7 Responses to 9% Commission – Defend that ASPPA/NTSAA

1. Kathy says:

   August 8, 2012 at 3:42 PM

   Go get ‘em Scotty!

   Reply
2. Scott Dauenhauer CFP, MSFP, AIF says:

   August 9, 2012 at 9:09 AM

   This post has become the most viewed post in a single day for any of my sites…who knew! I think this exposes the myth that “disclosure and transparency” are enough, there needs to be someone who is working on behalf of the participant ensuring they are not being taken advantage of – a competent fiduciary.

   Reply
3. Corey Sherman says:

   August 10, 2012 at 11:11 AM

   This is a great example of the dangers of conflicted interests. Thank you for posting it. Also, kudos for the points in the comment about the importance of fiduciary accountability. I am placing a link to your post on my firm’s Web site.

   Reply
   • Scott Dauenhauer CFP, MSFP, AIF says:

     August 10, 2012 at 12:34 PM

     Thank you Corey!

     Reply
4. J. D. Stinson says:

   August 13, 2012 at 11:13 AM

   While I can’t defend a 9% compensation rate for a Tax Sheltered Annuity in a 403(b) plan; this is a drop in the ocean compared to what the typical 401(k) participant pays to third party mutual fund vendors and advisers. Over a 25-year term a working American with mutual fund accounts loses about one half of the stock market gains that, in the absence of confiscatory and rapacious fee schedules, they should have in their account when they retire. Alas, the Big Bank and Wall Street minions will never tell this secret outside their clubs. But we now have objective, academic studies that prove this historical fact. Fundamentally, the Pension Establishment operates the 401(k) system on a single compelling principle – what’s the best deal for us; the customer be damned. And, because of this self centered attitude millions of Americans will end up in poverty. This “unregarded blood” on the part of Wall Street is yet another factor that will pull down our nation…and Wall Street along with it.

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   • Scott Dauenhauer CFP, MSFP, AIF says:

     August 13, 2012 at 3:27 PM

     But Jerry, you must defend the 9% commissions, you sell similar products – Equity Indexed Annuities (no, I won’t allow agents to get away with calling them Fixed Indexed Annuities on this blog).

     While I would agree with you that fees are certainly too high in K and B plans, the solution is NOT to place your money into Equity Indexed Annuities.

     It’s ironic that you condemn Wall Street (though I do join you in that), but give Insurance companies a free pass. Really?

     From your website:

     1. Since the principal amount of money put into the FIA is completely insulated from market risk, money is not lost if the markets meltdown. In fact, since the FIA has a minimum guaranteed rate of return, there will be positive growth even if the market declined every year going forward.

     2. Over the past 15-years FIAs have performed quite well compared to mutual funds. The average annual crediting rate for the FIA we most recommend has been 6.37% over the past several years.

     3. The FIA has no explicit sales charges and fees unless the employee chooses a more liberal option like a higher income account earnings rate during the holding period before they elect to turn on the income. Insurance companies, like banks, built their fees into the product design; thus, there are no surprises in the form of management fees or sales commissions. The insurance company designs the FIA to make a profit based on the risk management assumptions they build into their products.

     4. The FIA’s we will recommend for your 401(k) are designed for the “institutional setting” as opposed to the “retail market”; accordingly, the implicit fees are both reasonable and fixed. All rider fees are clearly disclosed and the employees may elect to enhance the FIA with additional riders or stay with the generic model that assesses no explicit fees. FIA contracts designed for the institutional market are priced to meet the “best in class” requirements contemplated by the IRS and DOL rules for “reasonable expense charges”.

     Could it be that EIA’s might have different returns that stock mutual funds because they don’t invest in stocks? Then why compare them to stocks – it’s a deliberate apples and oranges comparison.

     Defend and provide proof of a 6.37% crediting rate – what is the product and over what time period and what is the rolling return on that product. Furthermore, what are the constraints going forward (participation rates, spreads, etc.). What are the commissions, surrender charges and surrender periods.

     “thus, there are no surprises in the form of…sales commissions” – I’d like to see the commission-free product you “sell”. Please tell us the name of this EIA that you sell that generates no commission for you.

     Please, show us this EIA that would pass muster as an ERISA product.

     While I agree with the crux of your argument, I sense that it is really a sales pitch to get people into the product(s) that you sell. That is well and good, as long as it is fully disclosed and you are acting as a fiduciary at all times…but that doesn’t seem to be the case.

     Perhaps I’ve jumped the gun here and in fact you have something that is new and noteworthy, if so, I do apologize, but I guess this is your opportunity to prove me wrong.

     Scott

     Reply
5. Steve says:

   August 25, 2012 at 4:22 AM

   Jerry, 403b plans costs are lower than 401k plans? Where is your data? Don’t the major insurance companies sell stocks and have to keep the shareholders happy over teachers’ interests? If you can’t “defend 9% commission”, what are you doing to stop this rip off?
   Steve

   Reply