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elliot

403(b) Vendor Reps

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Hi eibarnes,

The fee only idea is not new. Mechanics, attorneys, private schools, dentists and your plumber all charge a fee for services done. The financial management profession is the most lucrative profession in the world. I did not say that but a 403b auditor at KPMG said that. Why? Because it is the only profession that charges an on going fee for as long as the client is investing in your funds. They may see their client frequently or never at all. The investor takes all of the risk, if the investments go up so does the pros income, if the investments go down the income goes down too, but the pro will always get paid, no matter what.

 

Investing in an index and no load fund eliminates the middle man. There are too many reports about the dubious "value" that the pros add for with loaded and managed funds. The added fees carry considerable risk for us investors. Remember we take on all of the risk, the adviser takes NO RISK what so ever.

Doing this myself, I get to keep all of the fees that I would pay and I LEARN about how to do this.

 

I am very happy you have had a good experience with your adviser. But this information about your adviser’s past performance is useless looking forward. If your adviser can guarantee that he or she can repeat those results in the next 15 years, let me have his phone number and I will gladly transfer all of my assets and pay the load for a guarantee of 8-13% per year. Seriously, I hope you get my point.

Steve

 

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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..

 

 

 

I am currently in loaded funds from American...CAIBX, CWGIX,AHITX, AGTHX,AEPGX... Franklin Templeton...TEMGX, TEBIX, TEMWX, AGEFX....Van Kampen....ACSTX, ACGIX... No load Fidelity FSIIX, FDCAX,FIEUX....and of course my 401K, misc index funds, and a stellar Blackrock fund, MAEFX

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Hi eibarnes,

The fee only idea is not new. Mechanics, attorneys, private schools, dentists and your plumber all charge a fee for services done. The financial management profession is the most lucrative profession in the world. I did not say that but a 403b auditor at KPMG said that. Why? Because it is the only profession that charges an on going fee for as long as the client is investing in your funds. They may see their client frequently or never at all. The investor takes all of the risk, if the investments go up so does the pros income, if the investments go down the income goes down too, but the pro will always get paid, no matter what.

 

Investing in an index and no load fund eliminates the middle man. There are too many reports about the dubious "value" that the pros add for with loaded and managed funds. The added fees carry considerable risk for us investors. Remember we take on all of the risk, the adviser takes NO RISK what so ever.

Doing this myself, I get to keep all of the fees that I would pay and I LEARN about how to do this.

 

I am very happy you have had a good experience with your adviser. But this information about your adviser’s past performance is useless looking forward. If your adviser can guarantee that he or she can repeat those results in the next 15 years, let me have his phone number and I will gladly transfer all of my assets and pay the load for a guarantee of 8-13% per year. Seriously, I hope you get my point.

Steve

 

 

 

Any past performance is useless looking forward. No one can guarantee results, nor do I expect that. It is not my goal to jump in a fund make a million and get out, the turtle always wins the race.. But you have to use that same logic as it applies to index funds.. traditionally the market has returned on average something like 11%, but again to your point past performance is useless. So your mode of investing is no better than mine in terms of past performance.

 

My main point was that people get paid differently and someone should not be chastisized(spelling??) for how they pay their bills and support their family.

 

If you have the time to research funds and keep track of them great. But some people do not or care not to.

 

Also my advisor has most of his clients from a 15 mile radious because his office is in our town, so although he risks nothing monetarily, word of mouth is the most powerful advertisment, hence this discussion board..

 

 

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eibarnes,

Of course my mode of investing is better than yours by looking at costs. I never look at past performance, what for. I only look at costs first then I look for the major asset classes. The industry looks at past performance as a selling point and have failed to meet the indexes 75% of the time with all of their money, time and resources. Apparently, you have not learned that COSTS are the most significant drag on a nest egg because that’s what Wall Street wants you to think that costs are not a big thing because it is made up in performance, NOT. Click here about fees.

I have reduced the risk in my portfolio by using low cost funds and investing in the economy (not individual companies, not sector, but classes) via asset classes, large, mid, small, global, bonds. In this day and age, you do not need a research department with its dozens of analyists trying to find that great fund or company. It’s all at Vanguard for the picking.

Look, you and I will never agree. I think advisers are way overpaid for what they really do. You information about your adviser and what he has done for you is useless information. We have to look into the future. What I have said in this message is useful information looking forward, control costs with a diversified portfolio with all the asset classes and thinking long term.

