Teachers are often misled with financial jargon meant to obscure the truth. Here is a quick translation of these ten innocent sounding terms. Pull it out the next time an insurance salesperson tries to sell you the financial equivalent of The Brooklyn Bridge.
My inspiration for this post was Jason Zweig’s instant classic, The Devil’s Financial Dictionary. There is no one who can call the bluff of Wall Street the way Mr. Zweig can.
At the risk of being dubbed the “David Lee Roth” of financial blogging, I have expanded on Mr. Zweig’s theme:
CLASS A, B, and C MUTUAL FUNDS: Mutual funds designed to increase the wealth of employees and shareholders of financial conglomerates. Teachers should avoid these “alphabet funds” like the plague. These high-fee products were specifically designed to pay financial salespeople excessive compensation. See also PERVERSE INCENTIVES.
EQUITY-INDEXED ANNUITY: “Mythical Unicorn” which promises market returns without market risk. In reality, a teacher receives the return of a bank c.d. in exchange for egregious fees. This product should be avoided at all costs unless you are interested in helping to fund your broker’s early retirement.
FACULTY ROOM: Feeding ground for ravenous variable annuity salespeople as it is a prime location for the spread of propaganda and misinformation about 403(b) options. Avoid any free coffee or doughnuts offered by individuals in suits and suspenders. Bring your own lunch and eat in your classroom on the days these characters invade your school.
FINANCIAL ADVISOR: In relation to 403(b) plans, a person who is trained in selling a product, not giving sound advice. Often has very little in qualifications other than passing a test that was easier than the recent final exam given to high school honor students. Unlike the students, the “advisor” gets to continually retake the test until he passes.
SALES CHARGE: Money paid by the client to the financial company who, in turn, gives a piece to the salesperson to incentivize him/her to push an expensive, underperforming investment. The end result is the salesperson maximizes his/her own monetary rewards over the “client’s” needs. Often many teachers will own the same investments despite their widely disparate individual financial situations. If the product offers enough up-front incentives, a 22-year old rookie teacher and a 65-year old veteran will miraculously own the same investment.
SURRENDER FEE: Monetary version of blackmail that serves as insurance to pay egregious commissions to insurance salespeople. The main goal is to protect the insurance company if a teacher realizes the “investment” he purchased is a piece of crap. This is designed to dissuade teachers from terminating relationships by imposing steep monetary penalties if they try to leave.
T.D.A.: Tax-Deferred Annuity. Misnomer used by insurance agents to trick unsuspecting teachers into thinking they can only purchase expensive variable annuities in their 403(b) plans. The use of this acronym is to suffocate any mention of low-cost index funds and to serve as economic stimulus for the continued employment of parasitic salespeople.
TRAITOR: A teacher who sells out his/her colleagues by leaving the profession to go and hawk expensive variable annuities to former colleagues. Insurance companies take advantage of the trust factor and access to school directories. Also see KARMA.
UNION: Teachers’ organization that is excellent at protecting the salaries, health benefits and pensions of educators. Often fails miserably at monitoring the quality of investment options in 403(b) plans. In some circumstances political contributions and other favors are accepted from insurance companies in return for union endorsement of inferior investment products.
VARIABLE ANNUITY: Insurance product designed for wealthy individuals who have maxed out their tax-deferred contribution limits. It is completely unsuitable for middle class teachers in an ALREADY tax-deferred 403(b) account. Its presence in 403(b) plans is the direct result of intense lobbying efforts by deep-pocketed insurance companies.
My hope is that this handy financial dictionary will be of some service to teachers in their dealings in the Wild West of 403(b) plans. Remember, knowledge is not power without action. Don’t be afraid to pull out this guide if some silver-tongued salesperson appears in your school.
Think of this as your financial version of garlic to protect you from the blood sucking predators who continue to stalk the hallways of many of our schools.
