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403b Asp - Open Fund Platform - Is This A Good Idea?

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James,

Did you make money from revenue sharing agreements?

Steve

 

Yes, in some funds we receive revenue sharing. However, we do not restrict investments to certain funds and or share classes based on revenue sharing. A participant is free to use any fund we can clear, settle and trade (unless investments are restricted by the District/Plan). As you know Vanguard and other fund families do NOT pay revenue sharing.

 

I could go on and on about the dirty secrets about revenue sharing. Revenue sharing is built-in to the fund expense ratios so it is easy to hide. When we came up with our fee structure we factored in that some funds would pay revenue sharing -- this allowed us to have a low asset based fee of 0.10%. As a vendor if we do not collect it the fund company keeps it and there is no savings to the participant.

 

In short, many vendors will not aknowledge what compensation they receive from revenue sharing and adjust thier fees as we did or present thier fees in a... well lets say a less than transparent way. I wish that revenue sharing would be abolished... maybe one day it will.

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James,

 

Thanks for the Clarification. I am glad to here that the 10 basis points is yearly. I am planning on using your services because my ohter options are dismal. Have a great New years

 

Rich

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James,

Did you make money from revenue sharing agreements?

Steve

 

 

Yes, in some funds we receive revenue sharing. However, we do not restrict investments to certain funds and or share classes based on revenue sharing. A participant is free to use any fund we can clear, settle and trade (unless investments are restricted by the District/Plan). As you know Vanguard and other fund families do NOT pay revenue sharing.

 

I could go on and on about the dirty secrets about revenue sharing. Revenue sharing is built-in to the fund expense ratios so it is easy to hide. When we came up with our fee structure we factored in that some funds would pay revenue sharing -- this allowed us to have a low asset based fee of 0.10%. As a vendor if we do not collect it the fund company keeps it and there is no savings to the participant.

 

In short, many vendors will not aknowledge what compensation they receive from revenue sharing and adjust thier fees as we did or present thier fees in a... well lets say a less than transparent way. I wish that revenue sharing would be abolished... maybe one day it will.

 

 

Yes, and there had been lawsuits regarding revenue sharing.

Who is the usual fiduciary when you contract with a district?

 

 

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Groundswell,

No.

 

James:

Regarding revenue sharing, since its unlikely that RS will be abolished, I have a suggestion. Instead of ignoring by explaining the expense ratio, why not explain and reveal the revenue sharing costs and how they are hidden within the expense ratio.

 

Its already been done, read on: "Compounding this problem is the fact that these costs are usually hidden--because they're

high. A cost, under any body of fiduciary law, must be reasonable in relation to the service

or product received in return. If a cost is hidden, how is it possible to determine whether

that cost is reasonable in relation to the service or product received so that the recipient

knows it's getting full value?

Insurance companies favor this kind of obfuscation because it allows them to get away with

charging higher costs than would otherwise be the case in a cost-transparent environment.

A recent example of this absurdity involved one of the large insurance companies active in

marketing retirement plans to school districts. The Los Angeles Unified School District

(LAUSD), led by a very well-informed advisory committee, insisted that the insurance

company disclose to plan participants a revenue-sharing fee in the district's 457(b) plan. An

insurance company vice president refused, stating that "I'm afraid the revenue-sharing

would just confuse people."

Written by Mr. Scott on Morningstar

 

On another point, unfortunately, Rtngolf had to point out to you that the fees section was missing on your website! This is a red flag. We are very sensitive to cost omissions because of the entire history of educators getting stuck and ripped off with expense and inappropriate investments. If your plan is so inexpensive, why did you not have a section on this?

 

Admittedly I really don't know your plan, but I get the feeling that you are playing catch up, playing catch up to some savvy educators who know the complete game. In fact, you should have known that fees are important, but that section on your website was not there until Rtngolf told you. If Rtngolf did not point that out, I would have to assume that you would not have included it on your website. Then you played catch-up when you, the professional, should know better. Perhaps it was an oversight, a mistake, youthful indiscrections, still thinking in the 20 century where no union, district or educators knew anything about these plans, etc.etc,, but its the 21 century and the customer is revolutionarily different. Of all of the places to explain your plan, you came to this site. In doing so, you need to really think about what you want to say about fees and report everything. As what Scott reported, we had to force our TPA to explain the revenue sharing to our employees. The custumer is always right about costs. Our TPA was totally wrong. Learn by other's mistakes and be proactive about costs.