Steve

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I am not new to this web-site but this is my first post. I am a 403b agent and I work for a large insurance company, not Hartford by the way. I earn a good living, a very good one as I have been in business for over 20 years and I will be retiring this year.

 

Because I am near retirement I will speak honestly, no sugar coating and I will draw on my own life experiences in dealing with my clients who were primarily teachers. I started in a business that taught me early on to aggressively pitch and sell variable annuities and loaded funds which yielded commissions. My district branch area manager wanted us to be producers. I was young and did as I was told, sold teachers variable annuities and other investors loaded funds. Teachers were an easy bunch to sell to because most were trusting and none hardly ever questioned my advice. They trusted me and I placed them in VA's when they had better alternatives, but I could not slice my own throat and advise them that TIAA-CREF or Vanguard was available with lower fees and expenses. I just couldn't because my paycheck depended on it.

 

I had to place all my teachers in annuities because my company only offered annuities for 403b's. The only benefit I provided was keeping them invested in a program, that made investing automatic. They were put on autopilot. This is a great benefit because the majority of them probably would not have invested at all had it not been for their 403b at work. I honestly feel like I can take credit for this but it came with a price. The Variable annuity I pitch has a expense ratio of 1.5% plus mutual funds expenses the average total fund fee is around 2.75%, a 40.00 per year account maintenance fee and 10 year rolling surrender charges. They could have had done much better but it was not might place to tell them and reduce my earnings.

 

The truth of the matter was if I didn't get these people locked into my annuity, there was another salesman on my heels waiting to do what I was going to do. These teachers were bombarded with sales literature. One school gave me an annual list of the new hires and I built my business primarily from that. What made my job easy was the lack of financial know how these people had. I never stopped for a moment and questioned my role. As far as I was concerned they should have done their homework, I had a job to do and a family to support, bills every month like everyone else.

 

I do not see myself any differently than a salesman. The only difference is that I sell investment products. My clients do not see me as their advisor. Once the purchase is made we keep in contact but I do not go after them for their after tax money nor do they really ever call me to bounce ideas off of me. This relationship does make it a little easier for me to justify putting them in not so cheap variable annuities beacuse I am not their advisor.

 

An agent like myself can not overcome these expenses to give an investor any advantage, at least I have not been able to do so. I can not and will not put you in a low cost fund. I have to put you in an annuity. This is how I make a living. I can't help that. I am not out there to educate teachers in their lounge, what incentive do I have.

 

Like I said in the begining, I am near retirement and will say this with brutal honesty. My grandchild is a teacher, not in my area of business and I advised her against the insurance offerings in her 403b when she started teaching. Her 403b money goes to TIAA-CREF. I have invested up to my employers match, due to the high fees and invested the remainder ouside the plan in an IRA with Vanguard. I know the importance of keeping costs low but I could not give this advice to my clients without losing them. My profession does not and can not put the investor first, because it can not. Why should they lower the fees? Hardly anyone notices. Not one of my annuity participants ever called the main office to complain. Reducing the fees would mean less revenue and commissions, this is NOT why we are in business.

 

The reason agents thrive in the 403b market is due to the lack of financial knowledge that every teacher I have dealt with has.

 

The teachers on this site and others who are not teachers are not the rule, you guys are the exception and my hat is off to you. You have the desire and the interest to be your own financial manager. This is the only way you can honestly avoid agents and salesman who will have you invest in products that are laden with fees.

 

I believe the majority of agents have and will continue to take advantage of a market situation that allows them to keep placing teachers in an annuity 403b because this is how the market currently functions. To make matters worse teachers unions have even endorsed these investments. That is how bad it has gotten, the very same unions that are suppose to do what's in the teachers best interest has sold them out. And now agents are suppose to have a moral and ethical compass and do what's right? We can't, we have everday living expenses just like the ones we serve.

 

The bad news is that agents will still have alot of business out there within the halls of academia as most teachers are not any wiser now than they were when I first started. The good news is this board will help out those that seek it. I just wanted to say, please stop crucifying the agents that sell these investments, they need to feed their families. I don't agree with it but I am retiring I can speak freely, I no longer need to hold back. When I am retired I will advise those seek my advice and have them invest like my grandchild in a no-load, mutual fund family like TIAA CREF or Vanguard if those are available in the plan.

