Wednesday, December 20, 2017

Look Out Teachers, LSW Has You In Its Crosshairs

I find all sorts of interesting things on the internet these days. Sometimes they are sent to me in my e-mail inbox, but the item I found and posted below is very different than incentive trips I've seen in the past. What's so different you ask? The following phrase:

"Sales in Individual Retirement Accounts or ERISA governed qualified plans paid on or after June 9, 2017 will not count towards the qualification criteria established for certain incentives." 
This means that insurance agents attempting to sell National Life Group insurance products AND who want to earn a trip to Buenos Aires, Argentina can only qualify for that trip by selling the products outside of IRAs and 401(k) plans (also ERISA 403(b)s).

This puts the crosshairs on two groups of people, those with assets outside of qualified (ERISA) plans (usually senior citizens) and public school employees through their 403(b) and/or 457(b). As I've written in the past, government 403(b) plans are not subject to ERISA and thus NOT subject to the new Department of Labor Fiduciary Rule. Teachers are quite literally not protected. Worse, they are among a shrinking group of people who aren't...which puts them directly in the crosshairs of insurance agents who need to make their quotas.

Be careful out there educators, never work with anyone who is not a fiduciary 100% of the time and who is not willing to put that in writing.

Tuesday, October 24, 2017

How Not To Respond To A Scandal - TIAA Edition

A recent bombshell article about certain business practices at TIAA was published by the New York Times last weekend, the response from TIAA was...Trumpian.

Yesterday (Monday) I received a mass e-mail message from Ron Pressman, the CEO of Institutional Financial Services at TIAA (why not from the CEO of TIAA, Roger Ferguson?) and it was not good.

I'll republish below, but a few items I'd like to point out that disturbed me.

The first four paragraphs boast about how great TIAA is and that they always "put their clients first," which we learned from the article, with verifiable evidence is not exactly true.  These paragraphs do not address the article at all other than to completely dismiss the claims as "mischaracterizations"...what? It's literally four paragraphs of bragging, much of which are also debatable claims ("I would put our investment performance, fees and service delivery up against any other financial services company.").

Then in paragraph five, providing no proof at all Pressman states:

The bottom line is that participants in TIAA administered plans have more confidence, more monthly income and the highest average account balances.  And that’s why TIAA exists – to help the millions of people we serve achieve lifetime financial security.
There is no evidence provided to support this claim.

As if that wasn't enough (five paragraphs of boasting without evidence to back that boasting) Pressman then writes the most absurd paragraph:

By misrepresenting facts, taking comments out of context, and making apples-to-oranges comparisons, the article presents a misleading portrait of who we are as an organization and our commitment to putting our clients first. 
Let's be clear here, the story provided a lot of evidence to support the claims made. Yet, at no point in this paragraph or the rest of the e-mail does Pressman even attempt to identify a false claim and provide evidence to contradict it. It's the "I'm not a puppet, your the puppet" response. It's literally the "it's fake news" response.

If the New York Times printed something that is incorrect or misleading, identify that claim, provide evidence to counter it and demonstrate beyond a reasonable doubt that the claim is wrong. Pressman does none of this and doesn't even promise that a such a response is forthcoming. In fact, if you do want "context" you are request to reach out to them.

I don't believe what was reported in the Times article is equivalent to the Wells Fargo or Equifax problems, but so far the response is just as bad. TIAA is tone deaf here and if they don't take this seriously, it will be costly to them.

TIAA used to be the "good guy" in the insurance industry, when did they turn into the same thing they used to despise? I expected and expect better from TIAA, a company in which I've worked with for over twenty years.

Ron Pressman, your customers deserve better.

Scott Dauenhauer, CFP, MPAS, AIF

TIAA E-Mail From Ron Pressman:

TIAA was created with a mission to serve, and we have always run our organization on a foundation of strong values, ethical behaviors and integrity.  Therefore, it was incredibly disappointing and concerning to read a very misleading article about TIAA that you may have seen in The New York Times recently.  We fundamentally disagree with how the article characterizes TIAA and the way we operate our company and address your financial needs.

