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Lies & Legislation

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Submitted the following email to 403bwise in early April:

 

On 4/8/03 5:05 PM, "brooke77" wrote:

 

Less choice is better? Tiaa cref creates a virtual monopoly? Speaking on

behalf of hundreds of retirement planning specialists, we will continue to

fight for client choice.

 

Sincerely, Brooke Wentner

 

To my surprise, I was contacted by the site and asked to write a piece laying out my thoughts. I was told I could write about whatever I pleased.

 

The following piece was subsequently rejected unless I would change some of it's content. I refused, and was told I could post this op ed on the discussion board.

 

 

Lies & Legislation

 

This site claims that 403(b) in California is broken. The root cause... too much choice. LAUSD is used by 403(b)wise as an example of choice run amok. There are 140 vendor choices on LAUSD's approved list. According to the website, this freedom to choose is not good. It's a fiasco here because there is too much educator choice! Vendor choice is important as you will see in the performance section of this letter. It is also important for the public to understand that the number of vendors on a district's approved list varies throughout our state. Hayward Unified School District currently has 47 vendor choices. Fremont Unified, approximately 90, Albany USD approximately 20, as does San Ramon Valley USD. An educator visiting this site could be given the impression that all district vendor lists are the size of LAUSD's. Unfortunately, not every district has the luxury of this many choices.

 

403(b)wise contends that educators would get unbiased information about 403(b) from the school district, but for now, teachers are practically forced to rely on (what the site refers to as) their vendor agents. Vendor agent would be a better way of describing the TIAA-CREF employee enroller. Vendor agents who represent TIAA-CREF's narrow line of investments, must sell what the company tells them to sell. The argument could be made that the educator is short changed by the company's enrollers because of their low expense approach to this line of business.

 

Fixed Annuities

 

403(b)wise criticizes what they characterize as high surrender charge & two tiered fixed annuity products marketed in California. Are the TIAA-CREF fixed products a better alternative? TIAA's traditional retirement annuity (RA) & Group Retirement Annuities (GRA) don't allow for lump sum liquidity before or after retirement. Forget about high surrender charges, funds are not available in a lump sum, period. The fastest an educator may transfer/withdraw funds from these annuities is in 10 annual installments (see www.tiaa-cref.org/ras/1b15ctr.html).

 

Independent investment professionals offer dozens of potential options with varying surrender periods. The majority of the fixed annuity options I have observed/marketed in the past decade offer LUMP SUM liquidity at terms end. In other words, the educator may transfer his/her assets to another carrier or (if eligible) take 100% of accumulated value as income.*

 

Mutual Funds & Variable Annuities

 

403(b) in California is alive and well, but 403(b)wise thinks it's broken and recommends ("a fix") that educators divert their monthly 403(b) contributions to 457 (deferred compensation) plans. The site makes this recommendation so the educator can have "access to higher quality investment options in all appropriate asset classes." The author of this piece must consider the TIAA-CREF variable annuities to be high quality investment vehicles. TIAA-CREF talks ad nauseam about the low fees charged by it's variable annuity products and provide a bar graph showing the effect of fees on accumulation using the same rate of return. For the educator to be fully informed, 403(b)wise should (but doesn't) discuss performance NET of expenses. You know, reality. Why not compare these so called superior products with those they compete against in the market place?

 

Growth Investing net of expenses

 

Below is an example of three stock/stock & bond mutual funds offered by Oppenheimer. Oppenheimer mutual funds are what 403(b)wise refers to as funds with "higher expenses." The $10,000 hypothetical investment (in each fund/sub account) below illustrates how Oppenheimer funds performed against their TIAA-CREF counterparts net of expenses over the past 5 & 10 year periods.