 

 

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sschullo-

 

Just curious, do you think all advisors are useless? I don't mean just in the 403(b) market, but in general. When it comes to all financial matters, do you believe everyone should get all their answers from Vanguard, invest everything on their own in index funds, and essentially eliminate the role of an advisor?

 

The reason I ask this is because I think advisors can serve a valuable service, and purpose. Otherwise, with the invent of nolo.com and equivalent websites you can eliminate other professions you mentioned if you answer yes to the above questions. As for lawyers, sure they work for an hourly fee, as do accountants. But, for both, each time they file something on your behalf, there's a fee. Anytime they incur an expense, there's a fee. Trust me when I say a $50 fee at the courthouse is not what you pay if an attorney does it for you. Plus you are charged for time. That's the equivalent of a load on a mutual fund. So there's room for a financial pro to do both.

 

I am only making this point because you so set on the expenses thing. I believe primarily the expense discussion is ongoing expenses. Upfront ones, such as loads, are one-offs. It doesn't place a drag on returns, however. It simply lowers the amount of your initial investment. Instead there is a cost to acquire that investment.

 

And index funds are good tools. But, it isn't too bad if you have some active managed funds too. Think about it. If an active manager didn't like certain stocks in the S&P 500 that have blown up recently (Tyco, Worldcom, Enron), your portfolio doesn't suffer. This doesn't mean outperformance. It does bring some subjective thinking into your portfolio instead of simply going by a market cap weighting. For some of your portfolio, with the right fund manager, this isn't a bad thing.

 

Unless you said yes to those initial questions above, I don't think you can disagree with this too much. Though I'll respect that you may not choose to follow these notions in practice.

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Guest Sierra

I am not new to this web-site but this is my first post. I am a 403b agent and I work for a large insurance company, not Hartford by the way. I earn a good living, a very good one as I have been in business for over 20 years and I will be retiring this year.

 

Because I am near retirement I will speak honestly, no sugar coating and I will draw on my own life experiences in dealing with my clients who were primarily teachers. I started in a business that taught me early on to aggressively pitch and sell variable annuities and loaded funds which yielded commissions. My district branch area manager wanted us to be producers. I was young and did as I was told, sold teachers variable annuities and other investors loaded funds. Teachers were an easy bunch to sell to because most were trusting and none hardly ever questioned my advice. They trusted me and I placed them in VA's when they had better alternatives, but I could not slice my own throat and advise them that TIAA-CREF or Vanguard was available with lower fees and expenses. I just couldn't because my paycheck depended on it.

 

I had to place all my teachers in annuities because my company only offered annuities for 403b's. The only benefit I provided was keeping them invested in a program, that made investing automatic. They were put on autopilot. This is a great benefit because the majority of them probably would not have invested at all had it not been for their 403b at work. I honestly feel like I can take credit for this but it came with a price. The Variable annuity I pitch has a expense ratio of 1.5% plus mutual funds expenses the average total fund fee is around 2.75%, a 40.00 per year account maintenance fee and 10 year rolling surrender charges. They could have had done much better but it was not might place to tell them and reduce my earnings.

 

The truth of the matter was if I didn't get these people locked into my annuity, there was another salesman on my heels waiting to do what I was going to do. These teachers were bombarded with sales literature. One school gave me an annual list of the new hires and I built my business primarily from that. What made my job easy was the lack of financial know how these people had. I never stopped for a moment and questioned my role. As far as I was concerned they should have done their homework, I had a job to do and a family to support, bills every month like everyone else.

 

I do not see myself any differently than a salesman. The only difference is that I sell investment products. My clients do not see me as their advisor. Once the purchase is made we keep in contact but I do not go after them for their after tax money nor do they really ever call me to bounce ideas off of me. This relationship does make it a little easier for me to justify putting them in not so cheap variable annuities beacuse I am not their advisor.

 

An agent like myself can not overcome these expenses to give an investor any advantage, at least I have not been able to do so. I can not and will not put you in a low cost fund. I have to put you in an annuity. This is how I make a living. I can't help that. I am not out there to educate teachers in their lounge, what incentive do I have.

