Jump to content
Sign in to follow this  
jbs

The Standard - Follow-up

Recommended Posts

Yesterday we had our 403(b) committee meeting with our consultants, a CPA and a CFP. The CFP's recommendation was The Standard as custodial and we would pay a fee of 1.1% of assets for tpa, record keeping, service, etc. If other schools in our area banded together, we could possibly lower the fees to an unknown amount over time. The Standard would be in a single vendor environment and will only work with us as an exclusive. The investment choices are quite good. Just about any mutual fund you can think of could be brought into our pool of 25 or so offerings.

 

Through the course of our discussion we realized that if we chose the multi-vendor option we would have Legend Group as an option very similar to The Standard with a 1% fee and Fidelity Direct as the other option. As a current Fidelity customer I was ecstatic. This seemed like the best of both worlds. Unfortunately the discussion spiraled into this paranoid discussion that people would be forced into making their own decisions with Fidelity. Legend Group would provide what appeared to be nearly identical service, but they were fixated on a fear of Fidelity. In the end we took a vote and the committee voted 10-2 to go with The Standard. I was floored. I have explained the power of fees until I am blue in the face, but people just don't get it. I have also explained that people at Fidelity are incredibly helpful and there is the option of hiring a CFP every year or two for a reasonable price.

 

In the past our k-12 403(b) plan has been dominated by AIG-VALIC and ING, with a few Fidelity and American Funds investors. Whatever we do, we are getting away from surrender fees and annuities. But isn't a 1.1% fee pretty comparable to the recently discounted annuity fees?

 

I have one more chance to convince the teachers on the committee that we need to have package that includes the Fidelity option. I am at my wits end with these people. I made the mistake of letting them know that I have an undergrad degree in finance and they think that you have to some specialized knowledge to pick a few mutual funds. With a bad pension, mediocre salaries, and a Metlife local pension, we need to be able to invest with a low cost provider for our 403(b).

 

Does anyone know anything about the Legend Group? Or do you have any ideas about how I can sell my committee on this extremely important decision.

Share this post


Link to post
Share on other sites

A 1.1% fee for a TPA seems steep. The CalStrs plan, for example, charges only .33 with access to Vanguard Institutional funds, among others. Other plans do not seem to charge anything at all, but instead will make their money by pawning off lousy products to ignorant teachers. Actually, I like the latter, as long as they offer access to providers like Vanguard and Fidelity.

 

Is the Legend group even more expensive than the Standard? If so, your district has not chosen very wisely.

 

The more that I learn about this stuff, the better after-tax accounts seem to me.

 

The IRS has taken the 403b program that offered at least some teachers decent options, and has created regulations that seem to make it worse for more people than ever.

Share this post


Link to post
Share on other sites

 

 

Ignorance wins out again?

 

I am sorry someone like you who knows what they are talking about is the one being ignored. I still think its time to stop using the 403b and forcing the companies to see its time for a change. As far as the educational community goes-God helps us for staying so ignorant. We are our own worst enemy.

 

 

Tony

Share this post


Link to post
Share on other sites

jbs,

 

you have to break it down to the basic's for your fellow employees. I have a spreadsheet of 60-40 portfolios with yearly cost on a 25K balance and here is what this is costing you (our providers: Hartford, FTJ fundchoice, AIG Valic and Nationwide) versus going with alternative ######.

 

Most people can do the math from this point. Send me a PM and I will send it to you. It may or may not help.

 

It was the only way I got some interest from my fellow employees. I have to pay 100-105 bps for a vanguard index portfolio with FTJ.

 

I am fighting to add ASP with 457(b)/401(a) plans and my costs would drop to 25-30 bps on the same portfolio. Do the math over the next 15 years I will be working, and some employees will take notice.

 

There will always be people who need lots of handholding, but these people you can't reach anyways.

Share this post


Link to post
Share on other sites

"I have explained the power of fees until I am blue in the face, but people just don't get it."

 

######, do I know what you mean! I get so tired of talking about the subject. Maybe some of your co-workers will find this post useful: Post on Fees

Share this post


Link to post
Share on other sites

Thanks for your help and support. Does anyone have access to an on-line calculator that can create a bar graph or other chart that shows what fees do to investment returns over a number of years (10, 20, 30)? I would like to show the difference between a Fidelity index fund (S&P 500, Total Mkt., etc.; with a .1% fee) and the same Fidelity fund with an additional 1.0% fee. I guess I would assume an 8% annual return though that seems a bit optimistic right now. And also use something like $250 monthly investments in the 403b. I've shown the Meridian Wealth Mgt. graph I think I got from 403bwise, but I think the actual comparison would be most effective because that one didn't seem to register with my committee in the past.

 

Thanks,

John

john.sparks@duneland.k12.in.us

Share this post


Link to post
Share on other sites

Thanks for your help and support. Does anyone have access to an on-line calculator that can create a bar graph or other chart that shows what fees do to investment returns over a number of years (10, 20, 30)? I would like to show the difference between a Fidelity index fund (S&P 500, Total Mkt., etc.; with a .1% fee) and the same Fidelity fund with an additional 1.0% fee. I guess I would assume an 8% annual return though that seems a bit optimistic right now. And also use something like $250 monthly investments in the 403b. I've shown the Meridian Wealth Mgt. graph I think I got from 403bwise, but I think the actual comparison would be most effective because that one didn't seem to register with my committee in the past.

 

Thanks,

John

john.sparks@duneland.k12.in.us

 

Here you go, John. Lots of luck. I hope your committee sees the light, but I'm doubtful.

 

http://www.dinkytown.net/java/Retire403b.html

Share this post


Link to post
Share on other sites

jbs,

After you get the difference between a .20% fee and a 1.50% fee over 35 years contributing 5000 a year, for example, multiple 35 years by 12 to get 420 months, then divide the excess fees (the difference between a .2% fee and a 1.5% fee) by 420 to get the cost per month. Bringing the cost down to EVERY month for 35 years is very impressive. Let the committee know that if you had to write a check every month for 35 years, you might do something less costly. But because of the nature of investments when fees are deliberately and legally incomprehensible, investors never fully understand how much it is reducing their final nestegg after contributing for 35 years. Its a HUGE impact. Of course, one does not pay that much at the beginning but it AVERAGES out over the course of 35 years in this example. I agree that the 9% default performance on the calculator is very optimistic. That average is from the history of the S&P 500 index since 1926 minus a couple of points.

 

Hope this helps and best of luck to you. The teachers will never know what you are doing for them, however, we know.

Steve

 

PS. AP thanks for the link to that calculator.

Share this post


Link to post
Share on other sites

Thanks for your help and support. Does anyone have access to an on-line calculator that can create a bar graph or other chart that shows what fees do to investment returns over a number of years (10, 20, 30)? I would like to show the difference between a Fidelity index fund (S&P 500, Total Mkt., etc.; with a .1% fee) and the same Fidelity fund with an additional 1.0% fee. I guess I would assume an 8% annual return though that seems a bit optimistic right now. And also use something like $250 monthly investments in the 403b. I've shown the Meridian Wealth Mgt. graph I think I got from 403bwise, but I think the actual comparison would be most effective because that one didn't seem to register with my committee in the past.

 

Thanks,

John

john.sparks@duneland.k12.in.us

 

The Securities and Exchange Commission has a mutual fund cost calculator here. It does exactly what you want.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

×
×
  • Create New...