 

Have a good day,

Steve

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Groundswell,

No.

 

James:

Regarding revenue sharing, since its unlikely that RS will be abolished, I have a suggestion. Instead of ignoring by explaining the expense ratio, why not explain and reveal the revenue sharing costs and how they are hidden within the expense ratio.

 

Its already been done, read on: "Compounding this problem is the fact that these costs are usually hidden--because they're

high. A cost, under any body of fiduciary law, must be reasonable in relation to the service

or product received in return. If a cost is hidden, how is it possible to determine whether

that cost is reasonable in relation to the service or product received so that the recipient

knows it's getting full value?

Insurance companies favor this kind of obfuscation because it allows them to get away with

charging higher costs than would otherwise be the case in a cost-transparent environment.

A recent example of this absurdity involved one of the large insurance companies active in

marketing retirement plans to school districts. The Los Angeles Unified School District

(LAUSD), led by a very well-informed advisory committee, insisted that the insurance

company disclose to plan participants a revenue-sharing fee in the district's 457(b) plan. An

insurance company vice president refused, stating that "I'm afraid the revenue-sharing

would just confuse people."

Written by Mr. Scott on Morningstar

 

On another point, unfortunately, Rtngolf had to point out to you that the fees section was missing on your website! This is a red flag. We are very sensitive to cost omissions because of the entire history of educators getting stuck and ripped off with expense and inappropriate investments. If your plan is so inexpensive, why did you not have a section on this?

 

Admittedly I really don't know your plan, but I get the feeling that you are playing catch up, playing catch up to some savvy educators who know the complete game. In fact, you should have known that fees are important, but that section on your website was not there until Rtngolf told you. If Rtngolf did not point that out, I would have to assume that you would not have included it on your website. Then you played catch-up when you, the professional, should know better. Perhaps it was an oversight, a mistake, youthful discrections, still thinking in the 20 century where no union, district or educators knew anything about these plans, etc.etc,, but its the 21 century and the customer is revolutionarily different. Of all of the places to explain your plan, you came to this site. In doing so, you need to really think about what you want to say about fees and report everything. As what Scott reported, we had to force our TPA to explain the revenue sharing to our employees. The custumer is always right about costs. Our TPA was totally wrong. Learn by other's mistakes and be proactive about costs.

 

Have a good day,

Steve

 

 

I can appreciate your being cautious of 403b providers; historically they have not been candid. I very proud of our fee structure and we will be updating our site to show our fees -- We had the fee section listed on our website previously and are still in the process of making updates. This is not an excuse just an explanation. (FYI are fees are clearly shown on the enrollment forms if you choose to download one). If participants see the value of what we offer great -- if not, they can keep the garbage that is out there. Groundswell? you're right maybe no, but we will help who we can.

 

Not sure if I understand your comment regarding ignoring RS. I did say that we receive RS compensation from some fund companies. And I did say that is was built into the fund expense ratio. The RS amounts vary by fund family and share class. I also said I do not restrict participants to invest in funds that pay RS. I believe I was very clear about RS and was not "hiding" anything.

 

I know Scott and have participated with RFPs for 403b plans with his firm. His articles were posted on our website as well before our redesign and we plan on adding them to the site again. I also know some of the members of the LAUSD and know they are working in the best interest of their employees and if 403b ASP is fortunate we can participate as a vendor.

 

Scott, I have a very simple plan. Try and help participants achieve a better retirement. I don't think I'm playing catch up. I view what we are doing is surpassing the industry. I believe the educators are very savvy and know the complete game... and if they do not we should help them understand it. My company is not "evil" or trying to be evasive. We just trying to run a good company and make a positive difference -- some will believe us and some will not.

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How does one assess the financial well-being of a company like 403b ASP? How do you know if it is safe (from a custodial perspective) to invest through them?

 

I'm a Vanguard investor losing access to direct investment due to the lack of an agreement between the TPAs and Vanguard. I'm not thrilled with the idea of using another company as the middle man and I'm wondering how determine if 403b ASP will be a dependable caretaker for my custodial account.

 

 

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How does one assess the financial well-being of a company like 403b ASP? How do you know if it is safe (from a custodial perspective) to invest through them?