 

Fund/sub account Total expenses 5 year ann. return 10 year ann. return 10 yr difference 10 yr Grth in $ Morningstar Category**

 

TIAA-CREF Global .46% <5.60%> 6.00% $17,908 World Stock

 

Oppen Global "C" 1.89% 1.55% 9.71% +3.71%/year $25,261 World Stock

 

 

TIAA-CREF Social Choice .40% 1.30% 8.19% $21,972 Dom Hybrid

 

Oppen Quest Bal Val "C" 2.07% 2.78% 10.12% +1.93%/year $26,221 Dom Hybrid

 

 

TIAA CREF Stock .41% <3.68%> 7.09% $19,837 Large Blend

 

Oppen Capital Apprec "C" 1.80% <.92%> 8.79% +1.70%/year $23,221 Large Blend

 

 

If this educator had invested $30,000 in these three TIAA-CREF sub accounts 10 years ago, he/she would have accumulated approximately $59,717 (7.13%/year). The Oppenheimer portfolio would have grown to approximately $74,703 (9.55%/year).***** The Oppenheimer portfolio owner realized superior growth net of expenses over the intermediate and longer term. One could be mislead by the 403(b)wise argument that implies low expenses equate to superior accumulation. Oppenheimer is one of several competitors TIAA-CREF would like eliminated from every district's approved list, thus increasing their market share without having to compete.

 

What about service? Does this short list of products come with the personal service many educators demand? Does the enroller employee from TIAA-CREF have the credentials, tools and time help facilitate a financial plan. What if the client is interested in adding individual stocks/bonds to their portfolio? Does TIAA-CREF allow it's enroller employees the objectivity to recommend alternatives to TIAA-CREF? If presented with the above example, would the TIAA-CREF enroller employee recommend that the client in the above example transfer TIAA-CREF assets to Oppenheimer (if it were structurally possible)? Would the TIAA-CREF enroller employee recommend the client in the above example transfer assets from Oppenheimer to TIAA-CREF?!

 

There are hundreds of thousands of 403(b) participants today thanks to the licensed investment professionals who solicited, explained (yes explained) , implemented, and monitor educator's plans throughout the country. As with my book of business, many educators would have no 403(b) plan or would have started saving later in their careers if the concepts and products had not been brought to them. This is extremely valuable from an accumulation standpoint. Follow up is another key to superior accumulation. As contribution limits change and the educator becomes eligible to increase savings, independent investment professionals are there to initiate and facilitate increases. How can the low cost companies offer this level of service without eventually increasing expense charges? What will stop these companies from raising expenses if they succeed in legislating away their competition?

 

Too much choice or too much Freedom?

 

"If you tell a lie often enough from a position of power, it will become the accepted truth." Joseph Goebbels

 

For a problem to have a solution, there must first be a problem. 403(b)wise has posited that an educator's freedom to choose from a wide array of products is bad for them. TIAA-CREF claims to know what's best for our state's educators, and wants to help by eliminating all of their annoying choices. According to the site, some LAUSD district employees agree that there is too much choice. Although district employees throughout our state are competent to perform tasks based on their job description, most do not have the expertise let alone credentials to give advice about investments.

 

Does the TIAA-CREF argument that to many investment options are bad, hold water? If General Motors had no competition, would it's cars be cheaper and as technologically advanced? The state of Pennsylvania has several energy providers. These companies compete for the consumer dollar and as a result, Pennsylvania's energy costs are amongst the lowest in the country. Contrast this with California's continuing energy crisis. There is no competition in this state and our energy costs are the highest in the nation.

 

Competition is what drives performance in the market place, yet 403(b)wise would have everyone believe less choice will increase investment quality and keep expenses low.

 

This fight is over market share, pure and simple. TIAA-CREF is attempting to steal the educator's right to choose while insulting their intelligence. They are also attempting to break up thousands of personal relationships that in many cases have lasted decades.

 

Thanks to organiztions like ROPE, last year's legislation to limit educator choice was modified at the last moment and a monopoly was averted. Insurance code section 770.3 provides teachers with the right to chose the product of their choice. TIAA-CREF is aggressively seeking to make themselves one of your only investment options. SB 273 introduced by Senator Nell Soto, is this years attempt to eliminate educator choice in the University of California system. UC employees are limited to a handful of investment options while the typical public school employee in California has dozens of 403(b) plans from which to choose.

 

"The price of liberty is eternal vigilance" Thomas Jefferson

 

Contact your investment professional, Union leaders, and state legislators. ROPE may be contacted @ WWW.ropeorg.org

 

Let your elected officials know that their jobs are hanging in the balance. Tell them not to let TIAA-CREF et al take away your right to choose!