 

Like I said in the begining, I am near retirement and will say this with brutal honesty. My grandchild is a teacher, not in my area of business and I advised her against the insurance offerings in her 403b when she started teaching. Her 403b money goes to TIAA-CREF. I have invested up to my employers match, due to the high fees and invested the remainder ouside the plan in an IRA with Vanguard. I know the importance of keeping costs low but I could not give this advice to my clients without losing them. My profession does not and can not put the investor first, because it can not. Why should they lower the fees? Hardly anyone notices. Not one of my annuity participants ever called the main office to complain. Reducing the fees would mean less revenue and commissions, this is NOT why we are in business.

 

The reason agents thrive in the 403b market is due to the lack of financial knowledge that every teacher I have dealt with has.

 

The teachers on this site and others who are not teachers are not the rule, you guys are the exception and my hat is off to you. You have the desire and the interest to be your own financial manager. This is the only way you can honestly avoid agents and salesman who will have you invest in products that are laden with fees.

 

I believe the majority of agents have and will continue to take advantage of a market situation that allows them to keep placing teachers in an annuity 403b because this is how the market currently functions. To make matters worse teachers unions have even endorsed these investments. That is how bad it has gotten, the very same unions that are suppose to do what's in the teachers best interest has sold them out. And now agents are suppose to have a moral and ethical compass and do what's right? We can't, we have everday living expenses just like the ones we serve.

 

The bad news is that agents will still have alot of business out there within the halls of academia as most teachers are not any wiser now than they were when I first started. The good news is this board will help out those that seek it. I just wanted to say, please stop crucifying the agents that sell these investments, they need to feed their families. I don't agree with it but I am retiring I can speak freely, I no longer need to hold back. When I am retired I will advise those seek my advice and have them invest like my grandchild in a no-load, mutual fund family like TIAA CREF or Vanguard if those are available in the plan.

 

 

Your remarks are stunning to say the least. Thank You for being straight with us. Would you care to tell us your average annual gross earnings for the last 10 years?

 

Peace and Hope,

Joel L. Frank

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Guest Sierra

Elliot: For almost 40 years the City of New York has kept the commissioned product out of reach of its salary reduction plans. If you really feel you as a rep of a B/D can add value to the employees' individual accounts why not approach the Deferred Compensation Board of the City of New York and show them how they have been short changing their participants year after year. Maybe they have been unaware of the existence of securities brokers.

 

Joel

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Sierra-

 

Part of what NYC realized is the volume of teachers, and that a small fee could bring in enough money to keep it in house. Once again, they are fairly unique and different from the average school district. I could almost guarantee part of the fees for the funds in which you invest, or some part of the NYC budget, is directed towards people who regularly evaluate investment choices. So instead of having many people in their schools, they have a group away from the schools. But rest assured, there are people monitoring fund performance, and evaluating, and they do get paid. Most (probably 99.9%) other districts don't have this luxury, and instead arrange for independent advisors. Sadly, many only care about the commission. Worse, the people are put in investments with high ongoing fees. But they CANNOT replicate NYC's setup. At least not yet.

 

It is in this world that I think myself, and other potential and existing advisors can serve a purpose. We can add value to the environment, and provide guidance and a benefit commensurate with the compensation we receive.

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Elliot,

 

Wow what a thread.

 

The problem with 403b distribution is economics. If you become a rep, you will have to make a living. If you were solely fee only, you would starve. It takes too long to gather enough assets under management to generate a living. By selling commission products, you can money faster and can survive.

 

The game in the 403b market is to steal other reps clients and roll them into a new investment with new loads. The $50 a pay clients generate about $2 a month in compensation to the rep. The $100,000 rollover puts a $2,000 in your pocket.

 

The general consensus on 403bwise is that commissions are bad. I do not agree. There are some good reps that earn the commissions they receive. There are clients that do not want to hang out on 403bwise and read investment books. That being said, the majority of 403b focused reps are not good and do not provide good advice.

 

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Guest TR1982

Just for fun....

 

Is somebody here willing to run a cost comparison on 2 scenarios:

 

1) Susie teacher invests $100 per month in the no load Vanguard Wellington Fund (Morningstar Balanced Fund Category) for 10 years paying an additional advisory fee of $100 per year to her fee only advisor for her annual review.

 

2) Susie teacher invests $100 per month in the load fund American Balanced (Morningstar Balanced Fund Category) paying the standard load of 5.75% for the 10 year period but paying no advisory fee of $100 per year to her advisor for her annual review since he/she is compensated by the sales charge.