As I hope you have experienced, TIAA is a different kind of financial services organization.  The long-term goals of our institutional clients and their employees have been our primary focus for nearly a century.  We are not publicly traded, and therefore not subject to short-term shareholder interests.  We put our clients first, and operate in a highly transparent and ethical way.

We are not an organization that is particularly boastful, but I am proud of what we have been able to deliver for you and your employees. I would put our investment performance, fees and service delivery up against any other financial services company.  The outcomes speak volumes. Through TIAA Traditional, we’ve paid more than the guaranteed payouts to our fixed annuity holders every year for more than half a century.  We’ve paid $394 billion in benefits to retired participants since 1918.  In fact, since our founding, our retired participants have never missed a payout from us – through depressions, wars, and natural disasters.

The bottom line is that participants in TIAA administered plans have more confidence, more monthly income and the highest average account balances.  And that’s why TIAA exists – to help the millions of people we serve achieve lifetime financial security.

By misrepresenting facts, taking comments out of context, and making apples-to-oranges comparisons, the article presents a misleading portrait of who we are as an organization and our commitment to putting our clients first.

We fully believe that our trusted reputation and track record will enable us to quickly move past this unfortunate article, and we remain committed to our core mission and to working every day to serve the interests of your institution and your employees.

Please feel free to reach out to your TIAA representative or me if you have any questions or want additional context regarding points made in the article.

Ron Pressman
CEO, Institutional Financial Services 

NY Times: The Finger-Pointing at the Finance Firm TIAA

This article is disturbing. More to come. The Finger-Pointing at the Finance Firm TIAA

Tuesday, October 10, 2017

Bermuda, Ireland, Florida or Argentina - Just Sell Enough LSW Annuities

Want to goto Bermuda in 2018? Just become an indexed annuity salesperson who contracts with the National Life Group (also known as Life of the Southwest or LSW) and sell enough of their products and you could be heading there in business class!

Perhaps you want to stay in the United States, Naples, Florida at the Ritz-Carlton was a destination for 2017.

Want to go to Ireland or maybe Argentina? No worries, LSW has options for those as well. Again, you only need to sacrifice your soul and sell their surrender charge laden annuity and insurance products to unsuspecting people, including hard working school employees and you too can board business class.

The 403(b) and 457(b) markets are littered with companies and insurance agents selling indexed annuity products to teachers and other school employees who are not informed enough to know what they are purchasing. These products often come with 10 year or longer surrender periods with surrender charges exceeding 10%.

Don't believe me...see for yourself:

These disgusting incentives should be not be legal. Scott Dauenhauer, CFP, MPAS, AIF

Friday, September 01, 2017

How The New Vanguard 403(b)7 Helps and Hurts

What Does The New Vanguard Fee Strategy Mean For Public School Employees? 

Last month a client of mine received a letter from Vanguard (see below) outlining some changes in their 403(b) program. The changes are significant and will affect a lot of people in various ways. After reading the letter several times and corresponding with Vanguard I think I have a good grasp of what’s going on and why and I have some advice on how you should proceed.

What Are The Changes? 

The first and biggest change is that Vanguard will no longer be the record keeper of their small market 403(b) plans ($20mm and below), the Newport Group will take over those duties.

The second change is that a new fee is being charged. Currently, participants pay $15 per year per mutual fund they hold at Vanguard, regardless of the account balance. This fee can get pretty high if a participant is using multiple Vanguard funds, but it’s quite reasonable if using a single fund (like a LifeCycle or LifeStrategy options). The new fee will be $60 per year regardless of how many mutual funds the participant purchases.

A third change, not mentioned by Vanguard in the letter (but confirmed by Vanguard in an e-mail to me) is the possibility of a fee that will be passed on to the participant by the employer’s compliance administrator. This fee can range from $10 to $36 annually depending on the administrator. Prior to this new relationship Vanguard could not pass such fees on.

