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2366967

One Vendor Dilemma

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I need a little help from the membership. I am on my district's committee to choose new vendors and we have come up with a recommendation to bring to the Board. Our recommendation is to go with only one vendor, a low cost mutual fund provider. The district has even agreed to provide and pay for financial planning help with a fee based planner. I am quite happy with our recommendation but I know that there will be questions and upset members. My main concern is that members will want choice and their "guy." Regardless, if we chose one or five vendors many teachers would lose their current vendor. I have a good response I think but what I want to know is how do I respond to these people that want choice even though that choice will cost them much more money? I don't want to insult them but I know many of them chose their current vendor because the salesman was a fellow colleague (teacher) and that's what everyone did. My response is one of the pocketbook, is there another angle? TIA

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2366967 - Well as you know most of this is asset driven. The more assets you can bring to the table, generally the better the deal you get.

 

I would really try to educate your fellow employees and are they really getting what they are paying for with an insurance company for example?

 

If your distict is offering financial planning help, show them how that can be really unbias advice (because they are not selling you anything - I hope that is the case). If you do not need the advice but once or twice a year, here are your saving versus paying for that advice 365 days/year.

 

With the money they save, take the former salesperson/teacher to lunch and call it even.

 

I did a full spreadsheet of 60%-40% portfolio's of all of my 457b providers with all the costs. An apples-to-apples review of the portfolio's and their costs. I can send it to you if you send me a pm.

 

The apples-to-apples review was the only way my fellow employees could really see what they were paying and what they could save by going to a low cost provider. I even did a FV (future value) spreadsheet to show people what they could save over the next 15-20 years using the lower cost plan versus paying for the higher cost plan. In my case, I saved something like $18k in fees with a 7% return over the next 15 years!

 

It was a lot of work, my employer allowed me to do this, but on my own time. Next week, I will be finished and management will start doing the background work to add another provider!

 

Good Luck and push the issue. I was the only interested in this at first, because no one really knew what they were paying or getting (I did not know until about 6 years ago). The cheapest plan we have access to is 100 bps. The four other providers are 150 bps to 200 bps - too expensive!

 

The provider we will be adding charges about 30-40 bps for a fully index portfolio!

 

My employer was not willing to go with one provider, so I had to build the support for adding a fifth outfit!

 

It was a long time in coming, but I am glad I did it. Fight the good fight.

 

Gerry Le F

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I need a little help from the membership. I am on my district's committee to choose new vendors and we have come up with a recommendation to bring to the Board. Our recommendation is to go with only one vendor, a low cost mutual fund provider. The district has even agreed to provide and pay for financial planning help with a fee based planner. I am quite happy with our recommendation but I know that there will be questions and upset members. My main concern is that members will want choice and their "guy." Regardless, if we chose one or five vendors many teachers would lose their current vendor. I have a good response I think but what I want to know is how do I respond to these people that want choice even though that choice will cost them much more money? I don't want to insult them but I know many of them chose their current vendor because the salesman was a fellow colleague (teacher) and that's what everyone did. My response is one of the pocketbook, is there another angle? TIA

 

In my opinion I would suggest looking at the low cost mutual fund provider to make sure they will sign onto your districts plan document first. Most of them will not they want the employer to sign theirs. Most districts will not do that. When people’s lives are disrupted they are going to be upset. There may be a person who wants to have a fixed account that pays interest and guarantees principal. What if they have no option like that and are subjected to risk and lose money. What do you think they may consider doing? Hint, what do most lawyers love to do?

While I am not a fan of insurance companies in my opinion the right decision would be to have a full offering of the three investment vehicles allowed to have 403(b) investments mutual funds, fixed and variable annuities. While in the past many people that have bought the variable annuities were not told of the mortality risk and expense charges. Today an employer can require that a form be signed by an employee indicating that they are aware of a fee. Some people find paying the fee as a way to take some risks investing in the market. Let’s say that one of their objectives is that they want to make sure that their family will get at least what they put in if they die. That is a choice that the individual can make.

Limiting your fellow employees to one option has risks associated with it. Make sure your district is willing to take on these possible risks.

 

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