 

 

 

Brooke Wentner

Teachers Retirement Services, Inc./Centaurus Financial***

brooke77@pacbell.net

 

Cc. Richard Pombo, Dianne Feinstein, Barbara Boxer & Nell Soto, Tom McClintock, Tom Torlakson, Lynne Leach, Guy Houston

 

 

 

*Based on information provided in Morningstar Principia as of 2/03

**Oppenheimer funds are available in k-12 & college districts throughout California

*** All securities products offered through Centaurus Financial. Member SIPC, NASD

**** Educator must be 55 and retired or 591/2 to qualify for constructive receipt of funds

*****With any investment vehicle, past performance is not a guarantee of future results. Investors should be aware that there are risks inherent in all investments, such as market fluctuations in investment principal.

Material discussed herewith is meant for general illustration and/or informational purposes only. Although the information has be gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.

 

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403(b)wise appreciates and respects all opinions. This site continues to maintain that the 403(b) in its current form in California is broken. Perhaps we should have clarified that it is broken from the "teacher's perspective." Perhaps from the agent's perspective it is very much alive and well. It is important to remember that the 403(b) is a retirement plan designed for the benefit of teachers. Not agents. Not mutual fund companies. Not insurance companies. Not websites. As such teachers should have access to the best education and the best investment choices. This simply is not the case in California. We should know having taught in California.

 

State insurance code 770.3 prevents school districts from implementing a Request for Proposal (RFP) process common to 401(k) and 457 plans. The RFP process allows the employer to capitalize on its tremendous purchasing power (i.e. strength in numbers) to gain access to lower cost products and better services. The RFP works like this: employers contact vendors (of their choosing) to let them know they are seeking bids from companies wishing to offer 403(b) services in their district. The vendors then compete to earn the school district's business. During this process the employer can demand access to lower cost products, education, compliance control and yes, agent services. Instead of the competition occurring in classrooms and the staff lounges as scores of agents fight to earn business, the competition occurs during the RFP process among companies the district "chooses."

 

This is exactly what school districts do in regard to health care providers. The typical school district offers 3-5 health care providers that have been pre-selected by the employer. The employer is attractive to the health care provider because of the number of participants it will provide. This in turn results in lower health care costs to the district and to the employee.

 

School districts in California interpret 770.3 to read that if they let one insurance company sell product in their district they have to let all sell product. This is why you have California vendor lists ranging from 20 to more than 100. It would be one thing if these vendor lists were stocked with the companies teachers want. Mutual fund companies like Vanguard often see little value in getting involved in such a vendor scrum. The only way a Vanguard can get the word out about its services and attractive fee structure in such a situation would be to hire agents, which in turn would destroy its low-cost business model. If teachers could "choose" their top 20 companies that would be meaningful "choice." If school districts could "choose" their top five companies. That would be meaningful "choice." If school districts could "choose" to engage in the RFP process that would meaningful "choice."

 

Can you imagine if health care was provided the way the 403(b) in California is? Teachers would be left to choose from scores of health care providers. In order to drum up business, health care providers would be forced to hire sales agents to work the classrooms, union halls and staff lounges. To pay for the agent services premiums would have to be raised. And we thought health care was expensive now!

 

We salute the many, many quality agents who work to help their clients make wise investment choices. In fact in the 403(b)wise FAQ section we state: "...that many agents provide valuable services to their clients. These services can include: retirement planning, information about state retirement plans, and analysis of other financial needs. Such agents rightly deserve to be compensated for their services. The key is to figure out exactly what services you are receiving, and exactly what fees you are paying for these services. Only then can you determine the true value of using an agent. Other options include hiring a financial planner who can be paid on an hourly basis to aid you with your 403(b)."

 

Why must the competition occur in the classrooms, staff lounges and union halls of California school districts? Why can't the competition occur during the RFP process? Wouldn't it be great if school districts were allowed to "choose" their top five vendors? Wouldn't it be great if a few of these companies offered agents in the field, and a few of these companies were direct distribution low-cost vendors. This way teachers who need the services of an agent would have the peace of mind that the agent they are working with comes from a company their employer selected. And this way, do-it-yourselfers looking for quality, low-cost investments would have that choice as well.

