Friday, March 18, 2016

Wait, That's Legal?: The Annual American Fidelity Dance Ripoff

I come across a lot of ridiculous things in the 403(b), but some things rate off the chart, a real WTF event or moment. That's why I'm creating a new segment on the blog titled "Wait, That's Legal?".

In this first edition of WTL I'm going to focus on a situation that should be illegal. In fact, when I tell people about it they almost always come back with "wait, that's legal?" (yes, I'm very creative with my titles).

My wife's school district offers a Section 125 plan. For those not familiar, this is a plan that allows an employee to defer money pre-tax to be used for qualified medical expenses and for qualified child care. Not only is the money taken out of the paycheck on a pre-tax basis, if used for qualified expenses it is not taxed when withdrawn. It's tough to find a pre-tax and tax-free benefit and we use ours every year.

The administrator of my wife's plan is an insurance company, American Fidelity (yes, I've written about this before). It turns out that American Fidelity runs the Section 125 plan for free, meaning they don't charge the district for their services. Running a Section 125 is not cheap, so how is it that American Fidelity can do it for nothing? Coercion.

Most Americans have their health insurance premiums paid for out of their paycheck. The advantage is that if paid through a paycheck, the premiums come out pre-tax for both State and Federal taxes (it might vary on the State level). This is a perk of the tax code and one need not do anything to receive...unless of course you are an employee in my wife's school district (or other American Fidelity plans that are run in a similar fashion).

In my wife's school district every employee is assumed to NOT want their health care insurance premiums taken out pre-tax. If they want this "perk" they are forced to meet with an insurance agent from...American Fidelity. When they meet with that agent they are in a room with just that agent and the agent attempts to sell the employee any number of needless insurance policies and 403(b) products.

American Fidelity sells Accident, Cancer, Disability, Term Life Insurance, Whole Life Insurance, Youth Life Insurance and Critical Illness Insurance in addition to a terrible 403(b) product. Taxing your health insurance benefit is a ploy to get every school district employee to meet one-on-one with an American Fidelity sales rep. American Fidelity even pays for substitute to take over Teacher classes while they meet. Folks, this is nothing short of coercion.

I had the unfortunate problem of having my wife NOT meet with one of these sales reps one year and guess what, the district started taxing our health insurance benefit. A benefit that everyone receives for free and almost no one would refuse is suddenly taken away because we refused to meet with a person selling crappy insurance products during school hours.

I asked the district why anyone would want their health insurance taken out after-tax and the response was "There are employees who do not pre-tax the premium due to social security credit needs." This is not only a lame excuse, it's not true. Pre-tax health insurance has no affect on social security credits. Even if this were true, it's a tiny minority of employees who would want their health insurance taken out after-tax, they should be the ones required to meet with the agent (though a simple form would take care of it).

I believe the only reason the district forces every employee to meet with an American Fidelity sales agent is so that they can guarantee American Fidelity a steady flow of leads to sell their crappy products and make up the costs of running the Section 125 plan.

To which my response is "Wait, that's legal?".

Every year my wife has to do the American Fidelity dance...leave her classroom in the middle of the day to march up to the front office to meet a sales agent who has no interest in protecting her best interest, solely to say "please deduct my health insurance on a pre-tax basis" and change my Section 125 elections (we can't do this online...?). This year was interesting because the sales agent didn't even ask her if she wanted her health insurance premiums taken out pre-tax, my wife reminded the agent that she wanted her premiums pre-tax and the agent said "we already took care of it!". Even the agents know it's a ploy and have it automatically marked pre-tax and they don't even take the time to ask otherwise. If that's not proof of a sales scam, I really don't know what is.

School Districts everywhere are feeding their employees to the wolves simply to pay for a program that most employees would gladly pay for out of pocket (we paid $6 per paycheck for our Section 125 plan at another district). This practice needs to stop and the state insurance commissioner needs to look into these sales tactics.

Don't believe me, here is the receipt from my wife's meeting yesterday. I also have proof of when our benefits were taken out after-tax.

This has to stop. This is not ethical and it certainly shouldn't be legal.

Scott Dauenhauer, CFP, MPAS, AIF (This is an opinion piece)




5 Top IRS Concerns for Higher Ed 403(b) Compliance

Thompson's HR Compliance Expert site recently analyzed a Higher Education compliance program that the IRS began in 2011. The top five concerns the IRS have are as follows:


Thursday, March 17, 2016

Number of Higher Education 403(b) Plans Drop

Chart from Transamerica Study
There appears to be a downward trend of the use of 403(b) plans in Higher Education institutions according to a new Transamerica study.

"Perhaps the main finding from the 2015 edition of the study is the incidence of 403(b) plans among institutions of Higher Education. For the first time, fewer than two out of three institutions (64%) sponsor a non-Roth 403(b) plan. To this day, 403(b) plans have been the dominant type of plan in the Higher Education sector (75% in 2014), but 401(k) plans have become more common and are now offered by nearly half (46%) of institutions to at least some segments of the workforce. Greater workforce mobility between corporate and Higher Education among researchers and staff, the rise of the for-profit Higher Education sector, and economic pressure to streamline retirement benefits all contribute to the trend. The rise of the 401(k) plan will likely continue into the future as Higher Education institutions compete for talent in the labor market." 

Wednesday, March 16, 2016

Money Mag: A College Administrator Reveals How Her Diligent Saving Has Paid Off

Nice profile of a college administrator by Money Magazine.

"At Fordham, she participated in the school’s mandatory 403(b), a retirement plan commonly available at nonprofit organizations and state and local governments. Her salary was soon double what it was just ten years earlier. But that wasn’t the sweetest part of her new gig.


She contributed the school-designated maximum 5% of her salary to her 403(b), which was matched by Fordham dollar-for-dollar. The school later raised its contribution to 11%, thus enabling her to save 16% of her salary in a low-cost, tax-advantaged fund."
Click to read the full article: A Mighty Saver Reaps Her Rewards

Monday, March 07, 2016

How Is This Still A Thing? Annuity Ads

John Oliver has a segment on his HBO show Last Week Tonight named “How is This Still a Thing?” and lately I’ve been scratching my head wondering the same thing about annuity advertisements.

