Tuesday, April 10, 2012

NTSAA/ASPPA False “Choice”, Censorship & Graff Radio Silence

Originally posted on my Meridian Wealth Blog on August 26th, 2011



False “Choice”
ASPPA through their NTSAA branch has decided to side with old school 403(b) providers and are trying to keep the gospel of “choice” alive. The surface argument is that participants should be able to work with whatever advisor they choose. What is really behind this argument however is a set of high-cost providers trying to protect their turf and product lines. When ASPPA/NTSSA speaks of “choice” they are simply protecting their members, not participants – it’s code.
I think we can all agree that a participant should have the ability to work with whatever advisor they choose, however where I disagree with NTSAA is the qualifications and legal duties to those participants. I believe that an advisor should be required to always put the best interest of the participant first and find it tough to believe anyone could disagree with such a position. Where ASPPA/NTSAA fails in their position is where they promote products over people.
There is no reason a plan can’t have a single vendor, but offer multiple fiduciary advisors. This gives the participants a fiduciary plan with the benefits of competitive bidding along with their choice of advisors. They can continue to use their current advisors so long as that advisor adheres to a fiduciary standard.
ASPPA/NTSAA must answer the question why they don’t support a fiduciary standard for all advisors who work with participants.
The current argument over choice is a red herring, it’s really an argument over whether the participants should have an advisor who is a Fiduciary.
Brian Graff Update
Mr. Graff has been radio silent since I posed five questions to him in my blog post Five Questions Brian Graff…. Why the silence Mr. Graff? The questions are easy to answer, what are you hiding from?
Keep in mind I am not attacking Mr. Graff on a personal level – I’m posing questions to him as the leader of an organization which has taken a position that is in my opinion anti-participant.
ASPPA Censorship?
Mr. Graff has been silent on questions posed to him, but obviously feeling the pressure. My post of questions experienced a lot of traffic and generated a lot of buzz. Instead of answering the questions ASPPA sent out Robert Richter to try to reframe the debate, but then decided they didn’t actually want a debate and refused to approve comments that were contrary to their position. So, I decided to post Robert’s response and MY response to him which ASPAA has refused to approve. What are you so afraid of ASPPA? Why the censorship? Shouldn’t the industry be debating this and how can ASPPA be against fiduciary advice in retirement plans? Richter’s post and my response is below:
From Robert Richter on LinkedIN:
403(b) Consolidation
Some of you may be a aware of an ongoing debate over some positions taken by ASPPA & NTSAA regarding 403(b) plans for K-12 public schools. ASPPA & NTSAA, along with a coalition of interested parties, will be rolling out a website and a campaign to clarify our positions and why the positions being taken are in the best interests of teachers and staff at our public schools. In the interim, a few comments are warranted. 

We know that due to regulatory changes, 403(b) plans have a greater resemblance to 401(k) plans. Aside from the substantive legal differences, however, one must understand that the delivery and implementation of 403(b) plans in K – 12 public schools is considerably different than 401(k) plans. There are no on-site human resource functions at each school to provide investment education and enrollment functions. Rather, schools have taken a passive approach to 403(b) plans – they allow a payroll slot for those teachers who want to participate in a 403(b) plan. It has been up to advisors to reach out to teachers to encourage them to participate in the plan and in how to invest those contributions. A soon be to be published study will demonstrate that the elimination of options in 403(b) plans (and the corresponding elimination of the existing relationship teachers have with advisors) results in significantly decreased participation rates by teachers. 

Another important distinction between 403(b) plans and 401(k) plans is that under ERISA, employers who sponsor 401(k) plans have a fiduciary responsibility to ensure that fees are reasonable compared to the services being provided. It’s not simply a matter of who has the lowest fees. The new fee disclosure regulations will also help ensure that conflicts of interest are more readily apparent. This fiduciary obligation, along with nondiscrimination requirements, requires sponsors of 401(k) plans to have an active role both with respect to the plan and to encourage employee participation. These factors do not exist in the public school environment. 

Notwithstanding this, some large bundled insurance providers are trying to push legislation that will effectively push smaller providers and advisors out of the market. They are lobbing state capitols to convince lawmakers that the state should take over 403(b) plans and significantly limit the number of providers, and sometimes pushing for a single provider. We don’t believe using legislation so that large insurers can gain a market advantage is in the best interest of public school employees. 

We are certainly not taking the position that the 403(b) market is perfect. As an organization, we continue to be concerned about issues relating to hidden fees. As you know, DOL’s fee disclosure rules do not apply to K-12 403(b) plans. So we are doing something about it. We have established a joint task force with the National Education Association and the Association of School Business Officials to create fee disclosure standards for public school 403(b) plans. These national standards will allow public school employees to make apples to apples comparisons of different 403(b) options so they know clearly how much they are paying and what services they are paying for. As we know in the 401(k) industry, it’s not all about fees and public school employees should not be denied the opportunity to work with a personal advisor and product provider they trust. 

I hope this will alleviates any concerns that ASPPA & NTSAA members have. More detailed (and more eloquent) explanations will be provided in the very near future.
My Response to Rober Richter which has yet to be approved by ASPPA, despite two comments in favor of Robert being approved after my comments were submitted.
I see that you have decided against answering any of the questions that are actually on peoples minds. Here are the five questions you need to answer:
1. Do you believe School Employees should always have their best interest put first by any advisor they work with, in other words, a conflict-free fiduciary standard?
2. Why shouldn’t all advisors who want to work with School Employees be held to a fiduciary standard?
3. Would ASPPA be open to allowing multiple 401(k) providers for their organization with no process for “screening costs, fees or other terms or conditions” and would they support such a structure for private sector 401(k)’s? If not, why and do you believe this would violate ERISA?
4. You have stated several times that competitive bidding and/or single vendor options will not lower costs and fees and that participation rates suffer under such regimes, disregarding the fact that this is standard practice in the 401(k) world which you represent. Where is your evidence to support such conclusions?
5. In your recent NTSSA article you claimed victory over the Los Angeles Unified School District (LAUSD), please explain how, by hiring a lobbyist law firm and sending threatening letters, you were not acting as a bully for the financial services industry?
Your defense of the status quo and of brokers/agents over participants is disturbing on so many levels.
Your national standards for disclosure do NOTHING to require that the brokers/agents working with educators place those educators interest ahead of their own.
You fail to mention that it is NTSSA/ASPPA actively lobbying against Multiple Employer Plans that seek to provider lower cost, fiduciary based services to participants as well as advisory services. You are the one working to protect a dying industry (retail based fixed annuities sold by non-fiduciary agents and brokers).
You have ignored 403bCompare.com and you know that “comparing fees” simply ignores the fact that the people you represent sell products that are free of fees (spread products).
You have attacked consultants who pledge a fiduciary duty as essentially conflicted and yet you don’t point out the huge conflicts of the firms you represent.
Will you be the one to answer the questions I pose or will you hide behind Project Albatross? ”