Recently I've come across numerous situations that really tick me off. When I set out to help change the School Employees 403(b)/457(b) world I knew it would take a long time, real change doesn't happen overnight. Don't get me wrong, we've made a lot of progress, but sometimes it feels like employers are taking one step forward and two steps back. What has recently set me off are insurance agents that masquerade as "Consultants" for 403(b) and 457(b) programs. In most cases the insurance agent has convinced the employer that they are knowledgable and will act as a fiduciary - but in the end they are usually looking for a payday. This is of course my experience and my opinion (If you didn't already know, my first amendment right to criticize has been severely curtailed).
These fake "Consultants" even appear to conduct Request for Proposals processes and many times even invite good providers to compete. However the invitation to the good providers is usually just a farce used to gain credibility - the fix is in from the beginning - the consultant already knows who they are going to choose. The chosen providers typically have a revenue agreement with the Consultant. So - how do you spot one of these Wolves in Sheep's Clothing? Look for the following and ask the questions:
Questions for the Consultant?
Do you have a financial relationship with any of the proposed vendors?
Are you licensed to sell the specific product the vendor is offering and do you plan on receiving commissions or fees or trips for selling that product?
Please disclose all compensation you could potentially receive from each of the potential winning vendors?
Do you require a vendor to "Pay to Play" in order to make the finalist list? In other words, will the winning vendor(s) be required to pay money to the "Consultant" if they win? (Note: This is different than a bidder paying agreed administrative payment to the Plan, which the Plan Sponsor may pay out to compensate a Consultant)
Has the vendor paid for any trips you have taken in the past seven years? This is a no-no.
I could list dozens more questions to ask, but I think you get my drift - a True Fiduciary is someone who always acts in the best interest of the participants - ALWAYS.
A True Fiduciary will not take trips paid for by vendors or potential vendors, those trips will be paid for by the Fiduciary him/herself as a cost of doing business. A True Fiduciary will not enter into undisclosed agreements with vendors to receive commissions (or even disclosed agreements). A True Fiduciary will receive income only from their client, not from a vendor. A True Fiduciary will not utilize his/her position of power to benefit him/herself.
Fake Fiduciaries abound, in fact they are the majority. True Fiduciaries are Independent and will put in writing that they are Fiduciaries. True Fiduciaries will always act in your best interest and will not receive income from any source other than their client. They will disclose their conflicts of interest and try to avoid them whenever possible.
The state of the School Employees 403(b) and 457(b) world has trended toward the Fake Fiduciary, in fact it is dominated by Fake Fiduciaries. I come across them everyday. They are scared to death to have any light shed on them and their practices as they will be exposed for what they are - Self-Interested Fakes. This country is in desperate need of True Fiduciaries...School Employees are in desperate need of True Fiduciaries.
School Employees need to demand accountability and employers should work only with True Fiduciaries.
I am a True Fiduciary, are you?
Scott Dauenhauer CFP, MSFP, AIF
