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Ray_CSU

Fees Charged Via Annuities

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Ok, no reply to my earlier post, maybe it was too long for people to read, or the advice I sought just isn't available here. Anyhow, I have another question so I am trying again.

 

Our new 403b plan offers five sponsors: AIG, ING, Met Life, TIAA-Cref and Fidelity. From all I've read here the first 3 are to be avoided, as their fees are higher. However, I just spoke to a rep hired by ING to field questions from customers, and he said there fees are the lowest amongst that group. I had specifically asked whether they charged extra fees and he said no. He used Fidelity Contrafund as an example, and pointed out that the retail fee for Contrafund is .89%, whereas they only charge .65%. I then asked how they made their money then, and he said ING splits the .65 with Fidelity.

 

I then said that isn't it true that 403b contributors actually pay less than the .89 retail and he agreed that is true. He said it's because the money is "stickier", meaning that 403b investors tend to leave their money in their accounts longer. I don't recall exactly what Fidelity charges and he didn't mention that figure.

 

I do still have some money in Contrafund from years ago, although I stopped investing awhile back when I decided to become more diversified. I wouldn't mind investing in it again if I thought I could do so without paying extra expenses. Likewise, I wouldn't mind investing in the Vanguard Long-Term Bond Index, which is to be available via Fidelity. Somehow though it just seems like there has to be a catch, and I am wary of investing in a fund only available from someone else.

 

So, what's the real story on these expenses? I don't want an annuity; I want to invest in mutual funds without paying any more than I have to.

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Ok, no reply to my earlier post, maybe it was too long for people to read, or the advice I sought just isn't available here. Anyhow, I have another question so I am trying again.

 

Our new 403b plan offers five sponsors: AIG, ING, Met Life, TIAA-Cref and Fidelity. From all I've read here the first 3 are to be avoided, as their fees are higher. However, I just spoke to a rep hired by ING to field questions from customers, and he said there fees are the lowest amongst that group. I had specifically asked whether they charged extra fees and he said no. He used Fidelity Contrafund as an example, and pointed out that the retail fee for Contrafund is .89%, whereas they only charge .65%. I then asked how they made their money then, and he said ING splits the .65 with Fidelity.

 

I then said that isn't it true that 403b contributors actually pay less than the .89 retail and he agreed that is true. He said it's because the money is "stickier", meaning that 403b investors tend to leave their money in their accounts longer. I don't recall exactly what Fidelity charges and he didn't mention that figure.

 

I do still have some money in Contrafund from years ago, although I stopped investing awhile back when I decided to become more diversified. I wouldn't mind investing in it again if I thought I could do so without paying extra expenses. Likewise, I wouldn't mind investing in the Vanguard Long-Term Bond Index, which is to be available via Fidelity. Somehow though it just seems like there has to be a catch, and I am wary of investing in a fund only available from someone else.

 

So, what's the real story on these expenses? I don't want an annuity; I want to invest in mutual funds without paying any more than I have to.

 

You'll find most managed funds have expenses around .5% to 1.5% (1.5 is already pretty high, but anything above that is ridiculously high.) Most indexed funds can be found anywhere between .05% to .5%

 

The rep probably used Contrafund to compare against because that's one of the more popular of Fidelity's fund offerings, but far from one of their cheapest funds available.

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Ray

 

My advice to you is to not believe anything the sales rep says that you can't find in writing. Most of these guys can't be held accountable for what they say so some will say just about anything. Ask him to verify

where in the prospectus it says what he is telling you. If its not in writing than he may be using sales techniques on you.

 

I've been down this road. Yes they do tell a tall tale.

 

Tony

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Ray --

Unfortunately, the reps often do not have the information at hand re: expenses. Sometimes they THINK they do, but most of the time they have been misguided. Ask for the prospectus -- not of Contrafund, but of the plan through the rep's company. Then try to read it and use a marker to find and highlight all the expenses. My guess is that you will find this an impossible endeavor, as it was when I tried to read through the Security Benefit prospectus.

 

Any time you have a "rep", you are paying him / her.

 

JudyS

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I'm with the CSU as well and have been investing with USAA in a Index 500 fund. Not much joy there at the moment, but expenses are very low.

 

I called Fidelity to get information on their 403(b) offerings. The rep told me that, being with the CSU, I could get all of Fidelity's funds and agreed to send me information right away. He was at least wrong about getting all Fidelity funds, since the online brochure looks like a rather small subset (that does not include a 500 index fund). Also, a week has passed with no sign of the promised information. I don't think that they are deceptive, just incompetent.