8% Annuity Returns? Hmmm…curious.













I received an e-mail from this company (above) the other day advertising “Annuity Returns” of 8%+. If you are a consumer and you see such a high interest rate compared to what the rest of the world is paying ($7 Trillion in assets globally currently trading at negative rates) are you not likely to click to investigate further? Who wouldn’t.

Tuesday, February 23, 2016

TIAA-CREF Becomes TIAA, But Not "tee-ah"

TIAA-CREF, a company that everyone I know refer to as TIAA (or tee-ah) has now become TIAA.

But don't call them TIAA (tee-ah), no, that is a bridge to far, they are T.I.A.A. (tee-eye-ay-ay).

Note: "ay" is simply a long "a".

While there are no periods between the letters, you are not supposed to pronounce TIAA as a word, instead you are still supposed to say each letter, so much for simplification.

The CEO, Roger Ferguson says they are "shortening the name, modernizing it and making it more contemporary," but are they? Yesterday it was "tee-eye-ay-ay CREF" and today it's "tee-eye-ay-ay" with the CREF dropped. I have no idea why you have to say each letter, T...I...A....A, but then you can get away with saying CREF (pronounced...cref) without having to say those letters. Well at least you won't have to say "CREF" anymore (though CREF is not disappearing).

Yes, "tee-eye-ay-ay" is shorter than "tee-eye-ay-ay-CREF", but why not just TIAA (tee-ah), wouldn't that in reality be "shortening, modernizing...and..more contemporary"?

Monday, February 22, 2016

Isola: Why Can’t 3.6 Million Teachers Get a Group Discount on their 403(b) Plans?

My friend over at Ritholz Wealth Management, Tony Isola, is out with a new blog post today revealing the disappointing fact that Public School Employees don't get the benefit of their collective bargaining when it comes to their defined contribution 403(b) plans.

Tony elaborates:

"Companies like Walmart are able to receive massive discounts from their suppliers. The reason for this enormous competitive advantage is they buy in tremendous bulk. They maximize their gargantuan resources to get the lowest prices from their vendors.

Contrast this with teachers’ 403(b) plans, that do just the opposite. Instead of collectivizing the investment needs of millions of teachers, spindly individual contracts with plan vendors are the rule."
There is one union that I'm aware of that does use their collective power and the collective bargaining process to help teachers and that is the Wisconsin Education Association, the WEA Trust. www.weatrust.com.

Read Tony's article at his blog, A Teachable Moment.

Monday, February 01, 2016

Inga Chira on CSU Transistion to Single Vendor - Fidelity

I recently met a CSU Professor who has opened a Registered Investment Advisory firm to work with Higher Education employees, her name is Inga Chira. She wrote a short piece on the transition that the Cal State system is currently undergoing from five 403(b) vendors to just one, Fidelity.


How Do We Survive All These Investment Choices... and a BONUS: Upcoming 403(b) Changes

By Inga Chira



Big changes are coming to the Cal State 403(b) plan on April 1st. 

Right now, there are FIVE 403(b) providers. In April, there will be only ONE. And that will be Fidelity. You have probably been getting letters about this if you are enrolled in the 403(b) plan. If you are not sure how to feel about it, I am going to tell you right now: you need to feel GREAT. This is especially true of people who are not currently participating in a voluntary plan but are thinking about doing it in the future. Your life will become so much easier as the result of this consolidation.

Back in November, I was wining about how I love Fidelity but how I had to decide against them, and go for the Savings Plan 401(k) because of the expensive investment options within Fidelity. Well, my friends, that is changing. This is a big enough change to make me wish I got hired about a year later and you should appreciate this big moment. A few things you need to know about the change and what it means to you:

A. Here is the link that will give you more info on the transition: https://nb.fidelity.com/public/nb/calstate/transition-home

B. If you are a current participant in the 403(b), you will get information sent to your house in February.

C. There will be workshops and educational resources available on campus between February and April and you better go!

D. The investment choices are getting expanded and for someone (me), a passive investor who believes that a 403(b) account is not the place to do active management, this is really exciting. Starting in April, there will be 5 index funds you can use to build a really good diversified portfolio. All the available choices are on the website I mentioned above. Take a look and celebrate (just make sure you press the investments tab to see all the choices).

E. This consolidation is REALLY good for you because now, instead of getting sales pitches, you will be getting education advice. The 403(b) market is pretty messed up because the “advisors” you see on campus are really salesmen trying to convince you to choose their provider over the other bunch (see more on this on #4). When you only have one provider, it is so much easier to do what is best for employees. Fidelity will no longer have to put its efforts into snatching you as a customer from Voya or MetLife. Instead, it can focus on helping you understand what is going on in that 403(b) of yours. This is really good news.

F. On a related note, next time when you are power walking, listen to this podcast: http://teachandretirerich.com/podcasts/2015_13_fidelity.m4a in an interview with Fidelity going through the consolidation for 403(b) providers in the marketplace in general and it can explain many of the things you will be experiencing soon. I don’t want to hear that you don’t have time for this (there is always that one hour of Real Housewives of Atlanta you can trade for some 403(b) fun)!

G. The crazy idea that the more providers you can offer within your 403(b) plan, the more diversified your retirement plan is, can finally die. Having 1 or 55 providers is irrelevant; the choices you have within the provider is what matters and now you got good choices.


Wednesday, January 27, 2016

It's a F**k n' Great Life at F & G Life - Puerto Rico!

http://wealthmarkadvisors.com/fg-2016-power-producer-conference
St. Regis in Puerto Rico Anyone? Just Sell F&G Annuities...Sad.

If you want a great vacation in Puerto Rico all you need to do is sell $1.5 million in annuity products from F & G Life.

Yes, that's right, for selling on average only $125,000 per month of annuities (that's maybe 1  - 5 victims) an agent can get a 4 night stay at a top resort in Bahia Beach, Puerto Rico.

It's an F'n Great Life at F & G Life! But for the teachers it's just F'n Gallows.

The Safe Income Plus Fixed Index Annuity sold by F & G, the surrender period is 11 years. The commission is 7.25% AND also may qualify for the trip featured in this post.