On a more positive note, Vanguard is going to offer all participants their Admiral share class, which represents a potentially big savings. They will also begin offering the ability to contribute on a Roth basis and participants will now be able to do loans and hardship withdrawals.

Who Are The Winners & Losers? 

My first reaction to the letter was why? Why would one of the largest and most efficient record keepers in the country outsource to a firm a fraction its size? Why is the low-cost leader raising fees instead of lowering them? Why is Vanguard hurting small investors?

The answers are more complicated than you might expect and while many participants are going to feel the pain of this decision, it might end up bringing more employees into the low-cost fold.

The good news first. Admiral shares are a big deal and a great benefit. Vanguard’s Total Stock Market Index currently runs .15% annually for 403(b) participants, this will drop to .04%, almost a 75% drop. Unfortunately, not all Vanguard funds offer an Admiral share class, this includes both their popular Target Date and Target Risk funds, so not everyone will see a drop. Vanguard pushes their Target Dates heavily, so this is a disappointment (but an area of potential improvement).

The new $60 annual fee will benefit those who currently use multiple funds. If you like to build your own portfolio and are currently using four or more funds, you’ll see either no increase or a decrease in fees.

The biggest losers will be small balance accounts who are invested solely in one fund that has no Admiral share class available, namely asset allocation funds. These participants are probably better off rebuilding the asset allocation with the actual Vanguard funds.

Participants may be surprised to find another fee being charged that wasn’t before (note: this may only affect new participants, it’s not universal). Many school employers outsource their 403(b) compliance and pass the cost of that service on to the employee through their account. When Vanguard starts signing on to new school districts they may incur these additional fees. In fact, some current participants may see this fee as well depending on the school district and the administrator. This additional fee will make smaller accounts even more expensive, but there is an upside.

Currently, Vanguard doesn’t sign onto school districts where there is a Compliance Administrator fee because they have no way to pay (they don’t have a mechanism to pass it on), this limits the reach of one of the best 403(b) options in the nation. With the Newport partnership I’m told that Vanguard will expand their presence in the market. This means more participants will have access to a lower-cost provider. The obvious downside is that if you are starting out by contributing only $50 per month, a $60 annual fee plus an additional $30 compliance fee really cuts into your account balance, it’s a tough way to start. But knowing that when your account gets bigger you have the option to move to Vanguard should provide an incentive to grow it quicker.

Ultimately, just the presence of Vanguard could bring down fees overall. My recommendation for people who have Vanguard as an option but are just starting out is to see if there are any other low-cost options that don’t have high annual fees and start there, then move to Vanguard as your balance grows. As much as I can’t stand the NEA selling 403(b) products, they do have a Direct option that could work well as you are growing your balance.

Why is Vanguard doing this? 

The main reason is the non-ERISA government 403(b) market is a mess. It’s inefficient, has to many vendors and requires much more to record keep than a traditional single vendor situation. It’s very difficult for 403(b) vendors to create an efficient operation given the number of manual processes involved. Almost everything is a manual process in 403(b) and this means human contact. Human contact means higher costs.

Vanguard can’t run a break-even operation with the expense they charge. In addition, the market is saturated with vendors who charge significantly higher fees and can thus afford to deal with the inefficiencies. Moreover, the other vendors can offer loans, Roth option, hardships and other expected services that Vanguard wasn’t able to do at that price point. By outsourcing to Newport Group, they will be able to offer those services. People who have Vanguard will now be able to take a loan.

The 403(b) market, at least at the public school level is an inefficient mess. Vanguard knows this and instead of abandoning it, it seems they’ve decided to give it another try. It’s never easy to raise fees, but I’d rather have a $60 annual Vanguard account than no access to Vanguard at all.

Scott Dauenhauer, CFP, MPAS, AIF

Monday, July 10, 2017

Everything Wrong With 403(b) Markets In One Slimy Vimeo Video

I subscribe to Google Alerts and recently I was alerted to a Craigslist ad that was recruiting people to sell commission based index annuities to unsuspecting teachers in Chicago.