 

What little I understood of the changes in 403(b) regulations made them sound like a good thing. In the CSU offerings, at least, it has removed a lot of options (mainly variable annuity junk, but also low cost providers like USAA). I liked the way the memo from the CSU said that they were doing this to help us poor confused investors who were bewildered by the many choices. Right.

 

-John

 

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Hi Ray_CSU

 

Keep drilling down until you get all of the information on the Fees you will be paying for your investments. I wished I had done it when I first started investing.

 

I want to share with you and others at this site another fee associated with Mutual Funds. It is the Fund's brokerage costs. I thought this cost was part of the Fund's expense ratio. But after reading Eric Tyson' Book

"Let's Get Real About Money" I have learned this is not the case. In Mr. Tyson's book, on page 184 "The Truth About Mutual Fund Expenses," he gives an example using the Vanguard Morgan Growth fund. It's expense ratio is 0.41. You add in the brokerage/transaction commissions paid to sell and buy stocks inside the fund this adds additional cost of 0.18 to the expense ratio of 0.41 bring it to 0.59. To find the brokerage commissions costs, you have to look in the "Statement of Additional Information." After you locate the brokerage/transaction costs, you divide this number into the total assets of the fund. This is what Mr. Tyson did in his example for the Morgan Growth fund to get the number.

 

I called Vanguard yesterday about what I had read. Vanguard said, "the SEC dose not require them to report the brokerage/transaction costs as part of the expense ratio of the fund." I asked (Vanguard through the Voice of the Client) to have these costs shown in their literature. We will see what happens.

 

 

jyork

Redding, Ca

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I'm with the CSU as well and have been investing with USAA in a Index 500 fund. Not much joy there at the moment, but expenses are very low.

 

I called Fidelity to get information on their 403(b) offerings. The rep told me that, being with the CSU, I could get all of Fidelity's funds and agreed to send me information right away. He was at least wrong about getting all Fidelity funds, since the online brochure looks like a rather small subset (that does not include a 500 index fund). Also, a week has passed with no sign of the promised information. I don't think that they are deceptive, just incompetent.

 

What little I understood of the changes in 403(b) regulations made them sound like a good thing. In the CSU offerings, at least, it has removed a lot of options (mainly variable annuity junk, but also low cost providers like USAA). I liked the way the memo from the CSU said that they were doing this to help us poor confused investors who were bewildered by the many choices. Right.

 

-John

 

Thanks to everyone for your replies! I will have to carefully read the prospective of any offering to find out for sure what fees are going to be charged. These companies are in it to make money just like anyone else,and are selling a product, so it's best to beware.

 

John, this rep told me that the CSU had a Committee that chose the funds, and that ING had offered them about 1000 funds but the Committee only chose 20 or so. As you said, they supposedly wanted to keep things simple. I thought maybe it was because there was more administrative work involved with more funds, but he said that wasn't the case. I think we are really being done an disservice with these limited choices, especially as they aren't offering any low cost index funds, or very few anyhow. Before I had Fidelity US Bond Index, Spartan International Index and Spartan Total Market Index; those are no longer available.

 

I am thinking that I'll probably go with one of the Fidelity Freedom Funds, which are target date type funds. They also ofer the T. Rowe Price target funds (via AIG), some Target-Year Lifestyle funds from ING, and the American Funds Target Date Retirement funds from MetLife. However, I expect that when I do my full research I'll discover that I have to pay higher fees to invest in those funds, as opposed to just going with the Fidelity target funds.

 

Hi Ray_CSU

 

Keep drilling down until you get all of the information on the Fees you will be paying for your investments. I wished I had done it when I first started investing.

 

I want to share with you and others at this site another fee associated with Mutual Funds. It is the Fund's brokerage costs. I thought this cost was part of the Fund's expense ratio. But after reading Eric Tyson' Book

"Let's Get Real About Money" I have learned this is not the case. In Mr. Tyson's book, on page 184 "The Truth About Mutual Fund Expenses," he gives an example using the Vanguard Morgan Growth fund. It's expense ratio is 0.41. You add in the brokerage/transaction commissions paid to sell and buy stocks inside the fund this adds additional cost of 0.18 to the expense ratio of 0.41 bring it to 0.59. To find the brokerage commissions costs, you have to look in the "Statement of Additional Information." After you locate the brokerage/transaction costs, you divide this number into the total assets of the fund. This is what Mr. Tyson did in his example for the Morgan Growth fund to get the number.