Let's review. An agent sells $1.5 million of this product to its base of clients and receives potentially over $100,000 in commission plus a trip to the St. Regis in Puerto Rico. That's quite an incentive to sell F & G Life Indexed Annuity products. I wonder if this product would sell at all if not for the high commission and potential for an amazing vacation? My opinion is that it wouldn't.

Do you know what's behind the recommendation of your "advisor"? This type of incentive needs to be stopped. The insurance industry is hooked on Indexed Annuity products and the commissions and incentives that come with those sales, it's their crack.

If F & G has such great annuity products, wouldn't they sell themselves? Wouldn't real advisors WANT to recommend their products?

In this low interest rate/high volatility environment the ability of an index annuity provider to support a decent rate of return to the end client is severely restricted. Add in generous commissions and luxurious trips and it's nearly impossible for the end client to get a reasonable rate of return.

Yes, index annuities are great for retirement, just not yours (they're great for the agents retirement)!

Scott Dauenhauer, CFP, MPAS, AIF

Monday, January 18, 2016

Wild West: Providing Fiduciary Advice To Public School Employees | Now Available

Wild West: Providing Fiduciary Advice to Public School Employees is now available for purchase at all major e-retailers.

After working with teachers for almost two decades and finding very few competent, fiduciary-based advisors working in the space I decided to write a book to help the industry better learn how to work with this great niche.

I titled the book Wild West due to the conditions that most teacher retirement plans operate under. The products sold and the statements made to teachers and their colleagues would be criminal if done in an ERISA plan, yet teachers are not protected by ERISA and are taken advantage of every day.

The goal of this book is to create a much broader community of fiduciary advisors serving this market. I'm not asking you to (fiduciary advisors) to work exclusively with public school employees, simply to expand your knowledge base and be part of the solution they need.

The book is less than 150 pages and only 20 short chapters. It mixes the technical with the personal and issues a strong call to action that I hope many of you will follow. Many non-advisors have asked if they should read this book (teachers, administrators, etc.) and my answer is that they should consider Teach and Retire Rich by Dan Otter first, then perhaps my book.

The Table of Contents follows:

Chapter 1           Mini-Memoir
Chapter 2           The Fiduciary Opportunity
Chapter 3           The State of the School Employees Marketplace
Chapter 4           Business Models
Chapter 5           The 403(b) Retirement Plan
Chapter 6           403(b) Products
Chapter 7           Stable Value
Chapter 8           The 457(b) Retirement Plan
Chapter 9           Other School Employee Plans
Chapter 10         Compliance Third Party Administrators
Chapter 11         Enrolling into a 403(b) or 457(b)
Chapter 12         Defined Benefit Plans
Chapter 13         Social Security & School Employees
Chapter 14         California-Specific Laws
Chapter 15         Odds & Ends
Chapter 16         Pension Maximization
Chapter 17         Professional Organizations
Chapter 18         Unions: Good, Bad and the Ugly
Chapter 19         Dan Otter

Chapter 20         A Call To Action 



Buy at Google (coming soon)

The book is $14.99 but all the proceeds goto charity and I will make the book available to colleges and universities at no cost.

I've created a website for the book at www.wildwest403b.com and a LinkedIn group here.

Thank you to all who have helped me over the years get this book out, you know who you are.

Scott Dauenhauer, CFP, MPAS, AIF

Thursday, January 14, 2016

Confessions of an Equity Indexed Annuity Salesperson?

Response letters to potential regulatory changes can be a gold mine. I was recently reviewing some old responses to an SEC rule that would bring Equity Indexed Annuities (EIA) under the umbrella of the SEC and require insurance agents who sell them to be registered (Registered Reps of a FINRA Broker/Dealer).

One agent for a company called #ValuTeachers wrote a response and I'm excerpting it below. Please consider that if I were to write a parody response letter to the SEC (posing as an insurance agent selling these products) it probably wouldn't look much different. The entire letter is at the end.

Claim/Statement #1

"To make the equity index annuity a security product would damage the ability of people who need this particular product to receive a fair representation of the product."

My Response:

Two things, first, no one NEEDS an EIA product, no one. Second, a sales agent that is highly motivated to sell a particular product because of its high commissions and potential luxury vacation rewards is NOT capable of providing a "fair representation" of anything. If this agent is truly concerned about representing any product fairly, he should be lobbying for the end to commissions in exchange for product sales.


Claim/Statement #2

"It would first make thousands of current Life insurance representatives have to get securities licensed to continue selling the product. Most will not do so leaving the current clients that they have stranded. This rule has not been thought through with the clients' best interest in mind. If so the SEC would realize the need to keep this an insurance product which is already being regulated by the insurance departments in the various states. If we force thousands of life insurance representatives to get licensed what if they choose not to."

My Response:

An insurance agent who advises clients on what to do with their investments, including talking about the stock market, should certainly be regulated more than the state insurance commission regulates. 

This agent claims that if forced to register as a representative or an advisor, most insurance agents would rather abandon their clients than register. What exactly does this say about such agent or agents in general (I know a lot of insurance agents who are good people and would never abandon their clients)? It says they are lazy and really don't care about their client (note, I don't believe all insurance agents are lazy, just ones that agree with this particular agent). If they really cared, they'd not abandon their clients over a specific product requirement. I find it ironic that this agent believes the SEC should have "the client's best interest in mind" but that the agent shouldn't be required to put the client's best interest first...notice he is not arguing for a fiduciary standard. If thousands of insurance agents choose not to register in order to sell EIAs, fewer EIAs will be sold and more investors/savers will have been protected.


Claim/Statement #3

"Many questions come to my attention in thinking of the client. 1. Are current insurance agents out of compliance for taking care of their current client base when they call and have questions about a product sold to them by their insurance agent but they are not securities licensed? 2. If the insurance agent is not securities licensed but continues in servicing their client and a registered representative files a complaint with the SEC because the insurance agent is discussing securities without a license how can you regulate that? 3. Should the thousands of clients that have billions of dollars in these products be penalized by having their friend and trusted advisor that is an insurance agent no longer be able to help them with their equity index annuity? 4. Will the SEC pay the surrender charges incurred by clients when a registered representative transfers them out of their current equity index annuity and into another product? 5. Will the SEC be able to monitor the activity of the sell of equity index annuities as it has shown it's lack of ability to look into it's current obligations. The headlines are evidence to this very fact! WALL STREET CRISIS! Where is the SEC now that everyone has made their money and left."

