Some public school teachers are being charged 10% annual fees on their modest 403(b) plans.
This is their vendor’s version of negative interest rates. Similar to depositors who pay banks to hold their money, teachers are charged for the “privilege” of earning a negative rate of return on their funds.
The New York Times is exposing abuses that take place in 403(b) world. In “Think Your Retirement Plan is Bad? Talk to a Teacher,” Personal Finance reporter, Tara Siegel Bernard sheds light on the widespread corrupt practices in these plans, such as:
“The teachers were each charged a fee of at least 2 percent of their savings to manage the money, in addition to sales charges of up to 6 percent each time they made a deposit, the analysis found. Moreover, the calculations didn’t include the expenses of the dozens of mutual funds they were invested in, some of which exceeded 1 percent.”
This product is offered by a company who “specializes” in teacher’s retirement plans called The Legend Group.
This is unfathomable. I have had dealings with these people and let’s just say they don’t like me very much. This goes beyond the horrors I have encountered.
Imagine paying a 2 percent annual fee, then ponying up 6 percent for every paycheck contribution. To put the icing on the cake, your “portfolio” is composed of high-cost, actively-managed mutual funds. When you count their non-disclosed trading costs, you are looking at fund fees over 2 percent!!
The common answer to the question of “How much am I paying for this product?” is intentionally misleading.
Many teachers are told the administration fee of $30-$40 is the sole price of admission.
Too often, salespeople actually extract sympathy from their clients when they hear this grossly misleading figure.
Legend was recently purchased by Lincoln Investment Planning (more on them in the future). I guess they should have factored the impending lawsuits in their purchase price and discounted the legal costs in their offer.
According to Tara Siegel Bernard:
“Joseph Kuo, the Legend Group spokesman, declined to comment on whether it thought the teachers were charged excessive fees.”
I don’t blame him. It is impossible to answer this question without a self-incriminating response.
Many teachers who started as prospects, and later became clients of mine, had come to me initially to get to the bottom of this question: “My account never seems to grow even though I am putting money in and the market seems to be doing okay. Why is that?”
After I showed them what they were paying each year to their “advisor,” they understood completely.
This is how the Legend Group clients found out, but it is usually too late.
Years of compounding have been sacrificed and now clients must save two to three times as much in order to achieve their goals.
Often, the clients never uncover this scheme.
Frequently, if the client questions the salesperson about their stagnant account value they will be given the standard answer.
According to the article, when a client asked this very question, “The broker told her that her account was “highly managed” and that she had to be patient.”
Highly managed so that he and his company could collect unethical, egregious fees and for her to see her wealth destroyed?
If that was the goal, their “management” worked to perfection!
The worst part of this story is honest, hard-working people were just trying to do the right thing.
They were not being irresponsible spendthrifts. Many made great sacrifices so they could squirrel away money in order to afford a self-reliant retirement.
Their trust was abused, they were lied to and their ignorance was exploited.
I recently spoke to a young person who worked for an insurance company for a short time.
When he got the job, he thought he was entering a glamorous career in finance. His dream soon met the harsh reality of a culture permeated with the worst of incentives.
“After a year, I realized what I was doing was wrong. I could not sell people this garbage anymore and I quit so I could live with myself. How could people do this for ten years?”
We are going to “help” provide some career guidance for them.
I can guarantee this; they will not like our suggestions.
I feel so privileged to have helped Tara Siegel Bernard in some of the research for this expose.
What will be disclosed in the coming weeks will shock many of you.
Pay close attention, we have just gotten started…