 

I called Vanguard yesterday about what I had read. Vanguard said, "the SEC dose not require them to report the brokerage/transaction costs as part of the expense ratio of the fund." I asked (Vanguard through the Voice of the Client) to have these costs shown in their literature. We will see what happens.

 

 

jyork

Redding, Ca

 

That's a very good point! With an actively manged fund you not only pay for the managers 'expertise' but you also have the additional costs incurred by that manager buying and selling stocks. With an index fund you also will have commission costs, of course, as the stock mix is adjusted to reflect the market that the index represents, but my understanding is that there is much less stock churning going on, and thus less fees being charged.

 

If employers truly want to make things simpler regarding our choices, I would think that offering a good assortment of index and retirement target style funds would be the way to do it

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John, this rep told me that the CSU had a Committee that chose the funds, and that ING had offered them about 1000 funds but the Committee only chose 20 or so. As you said, they supposedly wanted to keep things simple. I thought maybe it was because there was more administrative work involved with more funds, but he said that wasn't the case. I think we are really being done an disservice with these limited choices, especially as they aren't offering any low cost index funds, or very few anyhow. Before I had Fidelity US Bond Index, Spartan International Index and Spartan Total Market Index; those are no longer available.

 

 

This is the game they play offer 1000 choices to totally confuse the committee. And, probably the commitee knows nothing about what a good choice is so you end up with twenty bad or so-so choices.

 

Most people can do fine with just five choices or less.

 

 

I just love comittees.

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Ok, no reply to my earlier post, maybe it was too long for people to read, or the advice I sought just isn't available here. Anyhow, I have another question so I am trying again.

 

Our new 403b plan offers five sponsors: AIG, ING, Met Life, TIAA-Cref and Fidelity. From all I've read here the first 3 are to be avoided, as their fees are higher. However, I just spoke to a rep hired by ING to field questions from customers, and he said there fees are the lowest amongst that group. I had specifically asked whether they charged extra fees and he said no. He used Fidelity Contrafund as an example, and pointed out that the retail fee for Contrafund is .89%, whereas they only charge .65%. I then asked how they made their money then, and he said ING splits the .65 with Fidelity.

 

I then said that isn't it true that 403b contributors actually pay less than the .89 retail and he agreed that is true. He said it's because the money is "stickier", meaning that 403b investors tend to leave their money in their accounts longer. I don't recall exactly what Fidelity charges and he didn't mention that figure.

 

I do still have some money in Contrafund from years ago, although I stopped investing awhile back when I decided to become more diversified. I wouldn't mind investing in it again if I thought I could do so without paying extra expenses. Likewise, I wouldn't mind investing in the Vanguard Long-Term Bond Index, which is to be available via Fidelity. Somehow though it just seems like there has to be a catch, and I am wary of investing in a fund only available from someone else.

 

So, what's the real story on these expenses? I don't want an annuity; I want to invest in mutual funds without paying any more than I have to.

 

John:

As for the ING fees; I happen to know that the M&E is 40 bpts and the average fund expense is 80 bpts. ING built this 403b product specifically for the CSU's. It is meant to be a low cost (no load in or out) Group Annuity with loan and death benefit features as well as a limited 22 investment options. Hope this helps....

 

 

 

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John:

As for the ING fees; I happen to know that the M&E is 40 bpts and the average fund expense is 80 bpts. ING built this 403b product specifically for the CSU's.

 

Just to be a little churlish here, considering the expenses of this plan, it seems like ING built this specifically for ING.

 

I'm very surprised that a sharp group like the CSU folks would end up with such a program. M&E charges? You must be kidding me.

 

Compare this with the CalSTRS plan, which has total fees of .40 or less in Vanguard institutional funds.

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I just love comittees.

 

 

Hi Tony,

The committee is as good as the knowledge and skills of most of its members. Even when you do have a savvy committee, you don't always get your way.

Steve

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John:

As for the ING fees; I happen to know that the M&E is 40 bpts and the average fund expense is 80 bpts. ING built this 403b product specifically for the CSU's.

 

Just to be a little churlish here, considering the expenses of this plan, it seems like ING built this specifically for ING.

 

I'm very surprised that a sharp group like the CSU folks would end up with such a program. M&E charges? You must be kidding me.

 

Compare this with the CalSTRS plan, which has total fees of .40 or less in Vanguard institutional funds.

 

I never said it was a good 403b option, just that i knew the fee structure... Unfortunately Vanguard isn't an option anymore, but there's still Fidelity.

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