We are Steve Schullo and Dan Robertson, retired teachers who wrote a couple of books about personal finance. Welcome to our blog. Our purpose is to encourage everybody to learn the basics of do-it-yourself retirement planning, at least until many in the financial profession cleans itself up. Looks like they are getting a boot in the ass right now from two most unlikely places. We love this news from D.C.!
President Obama and the Supreme Court are on the same page when it comes to retirement investing. They question the wisdom of investment advice from Wall Street, big banks, insurance agents and other non-fiduciary advisers. These advisers are currently guided by the “suitability” investment rule. You may have been sold the idea that investment advice and the investment choice(s) are suitable for you, but are they? Both the Administration and the Supreme Court say NO! We agree.
Flanked by Elizabeth Warren the President suggests replacing the “suitability” standard with “fiduciary” guidelines. Fiduciary is a term which means “put the client’s interest first.” This would apply to any financial professionals who have employers and individual investors as clients. President Obama’s primary point is to reduce “conflicted advice” and stop “bilking” American workers with excessive fees. Conflicts of interest arise because many investments are not necessarily suitable for you, the investor, because of added costs in the plan. Charges at the front or back of an investment as well as ongoing costs would make the plan “suitable” for the adviser, mutual fund or insurance company rather than for you. These added expenses eat away at your optimal return, to the tune of $17 Billion per year for future retirees — nationally. The PBS Frontline’s The Retirement Gamble reports up to 50% of your nest egg is skimmed off the top over a typical American’s working career!
Most of us simply want a fair market return, not some convoluted contract written by insurance lawyers and sold to us as if they were written to protect us. Studies show that lower costing index funds provide better returns than the majority of company retirement offerings (401k, 403b or 457b).
The Supreme Court also got right to work during initial oral arguments in the Edison International case. Talk about timing with the Administration’s announcement! They chastened the Edison International attorneys for complaining about “extreme disruption,” if employers were told to “scour the market for cheaper investment options”. Thank goodness some justices took the fiduciary view, which states that the interest of the worker must guide the retirement options available rather than tradition, or turning the choices over to a third party.
(Click here to watch a seven minute interview about our story behind the Award Winning Plan. It was a battle to lower costs. Also, for LAUSD’s Press Release on the Award, click here)
The free pdf book, Fighting Powerful Interests, provides the President and the Supreme Court, employees and employers everywhere an example of how a retirement committee of teachers has already done this chore. We did due diligence work by lowering costs and demonstrating transparency long before the 2010 the Dodd/Frank bill came to fruition.
Our committee has worked since 2006 to do what the President and the Supreme Court are now upset about. Don’t take our word, take a look at what a former L.A. Times financial reporter, Kathy Kristof, wrote in her article (LAUSD Firm forced to disclose fees). The district’s partnership of union, management, teachers, and consultants put together a model plan (457) which does this now — a boon for lucky LAUSD employees. The LAUSD committee found lower cost funds easily. It didn’t take MBAs nor was it a “disruption” to apply the fiduciary standard.
If teachers without financial backgrounds can find low cost funds, one would think that financial professionals with all of their analytic training from Ivy League Universities could too. But finding low cost funds is not in the industry’s interest nor is there any binding regulation that requires it either. That’s why 53 million pre-retirement Americans need legal protection.
In the meantime, we can get involved right now. Go to your HR department and start asking questions. Ask for a list of investments and start your education. Ask if you can join an oversight committee. If your employer doesn’t have one, ask them to get one started and be the first volunteer! You do NOT have to be a professional in finance to serve your own and other educators’ best interests.
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