I clicked on the link and then found a video.

It's a bit long, but gives you some insight into the thinking and compensation and marketing practices of these sales agents. No mention of doing real financial planning or teaching people to do real financial planning.

It's everything that is wrong with this industry in one video.

2015-12-23 11.22 Webinar Now from Chris Reid on Vimeo. It's time these practices were stopped. These people are not fiduciaries, they do not have educators best interest in mind. Nor are they qualified to provide competent financial planning (as demonstrated by a lack of credentials).


Thursday, April 20, 2017

In K-12 403(b) plans, employees and their unions can be their own worst enemy

Great piece by Investment News Journalist Greg Iacurci. Did you know the following about the NEA?:

In 2015-16, Security Benefit paid an annual base fee of $2.84 million, according to the filing. That fee can increase between 5% and 10% per year if Member Benefits "achieves some or all of mutually agreed upon market-opening and program promotion goals," the document said.
I applauded the NEA for signing on with the AFL-CIO in support of the DOL's Conflict of Interest Rule, let's hope they take that focus inward and start cleaning house.

In K-12 403(b) plans, employees and their unions can be their own worst enemy

Friday, March 31, 2017

More 403(b) Vendor Shenanigans & Trips...Those Amazing Trips

This past week I've come across several instances of what I consider improper marketing efforts by insurance agents for 403(b) vendors. 

As best I can tell, this week it's LSW and Midland, two of the worst 403(b) vendors in the industry in my opinion. 

I also found where LSW is having their Conference of Champions trip and have posted the details.

WaPo: Why so many teachers need a second job to make ends meet

The fact that this article has to be written makes me sad. Why so many teachers need a second job to make ends meet

Thursday, March 23, 2017

403bCompare Rebirth

Way back in 2000, a group of 403(b) activists lobbied the California state legislature to pass a bill allowing school districts to control their 403(b) vendor list, the bill didn't make it in the original form, but instead became a disclosure bill. The law that was passed created what we now call, a website where all 403(b) vendors in California must register if they want to offer their products to California public schools. They must register and disclose their products. There is no other database like this in the country.

I was involved in both the lobbying and the development of the original website and have provided consulting services to CalSTRS (who operates the site) ever since. I've watched over the past 18 months as the people at CalSTRS worked to redesign and modernize the site, the new site launched this week and I think they've done a great job.

 Just a few new features you will see is an expense ratio range (low - medium - high) and a disclosure of whether the product will pay a commission when sold (no data on what the commission would be at this point). Comparisons are now simpler and all the data for mutual fund and annuities are in real time, including performance information. There are also filters to help you exclude certain products and a design that should allow for simpler navigation.

I've linked to a brochure and flyer below and you can watch a few of the videos as well:

CalSTRS Press Release

CalSTRS 403bCompare Flyer

CalSTRS 403bCompare Brochure

Scott Dauenhauer, CFP, MPAS, AIF

Monday, February 27, 2017

Annuity Compensation Conflicts

Compensation conflicts with annuities abound. Most of the time the conflict is in selling one annuity over another to earn a higher commission or to earn a trip to a tropical paradise. However, there are also conflicts that exist once an agent has settled on a product to sell you - should they take their money now, or over time? I recently came across the following over at and found it interesting:

Tuesday, February 21, 2017

Opinion: Why I'm Skeptical On The NTSA's Fiduciary Press Release

Right about the time that the New York Times was beginning to release their stories on the significant issues in the land of 403(b), a trade organization (the NTSA - The National Tax-Deferred Savings Association) that represents 403(b) vendors, insurance agents, brokers and some Investment Advisors told Plansponsor magazine that they would change their policy as it pertains to "Fiduciary". The Plansponsor article is short on details but begins:

Wednesday, February 08, 2017

That TIAA Loan Lawsuit & My Opinion

TIAA is being sued for a loan scheme that benefits TIAA, not participants and my opinion is that TIAA is in the wrong. This doesn't mean they broke the law, but they lose the moral and ethical credibility they had accumulated by using a technique that the rest of the 403(b) industry uses, but most 401(k) plans did away with long ago.