My Response:

This rambling and nonsensical statement goes after Registered Representatives as criminals and again builds a straw man. Insurance agents will not abandon their clients and source of income if forced to register, they'll register and if they don't, someone else will steal their clients. This is not an attempt to avoid needless regulation, it's an attempt to stay essentially unregulated. The insurance industry still allows what amount to kickbacks in their sales process and allowing such a system to continue is the real purpose of this agent in my opinion, a perpetuation of a corrupt system.


Claim/Statement #4

"It has been my experience in dealing with securities licensed people that the only thing that everyone needs is to put money in the market and securities. Any fixed annuity is almost below them when in fact often times people instruct them to give them a safe investment. Whoops! Insurance companies sell insurance products and broker/dealers sell securities products. This is not a time when we need to be arguing over what type of product should the equity index annuity be but whether or not the SEC a federal organization that cannot even handle it's current obligations be given authority to regulate even more that they cannot." 

My Response:

So this agent's limited experience now makes him an expert on all products sold across the industry. He presents no evidence. He does get one thing right, insurance companies sell insurance products! But B/D's sell all sorts of products, not just market based securities. If you only have an insurance license, all you can sell is fixed annuities (which are not investment, but savings products), it's the same old adage, if all you have is a hammer, everything looks like a nail. I'm certainly not going to argue that the products B/Ds sell are good for clients, but the main reason (left unspoken), in my opinion that this ValuTeachers/LSW agent doesn't want additional regulations is because it will end up cutting his commissions and all the perks received from the insurance companies. This is about the gravy train, not the regulatory train.


Claim/Statement #5


"It is evident with the current crisis on Wall Street that the SEC should spend more time regulating Wall Street and leave the insurance products to the insurance companies."

My Response:

Umm, AIG anyone? They were an insurance company, right? Nuff said.

Claim/Statement #6

"I urge you to give careful consideration to this rule and see through the mere attempt at increasing the number of people paying fees to the SEC. The product is harmless in most cases to the investor. There have been abuses as there have been in the selling of mutual funds to investors who have said they do not want any risk. The SEC handles the registered representative that does wrong and the insurance departments are handling the insurance agents that do wrong."

My Response:

The SEC doesn't regulate brokers (Registered Representatives), FINRA does (technically there is some overlap). Can anyone with a straight face really say that the state insurance departments have a handle on the sale of Equity Indexed Annuities? Anyone who reads this blog knows they don't. These products do cause harm and are mostly sold because of the high commissions and lack of any need to register combined with sales contests that send agents to Cabo, Maui, Monte Carlo...etc.

Conclusion

I've reprinted the letter below, I found it on the net, here. This letter provides some insights into the way EIA agents think. They are attempting to defend their turf and their income, but we need to make sure that the defense of their income doesn't come at the expense of the client. EIAs need more regulation.
Scott Dauenhauer, CFP, MPAS, AIF

Wednesday, January 06, 2016

My Congressman Is Clueless - Fiduciary Rule Response

I contacted my Congressman to let him know that he should support the Department of Labor's Fiduciary rule. His response was basically a copy and paste of an industry lobbyist, no original thinking or real explanation as to why citizen's shouldn't be protected when they receive financial advice.

Here is representative Ken Calvert's lame response:

Dear Mr. Dauenhauer, Thank you for contacting me regarding the Department of Labor's proposed rule to impose a fiduciary duty on brokerage firms. I appreciate the opportunity to respond. As you may know, two federal agencies, the Department of Labor (DOL) and Securities and Exchange Commission (SEC) are expected to release separate rules in the coming months that would change the definition of a "fiduciary" to include broker-dealers providing advice to retirement investors on a varying fee structure. This highly anticipated proposal comes nearly five years after the Obama Administration proposed a similar rule that was ultimately not adopted due to an outpouring of serious concerns over the negative impacts of the change. The current system allows low-and-moderate income investors to seek the advice of brokers on all levels of investment by providing the flexibility of a commission structure rather than an ongoing fee for service. Though it sounds like we may disagree, I believe the DOL's proposal may prove to be considerably cost-prohibitive and actually price retail-investors out of the process by taking a "one-size-fits-all" approach. Unfortunately, this proposal would do more harm than good and could make it harder for Americans to invest for retirement, college tuition, or other purposes. On February 25, 2015, Representative Ann Wagner (R-MO), introduced legislation, H.R. 1090, the Retail Investor Protection Act, following the announcement of impending rule making. H.R. 1090 would require the DOL to wait on issuing new rules until the U.S. Securities and Exchange Commission (SEC), which has primary authority and expertise on the issue, dictates recommendations. The legislation also includes some important checks and balances on the SEC's rule-making process to ensure that retail investors are not actually harmed by these new rules. I was pleased to support this legislation when it passed the House on October 27, 2015 by a vote of 245-186. Rest assured, I will keep your comments in mind moving forward in the 114th Congress.Once again, thank you for your correspondence. I hope you will continue to contact me regarding issues of importance to you and your family. In the meantime, I encourage you to visit my website at www.calvert.house.gov and sign up for my weekly e-newsletters. For urgent updates on critical issues, follow me on Twitter (@KenCalvert) and check out my Facebook page (Congressman Ken Calvert). Sincerely,
KEN CALVERTMember of Congress
Perhaps it should have been signed "Ken Calvert, Industry Shill". I wonder if he has seen this video from Elizabeth Warren:



One more Congressman I won't be voting for - neither should you.

Scott Dauenhauer, CFP, MPAS, AIF

Tuesday, December 08, 2015

Sound of Silence


There is a deficit in leadership in this country on the issue of public school employee supplemental retirement programs and it’s hurting everyone (employees, employers, students and taxpayers). That sound you hear coming from the unions, district administrators and politicians is…silence.
No more. It’s time for change. The great rock band Pink Floyd sang:

Don’t accept that what’s happening
Is just a case of others’ suffering
Or you’ll find that you’re joining in 
The turning away

While I certainly won’t compare the suffering referred to in the song (On The Turning Away) to school employee retirement, it’s time we stop accepting what happening with school employee retirement plans.

