull#$&@. I did state, that it is possible an annuity could be appropriate for a portion of a nest egg upon retirement. I can't specify circumstances, or type of annuity, as I am really not familiar with them. I should become so after I am licensed, so I will be able to help my clients.

 

As for the commission a B/D charges on load funds, I can't speak to it. I don't have experience yet. But I do know if you buy the same fund through the fund company, you still pay the load. So I'm almost certain not all of that money goes to the B/D, or the sales rep. Some likely goes back to the fund company.

 

I have learned a lot from reading various posts. But people here do seem intent to think they know more than they do based on the bad experiences from the 403(b). No one should have those experiences. But you should also use this forum to learn that in some cases a rep is a useful tool. When you purchase investments, someone will be compensated and there is a cost involved which you pay. Until then, there likely can't be any open dialogue between pros and, for lack of a better word, jaded employees. It's difficult to improve anything when you can't be open-minded about other perspectives. Here I am, looking for yours, and yet you won't look from mine. Instead my points are greeted with some hostility due to past experiences with which I have no involvement.

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Hi Elliot; OK, let me say something: first, I am an insurance agent who specializes in the 403b market. l have been doing this work for many years. I enjoy it, and I am proud of the service and product I provide. I dont sell VA's, for the many of the same reasons that people mention here, I sell only fixed annuity.

 

That being said; I want to congratulate you on wanting to go into this business--teachers do need all the assistance they can get. It is true that the system is broken, and people are taken advantage of. As long as you are clear in your heart that you are doing the right thing by your clients, then ignore everything else that people who dont know you may say. Do your best to understand the rules, laws, and policies that govern your actions. Follow them religiously. The people here that criticize you, dont know you and they dont know your clients. Just do your best for the people right in front of you. They are all that matters.

 

You have stumbled on to website that is populated with a few people who are very antogonistic toward agents and insurance companies. From their posts, you can gather they have been taken advantage of, and are angry.To get a postive perspective, I would suggest that you talk to successful agents in your area. Sit with them, get to know what they do, and how they do it. And, ask for the chance to talk with their clients. Find out what the client likes and doesnt like. One comment that was made here is that the job of the sales person is to make sales. Actually, that only a part of it. The biggest part of the job is servicing the needs of the client. If you sell someone, but cant keep them, you will fail in this business. Find someone who has been in business for 10 years, thats a pretty good length of time. If their book of business is stable, they must be doing something right. Sit with them, ask all the questions you can think of.

 

Anyway, that is my 2 pennies worth. I just thought it was time to say something as you seem like a good person, and I dont want you to be discouraged.

 

Best Wishes,

 

Herb Hussey

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Guest Sierra

Hi Elliot; OK, let me say something: first, I am an insurance agent who specializes in the 403b market. l have been doing this work for many years. I enjoy it, and I am proud of the service and product I provide. I dont sell VA's, for the many of the same reasons that people mention here, I sell only fixed annuity.

 

That being said; I want to congratulate you on wanting to go into this business--teachers do need all the assistance they can get. It is true that the system is broken, and people are taken advantage of. As long as you are clear in your heart that you are doing the right thing by your clients, then ignore everything else that people who dont know you may say. Do your best to understand the rules, laws, and policies that govern your actions. Follow them religiously. The people here that criticize you, dont know you and they dont know your clients. Just do your best for the people right in front of you. They are all that matters.

 

You have stumbled on to website that is populated with a few people who are very antogonistic toward agents and insurance companies. From their posts, you can gather they have been taken advantage of, and are angry.To get a postive perspective, I would suggest that you talk to successful agents in your area. Sit with them, get to know what they do, and how they do it. And, ask for the chance to talk with their clients. Find out what the client likes and doesnt like. One comment that was made here is that the job of the sales person is to make sales. Actually, that only a part of it. The biggest part of the job is servicing the needs of the client. If you sell someone, but cant keep them, you will fail in this business. Find someone who has been in business for 10 years, thats a pretty good length of time. If their book of business is stable, they must be doing something right. Sit with them, ask all the questions you can think of.

 

Anyway, that is my 2 pennies worth. I just thought it was time to say something as you seem like a good person, and I dont want you to be discouraged.

 

Best Wishes,

 

Herb Hussey

 

 

Elliot: Have you heard of TIAA-CREF? If not let me know.

 

Herb: Tell Elliot and the rest of us how you are able to sleep at night knowing that you collect a commission every two weeks by selling 403b fixed annuities when YOU KNOW your clients can use the no-load TIAA-CREF which has had the highest credit rating among insurance companies for 50 years.

 

Elliot: Herb's commission results in a lower declared interest rate for his client. Imagine doing this for "years". You would never have anything to do with this garbage would you Elliot?