Here is a link to the lawsuit.

According to Plansponsor:

"A new lawsuit argues the practices used by the Teachers Investment and Annuity Association (TIAA) to credit portions of interest payments made by participants on loans taken from their own retirement accounts back to the firm—rather than to the borrowing participant—violate the Employee Retirement Income Security Act (ERISA)."

I have first hand experience with this particular loan scheme. A client of mine was also taken advantage of by it several years back, though I did not learn of it until recently.

Thursday, February 02, 2017

403(b) Hack: Why You Might Want To Leave A Few Dollars In Your 403(b), Even If You're Retired And Don't Want It

When public school employees retire they should think twice before rolling their 403(b) money (or 457(b)) over to an IRA. I'm not talking about the hordes of insurance agents and brokers who are trying to sell you poorly structured products so they can take fancy trips, that's of course a good reason not to rollover, but there is another, potentially powerful reason why you should keep at least some money in a 403(b)/457(b) as long as you are retired.

Wednesday, January 25, 2017

Attention California School Districts: You ARE Fiduciaries For Your 457(b) Plans

This isn't the first time I've written about this topic and it won't be the last...unfortunately. If you are a board member or a district administrator for a California public school, it's highly likely you are ignoring a significant responsibility and this leaves you open to lawsuits.

Despite what you've been told (in all likelihood by your compliance administrator) you ARE a fiduciary in regards to the 457(b) plan you offer your employees. You don't have to take my word for it, one of the nation's top ERISA attorneys made the case...back in 2006. Yes, you were warned over a decade ago.

Wednesday, January 04, 2017


You may have noticed that I've posted very little in the past six months, even amidst a torrent of 403(b) news. There is a reason and I'll do my best to explain.

I've been fighting for better 403(b) plans since 1998. I've not been alone in the fight (if you want to read about those who have fought along side of me, pick up my book here). I understand that this fight is not exactly akin to fighting for Civil Rights or other important issues, but it is a meaningful fight and one that needs to be waged. It's just that sometimes you get tired of it, even when you are winning.

To be honest, 2016 burned me out fighting for the 403(b) - despite it being one of the most successful years we've had. It's not the first time I've 403(b)urned out, it won't be the last.

Some of the symptoms of 403(b)burnout:

Not wanting to write about it.

Not wanting to think about it.

Getting a headache when you do think about it.


Did I mention...despair...

There are more, but those will suffice. Mind you, I didn't give up the fight, I simply took a breather.

Even while feeling the effects of 403(b)urnout I recorded podcasts (some great podcasts by the way and you can listen to them here) and posted articles and answered reporters phone calls. But my heart wasn't always in it. I remember 15 years ago how nervous I was to talk to a reporter and how much I would fret about getting quoted, the second half of last year I almost didn't want to talk to any reporter (except for the amazing and under-appreciated Tara Siegel-Bernard of the NY Times who should win a Pulitzer for her work on 403(b) last year). This was not a problem with the reporters (though Tara did make it difficult to talk to anyone else!), it was me.

I love the 403(b) fight and will continue to wage it, but probably once every three or four years I get 403(b)urnout and I just need to let it run its course. It's taking longer this time, but just writing about it is making it easier. I do take solace in the fact that we've picked up so many allies in the past few years who have willingly taken up the fight and when I'm down, they are up. I know that our numbers are growing and that I'm not that important anymore, this actually helps. We are not done fighting and neither am I, but if you don't see me for a few months every few's ok, I'm just recovering from a bout with 403(b)burnout!

2017 is a new year and there is a lot of potential, for all those out there fighting for positive changes in the government 403(b) world, I commend you and I'm ready to get back on the horse and do battle.

Scott Dauenhauer