For decades their has been to much silence. But over the past decade you might say the speechless have united in a silent accord (see what I did there Pink Floyd fans?). It’s time for that silent accord to become vocal. It’s time to stop being Comfortably Numb (just couldn’t help myself). It’s time to change shadow to light (I know, I’ll stop).

I’m calling on government leaders, unions, associations, teachers, school employees and fiduciary financial planners to turn on, tune in and drop in to fighting for what is right for school employee retirement plans.

There are many reasons that 403(b) and 457(b) plans are ignored by school business officials and unions, but among the most is important is that they are busy doing things that are, in the scheme of things, more important. School safety (especially poignant after the most recent shooting in San Bernardino), positive learning environments, balanced budgets and community involvemnt are much higher on the list for administrators than a supplemental retirement plan, especially since school employees have a pension. However, the reality is that school employees who feel more secure financially will be more productive, more tuned in to their work and more likely to retire at a normal retirement age — all goals for any School Administrator or Superintendent.

One way to feel more secure financially is through consistent contributions to 403(b) & 457(b) retirement plans that are operated in a manner that is in the best interest of participants. In addition, auto-enroll and auto-escalate are needed (not as much as in the private sector, but still a big need).
Right now there is almost no fiduciary responsibility for 403(b) and 457(b) plans across America. The silence is deafening. If you ask a Chief Business Officer of a school district, they’d rather not think about fiduciary responsibility and would likely whisper to you that they don’t want it. The last thing school officials want is to be subject to ERISA and all the headaches that come with it. I can sympathize with this point of view. But school employee’s retirements are suffering because of it and their productivity is most certainly lower as well.

How can we provide for better retirement outcomes without burdening school officials with overly complicated rules and regulations? This is the question that must be answered. I believe one answer to this are state run retirement programs that accept the fiduciary burden and essentially do the work for the school employers (similar to how they currently do it on the defined benefit side).
What are your ideas?


Some of us have been very vocal over the years and at least one politician has been very good on the issues, but it isn’t enough to defeat the forces that seek to undermine retirement security for educators (while proclaiming they are doing the opposite). It’s time to join the fight.

Scott Dauenhauer, CFP, MPAS, AIF

Wednesday, December 02, 2015

Welcome To The Fight — A Teachable Moment

I recently had the pleasure of meeting Tony Isola, a former teacher who has decided to pursue a career helping his former colleagues overcome terrible products and a more secure retirement. Tony’s new blog is called A Teachable Moment and he recently posted his introduction, here is a clip and a link to the blog:

Revenge of the Teachers | A Teachable Moment

Please welcome Tony to the fold of 403(b) Warriors.

Scott Dauenhauer, CFP, MPAS, AIF

Thursday, November 19, 2015

My Book Is Coming Soon! Wild West: Providing Fiduciary Advice to Public School Employees

It's taken me almost four years, but I'm almost there!

I'm in the formatting and distribution phase of my new book and anticipate it will be released in January 2016.

Wild West: Providing Fiduciary Advice to Public School Employees is written for financial advisors who consider themselves Fiduciaries and who want to learn how to work with those in education.

I'll post a chapter or two over the next 6 weeks as a preview. But look for it on Amazon, iTunes and Google Play in January.

Scott Dauenhauer, CFP, MPAS, AIF

Thursday, November 05, 2015

Warren Commission: Villas, Castles, and Vacations


Senator Elizabeth Warren began an investigation of insurance company non-cash compensation methods several months ago, what she found will be shocking to most people, but not to those of us who've been following the unethical sales practices of the annuity industry for decades.

Titled Villas, Castles, and Vacations: How Perks and Giveaways Create Conflicts of Interest in the Annuity Industry, the document outlines some of the incredible perks that insurance agents receive in addition to commissions when they sell annuity products. Warren hinted at some of these perks in a Senate Banking Committee back in April, you can watch her below:


In this report Warren attempts to discover the entirety of non-cash compensation, though she isn't entirely successful, here's an excerpt:


"Kickbacks pose an especially dangerous problem. When companies can offer kickbacks to agents for recommending high-cost financial products, and when those kickbacks are hidden from the customers, the likelihood that consumers will be duped into buying bad products increases sharply. 
To explore the prevalence of this type of conflict of interest, in April 2015 Sen. Elizabeth Warren (D-MA) opened an investigation, asking fifteen leading annuity providers for information on whether they offered non-cash incentives such as lavish cruises, luxury car leases, and other perks to annuity sales agents to promote their products and whether their customers were aware of the agents’ compensation arrangements."
Reading this report one wonders how the insurance industry continues to get away with such unethical and clearly conflicted business practices, it's a testament to the power of that industry and Warren is confronting them head on.

Dan Otter of 403bwise.com and I recently did a podcast on such compensation practices and you should be able to listen to it soon by going to www.teachandretirerich.com and clicking the podcast link.

I encourage you to watch the above video and then dive into Warren's report.


It's time to put a stop to these unethical compensation practices.

Scott Dauenhauer, CFP, MPAS, AIF

Wednesday, November 04, 2015

Texas Superintendent Ignites Controversy Over Primerica Affiliation

Primerica Million $ Club

A Superintendent in the Longview Independent School District in Longview, Texas is in hot water for using his position to promote Primerica financial products to his employees. The Longview News-Journal published Longview ISD' Superintendent's Business Banned in which it says the following:

Since taking the top job in Longview ISD, Superintendent James Wilcox has had a side business selling what he calls retirement planning to educators. As of this week, however, he and his representatives won't be peddling their products on Longview ISD campuses.

After representatives from Primerica — a company some say is essentially a pyramid scheme — made their pitch Oct. 22 at Longview High School, the district's school board directed Wilcox to "not allow any meetings of this type on any LISD property in that future," Wilcox said last week.

"That will be fully complied with in the future," he said.

A portion of the district's employee policy manual seems to prohibit such an on-campus sales pitch, but Longview ISD board President Chris Mack said last week he didn't see anything wrong with the company's services being sold on district property. The manual, however, prohibits employees from using their position with the district "to attempt to sell products or services."