 

403(b)wise is against choice: bad choice. 403(b)wise is very much for quality choice. The real question is why do some want to continue to deny California school districts the "choice" to offer their preferred vendors to their employees? Last year a legislative effort (AB 2506) was undertaken to alter 770.3 to allow school districts the "choice" to engage in the RFP process. Wouldn't you know this provision was lobbied out of the legislation? "Choice" was taken away!

 

The initial post tried to make a connection between 403(b) choice in California and the car industry. They are on the right track. The current situation with the California 403(b) in which choice is typically limited to high-fee agent-sold products reminds us of what Henry Ford said when asked about color choice in his Model T. "You can have any color you want," he replied. "As long as it is black." California teachers want more colors in their 403(b).

 

 

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Guest Guest_Joel L. Frank

Fixed Annuities

 

403(b)wise criticizes what they characterize as high surrender charge & two tiered fixed annuity products marketed in California. Are the TIAA-CREF fixed products a better alternative? TIAA's traditional retirement annuity (RA) & Group Retirement Annuities (GRA) don't allow for lump sum liquidity before or after retirement. Forget about high surrender charges, funds are not available in a lump sum, period. The fastest an educator may transfer/withdraw funds from these annuities is in 10 annual installments (see www.tiaa-cref.org/ras/1b15ctr.html).

 

Independent investment professionals offer dozens of potential options with varying surrender periods. The majority of the fixed annuity options I have observed/marketed in the past decade offer LUMP SUM liquidity at terms end. In other words, the educator may transfer his/her assets to another carrier or (if eligible) take 100% of accumulated value as income.*

+++++++++++++++++++++++++++++++++++++++++++++++++++++

 

The 10 year rule applies to the primary retirement plan not the salary reduction plan. So 403b salary reduction accounts funded via Tiaa-Cref may be moved at will at the discretion of the individual.

 

Peace,

Joel

 

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Guest Guest_Joel L. Frank

Dan,

 

Your reference to health insurance costs proves that when the employer funds the benefit costs do come down. Is there any 403b plan out there that is partially funded with employer contributions that is a loaded offering? Have the er partially fund a 403b and you will see how interested he is in costs. Not because he loves the ees but because as a fiduciary of taxpayer money he is required by law to get the best bang for the buck otherwise he opens himself up to a taxpayer led lawsuit.

 

Absent employer funding of the 403b the er believes he is safe from lawsuits. Afterall the higher costs are paid by the 403b employee not the employer/taxpayer.

 

Peace,

Joel

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Guest Guest_Joel L. Frank

Investment returns have nothing to do paying a load. If Oppenheimer out performs CREF funds then it behooves the employer to offer Oppenheimer on a no-load basis. This is the job of the employer and is accomplished through the RFP process. No one should be forced to pay a load to acquire the investment when the investment could be acquired on a no-load basis.

 

Joel

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Guest Guest_Joel L. Frank

Hi Brooke,

 

Have you looked at the Investment Plan of the Florida Retirement System? Are you telling us that the investor would be better served if he paid a load to acquire the investment? I'm sure you recognize that among the forty funds on the platform some charge a load. BUT NOT TO MEMBERS OF THE INVESTMENT PLAN. You see the law requires that all forty funds be offered as no-load. So in order to get the business of the public employee community in the State of Florida the loaded funds that were approved by the Trustees had to agree to sell their shares on a no-load or wholesale basis. This was all spelled out in the RFP.

 

C'mon Brooke a teacher pays group or wholesale rates when it comes to health insurance---why should he pay retail when it comes to 403b?

 

Peace,

Joel

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Guest Guest_Joel L. Frank

Hi Brooke:

 

Check out the NYC Deferred Compensation Plan (457(b) and 401(k)). All city employees are eligible to participate---including educators! www.nyc.gov/deferredcomp.

The trustees in order to reduce costs just went from no-load mutual funds to separate accounts. The average expense ratio is about 20 basis points.

 

Peace,

Joel L. Frank

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Brooke,

 

Thank you for taking the time to share your side of the 403(b) debate. It takes guts to make a post and speak out in a place where you will be guaranteed to have a lot of disagreement. When I supported AB 2506 and said so publicly and at a NTSAA meeting I became “evil” in the eyes of most of the people in that room. Many tried to convince me that I was wrong. One person that I spoke with (one of the leaders of ROPE) had an interesting response to a question of mine – I asked him who he was trying to protect by opposing AB 2506, his response – “my agents and my company.” This is from one of your leaders; my response back to him was that “my mission is to protect the teacher’s interest, not agents.”