 

Peace and hope,

Joel

 

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"people here do seem intent to think they know more than they do based on the bad experiences from the 403(b)"

 

"From their posts, you can gather they have been taken advantage of, and are angry"

 

Most of us here know enough not to get scammed and taken advantage of by a 403b agent selling fixed or even variable annuities. This makes us well informed and able to help out friends and family from swimming in shark infested waters.

 

Most us have educated ourselves by going down the learning curve and reading books by Vanguard founder, John Bogle and other brilliant authors, Charles Ellis, Larry Swedroe, William Bernstein etc etc. They have published books that Wall St and agents do NOT want you to read. William Bernstein in his book The Four Pillars of Investing, stated expenses are the only predictable way in knowing how a fund will perform.

 

Elliott you are way off base when you stated recommend good funds regardless of what the fees are. You can not predict in advance which funds will outperform. Therefore you select index funds for minimal expense and diversification. Modern Portfolio Theory has taught us that it is not important to be in the ######test fund or stock, but it is important to be invested in the right asset classes to earn those historical rates of return. Remember we are investing for a lifetime, not a year or two. Trying to pick winning funds is an exercise in futuility.

 

This is all stuff that I have learned from the above authors over the course of ten years, that so many agents/advisors will not tell you or do not know.

 

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Bill Miller's Legg Mason Value Trust is a load fund. If anyone here can tell me that they would have rather invested in a no-load fund instead of his load fund for the last 16 years, fine.

 

But people here do seem intent to think they know more than they do based on the bad experiences from the 403(b).

 

1) Were you recommending Miller's fund in 1990?

 

2) Yes, experience -- both good and bad -- has been a good teacher; however, self-education has also been important. Do I think I know more than I do? What an odd question. How would I know? I will say, though, that I have not found successful investing to be all that difficult.

 

I will give you some credit, though, Elliot, for putting yourself at the mercy of all of us on this forum!

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elliot,

You may recall the ###### “The Graduate.” The older fella advised Duston Hoffman by saying one word: “plastics.” I have one word for you: “ideas,” powerful ideas.

 

You stand at the crossroads. Go with the system with TR1982 and Herb and the many agents who are in your area or get yourself educated by reading the many books we recommend here and do your clients a real service. It’s easy to dismiss us as a bunch of hostile simpletons as Herb does frequently on this site but the ideas brought forth from the books we recommend will last a lifetime. It’s not about personalities or feelings about anybody. It’s about powerful ideas. TR and Herb and most, but not all, pros have dismissed those investment ideas of controlling costs first then diversifying among asset classes, thinking long term and putting more in the clients’ pockets than your own. You can do this by setting yourself up as a fee only adviser.

 

When you educate yourself you will learn that trying to predict how a fund will perform is futile. Learn about MPT, efficient frontier, coffeehouse investor, financial engines. Take a look at the very best investment forum in the world, Vanguard Diehards in Morningstar.com. These are just some of the websites and resources that we get our powerful ideas.

Good luck,

Steve

 

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Hi elliot,

We have had some beginning pros come here seeking suggestions such as you asked and the discussion ends up with an argument between the pros and the educators. Yes, it becomes ###### because for all of the bad experiences we had. Getting ripped off by $6000 surrender fee is something I will never forget. Oh sure, I signed the contract and I didn't do this or do that. Yes, it is my responsibility but I do have a valid reaction to what happened.

 

I came from the private sector and we had presentations by the companies telling us what is available. I still remember the graphs they showed us. Nothing like that has ever happened in education. The research that I have undertaken and the experiences that I have done with trying to have a conversation with district staff, who are the most unreasonable, rigid, demanding of people, and lobbying state legislators, changing my own union, getting on the 457 oversight committee for my district, conducting workshops for colleagues, writing articles in my union newspaper, talking with the media again and again, etc, etc, etc, I have learned that their are powerful industry interests in keeping the status quo, which includes the national teacher unions and school district staff who will never admit that they are dead wrong on this issue.

 

Much of this is backed up for our state insurance code, which was passed by the insurance lobbyists, I began to realize that unless you take on the establishment with all of its power, money and history, millions of more educators will get a bad experience with the current system and realize that their lifetime savings will not be enough. Somebody has to do this and we believe that more positive change is coming. Significant changes were accomplished last year that did not happen accidentally, but from years of coming back again and again. We have too many friends in the mainstream media these days that are waiting for any break in this system.

 

To be brutally honest with you, unless you want to challenge your own industry and become reeducated (becoming teacher friendly by charging only an hourly fee and realize that this system is bad for all), don't get into this profession. The system is corrupt. It is beyond repair. Working with any insurance company is equivalent to keeping the status quo. One cannot work for an insurance company and do the right thing for educators. That combination is DOA. Sorry, but these are the facts as many of us see them. We have been in this as advocates for many years and we have had many conversations and discussions that go no where. Only the media and my teachers union (finally because of a change in leadership) has responded to our concerns.