The board made its decision, Mack said, not because of its policy but after hearing an uproar from the community.

"We got a lot of complaints," he said. "I honestly think James is trying to help people. Here's the thing: Nobody was forced to go to that meeting. ... Had he forced people to go, had he forced people to sign up, that would be inappropriate.

"We got a lot of complaints, but there was no pressure there. But because of the fallout, we felt like it would be better if we didn't allow it anymore. It's a shame that we had to say that because there was a lot of potential there."
Wilcox isn't the first person or educator for that matter to fall for the siren's call of Primerica. Who wouldn't want to earn an extra income while helping our nation's educators? Yet Primerica is NOT a financial planning company, it's a product sales company and is focused first on selling those financial products as well as recruiting others to sell their products, a multi-level marketing type business.

The issue here really isn't Primerica or Wilcox, it's the sorry state of the 403(b) market where things like this occur on a regular basis. The wild west of defined contribution world needs dramatic change if it's going to become an important part of educator's savings plans.

Scott Dauenhauer, CFP, MPAS, AIF

 

Thursday, October 15, 2015

CalSTRS National Retirement Security Week

National Retirement Security Week



The CalSTRS Pension2 program is a proud participant in National Retirement Security Week. In the spirit of this week, we will be hosting a variety of events. Come join us to learn more about saving for your future.



Online Workshops
  • Pension2: CalSTRS Retirement Savings Plan for Your Future
  • Tuesday, October 20 at 4 p.m.
  • Register now
  • AMA (Ask Me Anything) Session with 403b/457b Advocate Scott Dauenhauer
  • Wednesday, October 21 at 4 p.m.
  • Register now
  • Build a Budget Plan Using 50/20/30 Guideline
  • Thursday, October 22 at 4 p.m.
  • Register now
Free Financial Advice: Schedule a One-on-One 
Appointment at a CalSTRS Member Service Center

Half-hour Appointments Available

Member Service
Center

Date
Times Available
Glendale
Tuesday, 10/20/2015
10 a.m. – 4:30 p.m.
Irvine
Wednesday, 10/21/2015
10 a.m. – 4:30 p.m.
Santa Clara
Wednesday, 10/21/2015
10 a.m. – 4:30 p.m.
Riverside
Thursday, 10/22/2015
10 a.m. – 4:30 p.m.
West Sacramento
Thursday, 10/22/2015
10 a.m. – 4:30 p.m.

Book your private session:
Pension2 on Campus (via CalSTRS New Beginnings Workshop)
Lake Elsinore School District: Wednesday 3:30 – 5 p.m.

Friday, October 09, 2015

The Ring: Warren Speaks Out About Annuity Incentives #incentivesmatter

Senator Warren mentions a diamond encrusted, Super Bowl style ring with a ruby in the middle. No, this is not a piece for the Onion, I found something quite similar. #incentivesmatter


Incentives Matter: Elizabeth Warren Investigates

A quick post of a few videos that I think are worth reviewing in the fight against annuity incentives.






Scott Dauenhauer, CFP, MPAS, AIF

Wednesday, September 30, 2015

WGN Hosts Finance For Teachers

It's always nice to see a fiduciary advisor on television giving advice to teachers. Dave Grant of Finance for Teachers (and the F4T Network) was invited on the local WGN news show to provide some tips for teachers.

Thursday, September 24, 2015

More Ridiculous Annuity Ads - 11% Commissions!

It amazes me what makes its way into my inbox these days.

This time I received an e-mail about an annuity that pays an 11% commission, wow!

Think about that, for every $100,000 you place into this annuity, you (the agent) make $11,000 - that is huge.

Notice how the details to the left are almost non-existent though? Most of the "features" are just throwaway gimmicks, what is missing is what the term, rate and surrender charges are...you know, the important stuff.

How much could this annuity actually pay in interest when the company has to pay 11% out to an agent and then credits the client with a 5% premium bonus, that's fully 16% of the amount deposited. You can be sure the client isn't making much interest.

How these companies can get away selling such junk is beyond me. This is why we need a Conflict of Interest Rule.

Scott Dauenhauer, CFP, MPAS, AIF

Friday, September 04, 2015

More Annuity Incentives - This Need To Stop

I've posted several e-mails that I've received from Insurance Marketing Organizations (IMO), they really should be more careful who they send this stuff out to. The latest advertises a 7% commission with several ways of increasing that commission by selling certain amounts of a particular annuity through a particular IMO.

If you are wondering what's behind the annuity recommendation your agent is trying to sell you...this is a clue. #IncentivesMatter

Scott Dauenhauer, CFP, MPAS, AIF

Wednesday, September 02, 2015

Secrets of Insurance Sales: Sell Our Crap, We'll Pay You Back

If you don't quite understand what's behind the Department of Labor's current push to decrease conflicts of interests within the financial services industry, perhaps this e-mail I just received will give you an idea.

Basically, this company (an IMO) will reimburse insurance agents for their marketing expenses...but only if they sell certain products that pay commissions. As always, no mention of the client's best interest.

What's behind your broker/agent's recommendations? #IncentivesMatter

Scott Dauenhauer, CFP, MPAS, AIF

Tuesday, August 25, 2015

Plansponsor 403(b) "Balance" Article Lacks Balance

Plansponsor recently posted an article "Can k-12 403(b)s Find A Balance", it was anything but balanced.

The problems start in the first sentence:

"Some players in the K-12 403(b) plan marketplace say the traditional model—in which plan participants have individual relationships with advisers..."
No, plan participants do not have individual relationships with "advisers", they buy products from salespeople who are mostly Registered Representatives and Life Insurance Agents, not Advisers. There is a difference between a salesperson and an advisor and this article deliberately obfuscates this distinction ignoring the huge battle going on at the Department of Labor right now.

The article essentially advocates for the status quo in k-12 403(b), multiple vendors with no fiduciary oversight. The author quotes two people and both are advocates for multiple vendor systems where commission based, non-fiduciary products are distributed. Amazingly the "advisor" quoted in the article recommends annuities....of which his firm sells (surprise, surprise)...some balance.