 

On your website you state “ropeOrg is a public advocacy organization that seeks to preserve as many retirement plan alternatives as possible for professional educators in California. We are a watchdog group that monitors legislative maneuvering by special interests who seek to limit the number of retirement plan providers teachers can choose.”

 

You make yourself out to sound like a bunch of concerned citizens who have NO interests to protect; you make it seem as if you are completely unbiased, then you criticize “special interests” as if you aren’t one. ROPE IS A SPECIAL INTEREST. You are funded mainly by large insurance companies such as Great American, your leaders and almost all of your contributors are insurance agents who sell insurance products of HUGE insurance companies. The truth is that YOU ARE THE SPECIAL INTERESTS seeking to preserve YOUR monopoly.

 

You basically state that fees don’t matter and then you attempt to prove your point by comparing Oppenheimer to CREF equity accounts. I find it interesting that you didn’t compare any fixed income products of Oppenheimer to TIAA. I also find it interesting that “A” share Oppenheimer funds perform better than “C” shares, this must be an anomaly because FEES DON’T MATTER, right? Since some Oppenheimer funds beat some TIAA funds than we now have materially proof that fees don’t matter – thank you for the missing link we were looking for! Your reality does not rely on actual proof, in reality FEES DO MATTER, it is simple. Will all lower fee products outperform higher fee products – NO –but they have a much better chance and teachers should have the opportunity to purchase no-load & low-cost products, in most districts they do not have that right – they are stuck with a list full of commission based products sold by agents – many of which will never be seen again after the sale. If you can point me to a study that shows that high fees produce higher returns (net of fees) than I might just change my mind.

 

You have said that Choice leads to competition, this sounds like a plausible argument until you look at the competition. The competition is almost solely high cost, agent sold products – there is rarely any CHOICE to use a low-cost product. In addition, choice without full disclosure is not competition. You state that TIAA is trying to build a monopoly through legislation, this is not correct and it is this type of misinformation that plagues your organization. You use deception to manipulate. I will give you two examples of it - #1) Type in 403bwise.net on your Internet Explorer and tell me what comes up? Can you tell me that this is an HONEST way of doing business, is it not deception? I am waiting for an answer. #2) you claim that TIAA is trying to create a monopoly; monopoly is defined as “Exclusive control by one group of the means of producing or selling a commodity or service.” – I would ask you to please point out to me in the AB 2506 legislation exactly where it states the following “TIAA will be granted exclusive control of all California districts when it comes to setting up and maintaining a 403(b)”……..What, you mean you can’t find that in the legislation? Your use of deception and misinformation is simply an extension of what goes on in the 403(b) world everyday, teachers are manipulated into high cost products that will not serve their long term interests.

 

The purpose of AB 2506 was to create an RFP process where districts can control their vendor lists and FORCE vendors to compete. If you were one of three vendors in a district do you think you could offer a better deal to the employees than if you were one of 140? You are right when you say “competition is what drives performance in the market place,” however in today’s 403(b) there is no real competition; it is not a free market. Teachers are not given unbiased education and not educated as to lower cost options. You claim that TIAA wants to legislate away their competitors, where does it state that in the legislation? It doesn’t, the fact of the matter is that TIAA and many other providers (both high and low quality) want the opportunity to compete but are not given that opportunity. When vendors are forced to compete via an objective process, the costs go down; the services go up and guess what – PARTICIPATION GOES UP.

 

Participation rates are horrible, they should be higher and they could be if not for the agent virtual monopoly that currently exists in California and many other states. You further state that “They (TIAA) are also attempting to break up thousands of personal relationships that in many cases have lasted decades,” I would like you to please explain yourself? Would you not be allowed to talk with your client anymore? Would you suddenly lose your clients and not be able to advise them anymore? Or is it that your commissions would be severed? Let’s be honest here, you are worried about your paycheck, not your clients best interest. You wouldn’t lose your clients if they were truly happy clients, you would find another way to service them and get paid for that – perhaps by charging on an hourly basis. Nobody is trying to steal your clients through legislation; they are trying to give your clients something you WON’T give them.