 

I know what the answers are. I wonder if anyone here has the courage to find out for themselves and then reveal the answers here for all to see.

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Just for fun....

 

Is somebody here willing to run a cost comparison on 2 scenarios:

 

1) Susie teacher invests $100 per month in the no load Vanguard Wellington Fund (Morningstar Balanced Fund Category) for 10 years paying an additional advisory fee of $100 per year to her fee only advisor for her annual review.

 

2) Susie teacher invests $100 per month in the load fund American Balanced (Morningstar Balanced Fund Category) paying the standard load of 5.75% for the 10 year period but paying no advisory fee of $100 per year to her advisor for her annual review since he/she is compensated by the sales charge.

 

I know what the answers are. I wonder if anyone here has the courage to find out for themselves and then reveal the answers here for all to see.

 

I'll take you on, TR. Obviously, scenario #2 has lower costs. You do have a point. However:

 

It's unlikely Susie #1 will continue to invest only $100 the rest of her career. In fact, when both Susies get to $200 a month, Susie #2 will be paying more than Susie #1. And the more that the two Susies invest, the greater the difference will be. For example, at $500 a month (x10), Susie #1 will still be paying $100, whereas Susie #2 will be paying $287.50. At $1000 a month, the figures are $100 vs. $575.

 

 

My average annual gross earnings for the past 10 years ranged from $125,000 to $165,000. Last year I earned $165,314.49.

 

Dang! I entered the wrong field!

 

Just out of curiosity, are these fairly typical earnings?

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Guest TR1982

Ap,

You are partly right and partly wrong and you make my point. First of all, the sales charge goes down as the client reaches breakpoints in their investment, typically at the $25k and 100k levels and beyond. Secondly, a client might increase their contribution but we don't know at what rate and the amounts that young teachers put in are not typically in the $5000 range. I typically see people putting in $1000-3000 annually.

My point is this: The cost differential in these scenarios is not that different until someone has substantial sums accumulated in these programs. That is the ISSUE. It's fine for people here to suggest that advisors should only offer no load mutual funds to teachers on a fee basis. The problem is that the teachers don't want to invest that way and it isn't really saving them that much money(it might cost them more). Plus, if the industry and advisors could make money doing it that way, they would. They can't and therefore, they won't. I think it is interesting that some advisors who post here that are sympathetic to this site don't really do business this way at all. They either do it the way it is now or they don't take on small fry clients.

 

Now, the rest of you go ahead and call me unethical, immoral, a cheat, a scumbag, a shark and all the other words you want to throw at me for telling the truth. I guess it's ok if it makes you feel better. It just won't change anything.

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Guest Sierra

Elliot,

 

Wow what a thread.

 

The problem with 403b distribution is economics. If you become a rep, you will have to make a living. If you were solely fee only, you would starve. It takes too long to gather enough assets under management to generate a living. By selling commission products, you can money faster and can survive.

 

The game in the 403b market is to steal other reps clients and roll them into a new investment with new loads. The $50 a pay clients generate about $2 a month in compensation to the rep. The $100,000 rollover puts a $2,000 in your pocket.

 

The general consensus on 403bwise is that commissions are bad. I do not agree. There are some good reps that earn the commissions they receive. There are clients that do not want to hang out on 403bwise and read investment books. That being said, the majority of 403b focused reps are not good and do not provide good advice.

 

 

What a sleazy industry! You steal the other guys clients and benefit from him/her already being brainwashed into trusting a b/d. Elliot, this is the world-of-work you are entering.

 

 

 

Just for fun....

 

Is somebody here willing to run a cost comparison on 2 scenarios:

 

1) Susie teacher invests $100 per month in the no load Vanguard Wellington Fund (Morningstar Balanced Fund Category) for 10 years paying an additional advisory fee of $100 per year to her fee only advisor for her annual review.

 

2) Susie teacher invests $100 per month in the load fund American Balanced (Morningstar Balanced Fund Category) paying the standard load of 5.75% for the 10 year period but paying no advisory fee of $100 per year to her advisor for her annual review since he/she is compensated by the sales charge.

 

I know what the answers are. I wonder if anyone here has the courage to find out for themselves and then reveal the answers here for all to see.

 

 

What is your definition of an "annual review"?

 

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