While auto-enroll is mentioned, it is almost immediately dismissed in favor of one-on-one "advice" from salespeople - a model that has failed in spectacular fashion in k-12. Auto-enroll would certainly go a long way toward improving contribution rates.

The article even includes the ridiculous quote:

“I think depending on built-in assumptions, especially how long someone is going to hold on to investments, you can make an argument that buy-and-hold type investors will incur less fees in commission-based investment than fee-based over the long-term,” Wolff says."
I won't even waste the space dissecting what is wrong with this quote. But I will say, where is the "balance"? Why didn't Plansponsor interview someone who actually works in this market on a Fiduciary basis?

It feels like Plansponsor is just writing articles for their advertisers or want to be advertisers. There is no balance in this article whatsoever.

Scott Dauenhauer, CFP, MPAS, AIF

Wednesday, August 19, 2015

The Annuity Store Attempts To Bully Me


Yesterday I received the following "take down" notice from Go Daddy (my blog hosting company). The Annuity Store insurance marketing company has hired an attorney to stop my blog post from showing their e-mail advertisements and what is behind Annuity recommendations that their agents make. I posted their e-mail advertisement to show the public what they don't see - this is a public benefit. Scroll down to see the claims made.


Dear Customer,
We have received a complete DMCA complaint alleging that copyright infringement is taking place on your hosted site. This notification was submitted pursuant to the Digital Millennium Copyright Act and GoDaddy’s Copyright Infringement Policy, which can be found here:
https://www.godaddy.com/agreements/showdoc.aspx?pageid=TRADMARK_COPY
In accordance with this policy, as well as the hosting agreement you consented to upon purchase of the service, we will need to suspend this hosting account if this matter can not resolved by removing this content within the next 24 hours or submitting a complete counter notification as described in the policy.
You have two options at this point:
Option 1 - CONTENT REMOVAL
In order to resolve this situation and avoid suspension of your site you will need to completely remove the content that is the subject of the copyright complaint. 
Option 2 - COUNTER NOTIFICATION
If you feel that this complaint has been made in error and you wish to contest the claim, you will need to submit a complete counter notification in accordance with the DMCA. Let us know if you require further information and/or instructions on how to file a counter notification.
Please understand that as a web hosting provider, we are not able to make legal determinations as to who is right or wrong in an infringement claim. 
Let us know if you have any other questions at this time.
Kindest Regards,
ChrisCopyright DepartmentGo Daddy Operating Company, LLCCopyrightClaims@GoDaddy.com--------ORIGINAL NOTE-----------Subject:Subject: RE: Copyright Claim (Our File No.: 5912000.204) - [Incident ID: 26678507]From:klbynum@fleckman.comDate: Mon, 17 Aug 2015 19:04:09 +0000To:copyrightclaims@godaddy.com

Your resolution
Dear Chris,In response to your email below, I am re-forwarding the Notification of Claimed Copyright Infringement on behalf of The Annuity Store with the changes you haverequested.  Should you have any questions or require any further information, please do not hesitate to contact me.Dear GoDaddy Copyright Agent:Our firm represents The Annuity Store(“TAS”) in various legal matters, including trademark and copyright matters.  We write regarding unauthorized activity on the websitehttp://www.meridianwealth.com involving one of our client’s copyrighted works.  It is our understanding that the websitehttp://www.meridianwealth.com is hosted by GoDaddy.com, LLC (“GoDaddy”) and that the activity on this site is therefore subject to GoDaddy’s Terms of Service.  Please direct all correspondence to us at the e-mailor physical addresses provided herein.In late 2014, TAS sent the attached marketing communication via email to numerous financial professionals.  Scott Dauenhauer, an independent insurance agent, financial plannerand the operator of “The Meridian Blog” hosted at http://www.meridianwealth.com, was one of the recipients of this communication. It has come to our client’s attention that Mr. Dauenhauer subsequently posted the entirety of the marketing communication on his blog at
http://meridianwealth.com/2014/12/08/insurance-secrets-whats-driving-those-annuity-recommendations/,despite the very clear indication on the communication that it was intended “for financial professional use only – not for use with the public.” Mr. Dauenhauer is not contracted through TAS, nor was his posting of the communication in its entirety on a public-facing,personal blog authorized by TAS.  TAS has a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or the law.  Accordingly, it is the position of TAS that use of its marketing communicationin this manner constitutes a violation of its copyright in that communication.In view of Mr. Dauenhauer’s unauthorized use of our client’s copyrighted work on the referenced web site hosted by GoDaddy, in direct violation of GoDaddy’s Terms of Service, we ask that GoDaddy immediately take down the unauthorizedmarketing communication on the website at http://meridianwealth.com/2014/12/08/insurance-secrets-whats-driving-those-annuity-recommendations/and disable all access to Mr. Dauenhauer’s post regarding that communication.  We would appreciate your immediate attention to this matter and request a response to this notification within ten (10) days advising us of how GoDaddy will comply with theserequests.  Should you have any questions or require any additional information, please do not hesitate to contact me directly at this email address or the phone number provided below.   I declare, under penalty of perjury, that the foregoing information in this notification is complete and accurate, and that I am authorizedto submit this Notification of Claimed Copyright Infringement on behalf ofTAS.  Best regards,
Karla Lambert Bynum
/Karla L. Bynum/Fleckman & McGlynn, PLLC
515 Congress Avenue, Suite 1800
Austin, Texas 78701
512.476.7900
512.476.7644 fax
www.fleckman.com

INSURANCE SECRETS: WHAT’S DRIVING THOSE ANNUITY RECOMMENDATIONS?

I posted this on my Meridian blog back in December. The company has since tried to shut that blog down, re-posting here.


Ever wonder why that “financial planner” is recommending the product they are recommending? It could be the compensation or the extra bonuses that are offered to incentive them to sell a certain company’s product.Given these incentive plans, is the product being sold really in your best interest? I’ll let you decide. Here is a recent advert that showed up in my e-mail:


Wondering which insurance company must be sold to secure that $1,000 Visa card (and trip qualification to Italy)? Here is the small print…enlarged:

*Available only on all Allianz Life Pro+® and Allianz Life Pro+ SurvivorSM Fixed Index Universal Life Insurance Policy Applications. Offer ends 12/31/14. Exclusions may apply; contact your Annuity Store Marketer at 800-825-6094 for complete details.

