C’mon Man!

Some people will say just about anything to justify an obscene compensation structure. The Case for the Traditional K-12 403(b) Model  takes the absurdity cake!

This reminds me of the popular ESPN show C’mon Man! During this weekly broadcast before Monday Night Football, the hosts lampoon weekly NFL bloopers.  The point of the show can be summarized by the words, “You have got be kidding!”

Weekly highlights often include segments depicting players getting injured during their choreographed touchdown celebrations; coaches making bewildering strategic decisions; bizarre and lewd team mascots; and of course fans in different phases of inebriation acting like complete jackasses.

PLANSPONSOR’s interview with Elle Lowder, a consultant at TSA Consulting and Training Services, belongs on ESPN’s Monday Night Follies.

Making the case for the “Traditional Model” for K-12 403(b) plans requires enormous creativity and an individual with a Masters Degree in Spin Doctoring.

How can someone with a straight face honestly declare that a platform with an abysmal 30% participation rate, ridden with products that would be illegal in a 401(k) plan is working?

Here are some gems from the interview:

I remember a superintendent of schools who had read an article about variable annuities versus mutual funds. The article focused only on fees as so many do. He called to ask why the financial adviser had placed him in a variable annuity. When the adviser reviewed the guarantees in that VA, the superintendent said, “That makes sense to me. And, I just realized that I am only participating in the plan because you sat down with me and talked about retirement in general, including a review of my state pension plan and Social Security. I doubt that I would be saving this money at all had it not been for your help in understanding why voluntary savings is important.”

Say, what? I am assuming this Superintendent read the obligatory 500-word prospectus that the best World War II code-breaker could not decipher. I don’t recall ANYONE ever saying, “That makes sense to me” after plowing through this mind-numbing, jargon-filled legalese.

I am assuming what made the most sense to him was the fact he was buying a product and paying for its tax-deferral benefits when this privilege was already offered in the 403(b) structure. Maybe he is also comfortable wearing a belt and suspenders, and paying a premium for this unnecessary fashion statement.

I am sure  the 5-10% commission his “adviser” was most likely paid to sell him this product, gave him a warm and fuzzy feeling. The clincher must have been the satisfaction he received by having a sizable surrender fee attached to this product. This feeling of contentment could also be enhanced by “rolling” the charge. In other words, every new dollar invested starts the whole process over again. Like the Eagles used to say, “You can check out any time you like, but you can never leave.”

It gets better, “Even Vanguard, one of the foremost proponents of low-cost investing, understands the value of professional advice. According to Vanguard’s research, published in 2014, financial advisers can add up to about 3% in net returns for their clients.”

Vanguard is not talking about insurance salesman motivated by monthly sales quotas. They mean real financial advisers who act in their clients’ bests interests. These people create comprehensive goal-based financial plans and, most importantly, serve as behavior counselors to clients when they need it most.

Charging clients 3% or more for an expensive variable annuity they do not need does not fall under this definition. Hanging around the teacher’s lounge looking to snare their next prey is not a “good practice” that Vanguard would endorse.

Lowder also speaks about the need for personal contact or else the client might never begin to travel down the road of retirement saving.

“‘The extent and quality of services provided.’ That’s the key. Planning for retirement alone, without any kind of personal, face-to-face professional advice, can be a full-time job—something very difficult for someone who already has a full-time job. Retirement plans are so complicated, with so many moving parts and opportunities to derail, that a professional adviser is worth the cost.”

This is true if the professional advice emphasizes data over stories, fiduciary responsibilities above the low standard of suitability and investment products that benefit the client more than the salesperson offering them. The tired mantra of “Having a crappy plan is better than nothing” needs to be put of its misery.

I am assuming Ms. Lowder has not heard of auto-enrollment.   Oh, I forgot, most young teachers don’t use those things called computers.

This would be far better option than deceiving teachers into thinking they are working with real financial advisers. Auto-enrolling into a low-cost target date fund  and monitoring it on-line would be a far better choice than insulting the reader’s intelligence by trying to make a case for a failed, non-transparent and grossly conflicted deception of  the “personalized traditional K-12 model”.

Faceless, on-line enrollment is a much better option than a conflicted retirement human salesperson trying to fill a monthly sales quota at their clients expense.

To be fair, the article states this model needs improvement. The problem is it mentions “tweeks” to the system, rather than the full-scale redesign that is necessary.

C’mon man!  In the words of tennis-legend, John McEnroe, “You cannot be serious!”if you think the current system is working for teachers.

Teachers deserve much better than the status quo found in the 403(b) waste lands. Even the monkey riding the dog at Denver’s Mile High Stadium knows this!