 

Since when does opening a 403(b) mean that a person needs to do a complete financial plan? Most teachers should do financial planning and I encourage them to do so, but selling a product and financial planning are two different things. They should not be connected. When you are forced to sell a product to get paid you WILL SELL A PRODUCT. If you want to do financial planning and want to get paid for it than charge for it, but don’t use financial planning as the reason that someone should open a 403(b). A 403(b) can be extremely important; of course it may not even be the right choice. What about districts that offer a 457(b) plan that is no-load? Will you advise your client to purchase that 457(b) or will you put them in a 403(b) that pays you a commission, even though you know they would be better off in the 457(b). The truth is that the conflicts of interest in the 403(b) world are ridiculous. I believe there are some great agents out there, I know a few of them and they have taught me more than I could have ever learned on my own, and they provide services that are wonderful that they probably don’t get paid enough for. However, this is not the majority and the fact is they could survive doing the same type of work for the same clients if an RFP process was used, they would just have to change they way they are compensated. It is amazing how objective someone becomes when they don’t have to sell a product to make money.

 

You further state “Insurance code section 770.3 provides teachers with the right to choose the product of their choice.” This is not true, please read the code section again; it actually states that if one insurance product is offered than any insurance product must be offered (paraphrased), you will notice is says nothing about “hold harmless agreements” or about mutual funds. The truth is that if a district offered only a mutual fund provider than it could eliminate all insurance providers from the list immediately. Most districts don’t know this (and will never be told this my ROPE).

 

You state that you want to fight for teacher’s right to choose yet you don’t fight companies like Envoy Plan Services who takes over third party administration duties of a district and then charges the VENDORS for those services, thereby eliminating all low-cost providers. In fact guess who was quick to sign on to this type of extortion, Great American. Why didn’t they fight it? Where is ROPE?

 

Your organization does not stand for protecting teachers interests; it stands for protecting agents and the companies they represent. You attack TIAA-CREF, yet TIAA is not the only low cost provider that would like to offer products, what about Vanguard, USAA, T. Rowe Price, CalSTRS, EdMoney, CU plans, American Funds (A shares, load waived), Fidelity, I could go on……Should these companies not be able to compete? Shouldn’t there be an unbiased source of information? When will the teacher’s best interest be protected? Your organization is looking out for its own, not its clients. When will you stop using deceptive practices to spread misinformation? We are awaiting your response.

 

ScottyD

 

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Hi Fellow 403b activists,

Looks like Brooke will not answer all of our concerns about his "opinion." The pros like Brooke come here say their piece as they would say it to one of their clients and expect no intelligent response or questions. People like Brooke just can't handle the questions because for decades they did not have to. That’s why when they get here they never come back again, except on very rare occasions. I suppose his CC to all the politicians are suppose to make us shake in our boots, whatever.

There is a big picture that Brooke described eloquently and desperately. They just cannot change to a fee only investment adviser. They want it all and the end is coming. Also, because of the Enron, Worldcom debacle, the investment management industry has a lot of cleaning up to do and has to answer a lot of questions. In the middle of all of this, the other revolutionary change is the financial education of ordinary folks. We now have access to investment and 403b information and self directed investment products (low priced index funds of Vanguard and TIAA CREF) like never before and as a result we know just as much or more than the so called professionals. We don’t need them anymore. Nobody can argue the plain and simple fact that NOBODY can predict the future and we avoid like the plague people who claim they can.

I challenge the ROPE website to have a discussion area like this one. But since they are not interested in an intelligent dialog because it is a threat against their interests and their interests only, that will not happen anytime soon. (Oppenheimer funds charge horrendous commissions and expense ratios)

After all of these years of trying to reform 403b, it is happening in California. Of course, Brooke's comment that insurance code 770.3 provides "choices" for educators, the insurance industry created that code to keep out low cost funds. It was a brilliant tactic that has lasted for decades. However, the end is coming. TIAA CREF, along with United Teachers Los Angeles, California Teachers Association and the Community College Guild in LA are all trying to change 770.3 when they supported and backed AB 2506, the 403b reform bill. I guess Brooke’s opinion is good solid evidence that we ordinary folks are beginning to make an impact on how 403b information about fees and expenses are given to educators.