Policy #P54350 & #P61843 are issued by Allianz Life Insurance Company of North America.

Guarantees are backed by the financial strength and claims-paying ability of Allianz Life Insurance Company of North America.
Product availability and features may vary by state. New York production is not included.
Registered representative participation is subject to Broker/Dealer approval.

The Annuity Store reserves the right to alter or discontinue this promotion at any time. Agent must be in good standing. All federal, state and other tax liabilities arising from the award are the sole responsibility of the agent. VISA is not a participant in, or sponsor of, this promotion.

TAS226-38610 For financial professional use only – not for use with the public.


Notice that the marketing company doesn’t want you to know about this – marking the e-mail “For Financial professional use only – not for use with the public.” It seems to me the public SHOULD know about the incentives driving the product recommendations being made.

This practice should not be allowed.

Scott Dauenhauer, CFP, MPAS, AIF

Tuesday, August 18, 2015

Northbrook District 27 - Illinois Goes Single Vendor for 403(b)

In what is becoming a trend, the Northbrook, Illinois District 27 has chosen a single vendor for their 403(b) program. The administrator of the program will be the IPPFA (Illinois Public Pension Fund Association).

Read the Plansponsor article:

Scott Dauenhauer

Thursday, August 06, 2015

DOL Fiduciary Rule Impact on non-ERISA Government 403(b) Plans

In reading the updated Department of Labor proposal for a Fiduciary Standard I became quite disappointed that non-ERISA 403(b) plans were left out (as are all non-ERISA government plans), but the more I've studied and talked with others I've become somewhat encouraged.

If the Fiduciary Standard becomes a reality it could fundamentally change the way 403(b) plans are serviced going forward. The change wouldn't be because an "advisor" has a fiduciary duty to the participant, it's likely they still won't, but because the "advisor" would have a fiduciary duty to the participant in the event of a rollover to an IRA.

Under the new rule any advisor advising a participant to rollover their assets from the plan would become a fiduciary to that participant and also any recommendation within the IRA would be subject to the fiduciary rules, this is a huge problem for the vast majority of advisors.

Currently, recommending a rollover to an IRA is not a fiduciary act, nor is the recommendation (ok, there is some debate on this, but generally the advisor has no fiduciary duty). If the rule change goes into affect and such advice becomes fiduciary in nature the advisor will find it nearly impossible to collect a commission for the recommendation. This has the industry completely freaked out.

The effect on the 403(b) will likely be to see fewer rollovers and more exchanges within the 403(b) plan itself. A recommendation to exchange one 403(b) product for another is not subject to the fiduciary rule, but a recommendation to rollover to an IRA is. To avoid a fiduciary duty you will see more money stay within the 403(b) umbrella instead of being rolled out and you will see 403(b) providers attempting to come up with new 403(b) products to be approved within school districts.

While I am not 100% happy with the current version of the Fiduciary proposal (I'd like to see some changes to the BICE contract and some additional flexibility on behalf of the service providers in communications) I am more encouraged than I originally was. It still doesn't cover 403(b), but it will affect the 403(b) and if these plans can be structured correctly, could fundamentally alter the landscape.

As I study and learn more I'll update you on my thoughts and correct any errors made in this initial analysis.

Scott


Friday, June 12, 2015

Will Franklin Graham Now Move Samaritan's Purse 401(k) Plan?

In the wake of Franklin Graham's decision to pull the Samaritan's Purse bank accounts from Wells Fargo due to Wells Fargo's national advertising campaign that featured a lesbian couple, will Graham do the same with the Samaritan's Purse 401(k) plan?

In an op-ed in the USA Today newspaper today, Graham had the following to say about why he moved the organization's money:


"Because, in our view, Wells Fargo went beyond being gay-friendly to being a public advocate — through a national TV advertising campaign — for a lifestyle we, as a Christian organization, believe to be biblically wrong. (The ad featured a lesbian couple with their adopted child.)"
While I personally find this reasoning bigoted and ignorant, it's certainly his right to move the organization's money wherever he likes. But shouldn't this decision apply to all of the finances of Samaritan's Purse and the Billy Graham organization?

I decided to do some research to figure out who the 401(k) provider was for both Samaritan's Purse and the Billy Graham Evangelical Association. It turns out both organizations use The Principal (Principal Financial Group) according to Brightscope.com. You can check it out for yourself here. Keep in mind that this data may not be fresh, the source Brightscope utilizes may be up to two years old, which means that in fact both organizations may have made a switch in the past two years (I did not call to inquire...so keep that in mind).

If in fact The Principal is still the 401(k) provider I think Franklin has a decision to make.

In April of 2014 The Principal joined with the "It Gets Better Project" to put together a video about some of their employees who happen to be gay, lesbian and transgender. The video is below and the this link will take you to the page about the video and the project, it's very touching and The Principal clearly wants the world to know it cares about the LGBT community. I applaud The Principal for this project, it's clearly a priority to acknowledge and make their employees and customers who are LGBT feel safe and comfortable.


The Principal is not just "gay friendly", which evidently Graham is ok with, but it is a company that proudly promotes the fact that they are inclusive. They've done this in a national campaign (if It Get's Better isn't a national campaign, what is?).

According to Graham's own op-ed, this national campaign is publicly advocating for the LGBT lifestyle, not merely being "friendly." Thus, according to Graham's own logic, he needs to look for a new 401(k) provider.

Will Franklin Graham move the 401(k) plans for Samaritan's Purse and Billy Graham from The Principal to a record-keeper who is simply "gay-friendly" in order to be consistent? If so, what record-keeper out there is proud to be only "gay-friendly"? I certainly wouldn't want to be the record-keeper Graham settles on.

Put your money where your mouth is Franklin - if the 401(k) is still with The Principal, go ahead and punish them for doing the right thing, move the money. 

Scott Dauenhauer

P.S. I would hate to see The Principal lose revenue if Graham does decide to continue down this bigoted and ignorant path, so please consider them the next time you are reviewing your 401(k) provider. This is not an endorsement, just make sure you take a look at The Principal.