 

I'm a Vanguard investor losing access to direct investment due to the lack of an agreement between the TPAs and Vanguard. I'm not thrilled with the idea of using another company as the middle man and I'm wondering how determine if 403b ASP will be a dependable caretaker for my custodial account.

 

 

Hi Barney, we do not take "constructive receipt" of your money. This means that your assets are directly sent to MG Trust Company as the custodian. MG Trust Company is a $100B Trust Company (bonded and insured). From the custodian your investment positions are actually held at the mutual fund company via the NSCC FundServ system. The NSCC (National Securities Clearing Corporation) is a non profit entity run by the NASD and the NYSE -- basically the FundServ system is the trading platform for mutual funds similar to how the NASDAQ and NYSE are the trading platform for stocks.

 

403b ASP is a mutual fund recordkeeping platform that clears, settles, and trades mutual fund positions held at the NSCC. Our recordkeeping platform has been calibrated for servicing the 403b market under the new regulations. We are SAS 70 Level II Audited and CEFEX Certified (Center for Fiduciary Excellence). We have been in business over 7 years and we are a profitable employee owned company. Please Note: Part of the CEFEX Certification is financial viability. In short we are a strong growing company that is not beholden to venture capitalist or other similar entities. We have developed the company from the ground up... oddly enough my books are better than some large insurance vendors out there... I just don’t have as many zeros in the numbers.

 

Worst case scenario: In the unlikely event that 403b ASP becomes insolvent we would resign as recordkeeping investment vendor and give you the opportunity to transfer and move to another vendor. You would not loose your investment money; it is tied directly to the fund company. I know that was a lot of industry jargon but I hope it helps. thanks.

 

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Steve

 

So if you had the option of going with Vanguard through 403asp or Using Fidelity Direct which would you choose? Just Curious

 

Rich

 

I'm not Steve, but I would go with Fidelity Direct:

 

1) No middle man, and therefore no middle man costs.

2) Access to Fidelity Spartan funds, which cost even less than Vanguard.

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Steve

 

So if you had the option of going with Vanguard through 403asp or Using Fidelity Direct which would you choose? Just Curious

 

Rich

 

 

 

Rtngolf/Rich,

 

Are you saying that Vanguard is available through Fidelity Direct? Is that the same thing as Fidelity's FundsNetwork? If so, I think there is a $75/transaction fee associated with Vanguard funds. Or did I completely miss the point?

 

Craig

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Rntgolf,

Fidelity direct. A middle person, a TPA, is of no use to me.

Steve

 

 

So what are the cost going through Fidelity? Do they get paid revenue sharing? Do they charged for Vanguard funds because they don't get paid revenue sharing? I noticed on thier website they don't disclose fees but they do state the following "I understand that my account may be subject to an annual maintenance and/or recordkeeping fee." Does this make them a middle man to get to funds other than Fidelity? Are they consiered a TPA then?

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Rntgolf,

Fidelity direct. A middle person, a TPA, is of no use to me.

Steve

 

 

So what are the cost going through Fidelity? Do they get paid revenue sharing? Do they charged for Vanguard funds because they don't get paid revenue sharing? I noticed on thier website they don't disclose fees but they do state the following "I understand that my account may be subject to an annual maintenance and/or recordkeeping fee." Does this make them a middle man to get to funds other than Fidelity? Are they consiered a TPA then?

 

 

For the record 403b ASP is not considered a TPA. We are a mutual fund recordkeeping platform like Fidelity's FundsNetwork. I can assure you that Fidelity has negotiated a very rich revenue sharing arrangement with themselves for Fidelity funds and did not have much success with negotiating revenue sharing with Vanguard (and others) so the investor must still pay to get it.... same as it ever was. If you look at the funds marked NTF (no transaction fee) from Fidelity I thinks it is safe to assume that the get paid RS -- after reviewing their site they sure have a lot funds that you have to pay extra on. Or is it less because that transaction amount could be less that what they receive in RS from the fund (that they don't disclose)... depending on the expense of the fund I guess. At least 403b ASP has NO transaction fee on ANY fund and gives you the freedom to choose whatever fund you like regardless of any RS. We are not biased to steer you into proprietary funds or funds that pay RS.

 

Steve we updated our website and you can access our fee information right off the home page.

 

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