Steve

 

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Hear! Hear!

 

Brooke states; "Speaking on

behalf of hundreds of retirement planning specialists, we will continue to

fight for client choice."

 

I believe the question here is:

 

Who is the client you are fighting for?

 

Respectfully,

Warren P.

 

 

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Guest Guest_Ted Leber

Warren,

 

Was it Patton who said: Audacious...Audacious...Audacious.

 

State of California could better serve all of its employees by

giving a clone of the Federal Government's Thirft Saving Plan to California employees--basically five low cost index funds with costs of about 6-7-8 basis points. That's all the choice that's really necessary for proper diversification. Folks who think they need more choice can read your ads.

 

Perhaps California might want to increase the costs somewhat to cover the financial education that employees need.

 

But total costs for products and services would be much less than 220 basis points that teachers now pay on average for variable annuities foisted upon most teachers across the country by uncaring school districts.

 

Here's what I see in the future. After 40 years of teaching my kids and yours, teachers will look at their retirement nestegg and discover that it's about 50% short of what it should have been. Who got that 50%. You did. We can do better for our teachers.

 

I do agree that a salespeson is often needed to get a potential saver/investor to action. But low cost options should always be available within every school district. You should be supporting this concept. RFPs can provide employees what they really need. You job is to fill the teachers' needs, not the other way around.

 

California should fix a broken system.

 

Ted

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Hi Ted,

Always good to read your words of wisdom. You are so right about California and its totally flawed 403b system. Just five years ago, nobody was talking about this issue. However, California is on its way with AB 2506 and has one honest financial adviser--Scotty. He is only one person but I believe integrity, honesty and personal courage will prevail and at the end of the day, more pros will see what Scotty sees so clearly now. Scotty's mission statement should and will be on more financial advisers office walls “my mission is to protect the teacher’s interest, not agents.”

Steve

 

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Steve Schullo may have hit onto something: If ONE ScottyD is GOOD for the 403(b) system, it stands to reason that MORE ScottyDs is BETTER.

 

Perhaps the in the seam to get this thing wide open and to develop some momentum for change is to promote only those who are willing to mimic ScottD?

 

I feel that this may be akin to turning around a battleship, but I beleive it is a "doable" thing. It's a grassroots promotion, but word-of-email may be easily spread.

 

I have heard enuf of what is wrong with the system, the insurance companies, their respective agents, the weak and/or disinterested admins at school districts, et al. Let's get the word out that we only use clones of ScottyD, i.e. professional and certified planners.

 

All a teacher has to ask is if the "planner" is not fee-for-service, forget it, move along little doggie, move along.

 

This is just my 2-cents.

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Thanks LBJackson,

You are so right, lets reinforce what we educators want from advisers. Scotty is the role model. Any agent that bashes TIAA CREF or Vanguard are to be avoided. We know instantly where they are coming from.

But most important, I have never had a problem with any agent making a living, I take exception to the two biggest lies that teachers hear: (1) my product from such and such company is the only one available to you the educator, (2) you, the educator, do not pay my fee, the company you invest in pays my salary. Consequently, not only are educators set up from the start but also they believe that the 403b is free and that the only vehicle that is available is a TSA from a large insurance company. Of course, there are exceptions, but those are very, very few. This is the teachers experience with 403b over and over again.

I have also said to colleagues, look for a fee only planner. I quit doing that because one teacher paid $200 an hour and this slime bag put her into loaded funds. (Luckily she got out of that mess quickly)

I completely trust Scotty. I have seen him everywhere and will see him again this Friday. I know he will never do that to a teacher. He charges his fee and puts people into Vanguard or TIAA CREF if those companies are available. Furthermore, he wants educators to have Vanguard and TC because if they are not available, he can’t help them as best as he wants to. He knows that when you truly look out for your clients, his business will boom. I want him to be very successful.

Lets support our true friend Scotty. He is courageous in many ways, he confronts his own profession at conferences about the standard practice with dealing with educators and 403b and he dares publish conversations on this site about what is going on in the industry. That takes courage my friends and he has been the object of sometimes severe criticism from some of the other pros. He is my hero and I don't give that out to very many advisers. I can’t wait for him to open an office near LAUSD cause he will have many clients.

Steve

 

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