Best of luck in your decision,

Steve

 

 

 

You mention the system is corrupt and beyond repair and should only charge an hourly fee. I should tell you that both my mother and wife are teachers and both have 403bs.

 

I pay a load for some, I say again, some of the funds I invest in. My financial advisor is very good and has averaged what I consider good returns over the past 15 years(8-13%). My problem with your comments are that they indict the entire industry, I will agree with you that some sales people are in it to rip you off, but I will also counter with the idea that some are not. Just as with teachers, some are very effective, and others are completely useless. It happens in any profession. Your comment regarding advisors should only charge an hourly fee, so your are saying for 35 years worth of value should somehow be reduced to an hourly wage. What if teachers were paid specifically on the advances made by their students (i.e. college, specific job, promotions) instead of a year salary with a generous pay raise and normally a great retirement if you put in the years.?

 

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A whole lot to reply to. I think the easiest is that I subject myself to this, if that's what you'll call, so I can sort out how I want to approach this profession. It's also so I can get the hostile perspective, if you will, and be able to handle it and explain my role to people who ask questions.

 

Someone asked if I've heard of TIAA-CREF. Yes, I have. I know the general idea of how the company started, and why, and what the mandate is. I also know they do have sales reps, who are salaried. But I believe do get bonuses based on client retention, and increased sales. So their interest is not to have you in a high fee fund, but in one of their funds. This is fine, but there could be better funds elsewhere. Does this mean they are bad? Even with regard to index funds, perhaps Fidelity has better service. So they keep you with TIAA-CREF, get compensated for it, but maybe offer inferior service. This is all hypothetical, but it's to illustrate that you can control costs, and should not pay outrageous fees. However, you can get value for expenses you incur. For full disclosure, I might be wrong about TIAA, in which case, please nicely correct me. Also, I did look at their website for positions, but they want someone licensed and with experience.

 

As for Miller's fund. I couldn't have recommended anything in 1990 given my age, forget about investment products. Personally, I considered investing with him a number of years ago. I don't know why I didn't, and still may. And perhaps I mistated that I would recommend a good fund regardless of the fees. I should retract and restate. Expense ratio and ongoing expenses should be a consideration. But I will say that I will not automatically eliminate a load fund, as it may be a quality investment. Past performance is no guarantee. But, research a manager's track record, investment philosophy, and it's possible they fit into a diversified portfolio. Sure, have the low-cost index funds. But maybe, just maybe, have some others that are actively managed to give a little extra. You never know which funds will outperform any index, or if they ever will. But, it is also possible that in a year in which the S&P 500 goes up 10%, a person's holdings, or at least their contributions for that year, did not follow. That's because if you DCA, and the index is more than 10% up most of the year, those contributions will have a loss. The same holds for actively managed funds, if you follow the manager, and avoid fad investment (ie - the Munder NetNet fund in 2000). I know from experience, that I told someone not to invest in that fund. An advisor told them otherwise, though I don't know if there were loads or what was the advisor's compensation. Needless to say, that was the height of the bubble, and the investment was crap. I have other stories like that, but this message is certainly getting long enough.

 

No one can know if they think they know more than they do. That would be silly. I was stating an opinion that it seems as if several posters base their universe of knowledge on their negative experiences. But still think they know a lot, which just isn't true. The comment wasn't targeted at anyone in particular.

 

And finally, on becoming a fee-only advisor. I will have the flexibility to consult a client in that arrangement. It is true, with regards to signing up teachers, I will be on a commission basis. But the money I will make is very minimal from each teacher for the 403(b), that it's in my interest to service them well, and make that expense worth it. If I deliver value there, they will continue to use me for advice, services, etc, outside of the 403(b) environment. Also, I cannot just suddenly become fee-only. Would that I could. I first need work experience, I need to register with NASD and SEC (which must be done through a B/D), and I need some sort of client base. Without these things I have no credibility and have fewer legs to stand on than a peg-legged pirate (read: NONE).

 

Much like a teacher may have to start in the Bronx, because that's where the job is, but intends to move to cushy Westchester public schools at some point, I must start here. I can only hope that I get enough clients soon enough that I can feed myself and don't hit the point of leaving the profession. Along the way I truly believe I will provide a service, and advice, to clients. My understanding of this website isn't to completely get rid of reps, or at least not ones who operate the way I intend to do so. But to educate people so they don't get ripped off, and know what expenses they are incurring both upfront and on a continual basis. This way they can judge for themselves what the next path should be for their investments.

 

In some ways, I'm enjoying this back and forth. So please keep it coming. And share with me more experiences. Especially if anyone has encountered a good rep in their school (they must be out there somewhere), let me know what you liked.

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EIBarnes,

 

You have my curiousity. Could you please share with us, Which specific funds you are invested in, and the name of the outfit you invest thru. Thanks..

 

 

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