Providing Fiduciary Advice to Public School Employees
By Scott Dauenhauer, CFP, MPAS, AIF
Scott and His Teacher Wife Shauna
Scott Dauenhauer shows financial advisers how to work and succeed in private practice to address two widespread and unethical 403(b) practices. First, Kindergarten through 12th-grade public schoolteachers as young as 22 years-old get sold a fixed annuity. The salesperson walks away with up to a $4,000 commission. The teacher gets a third-rate retirement savings plan that they will pay in excessive costs for the rest of their career. Second, older teachers close to retirement might have contributed to an annuity company for years. The agent then might decide to transfer that bundle of money from the first insurance company to another insurance company. Why? The agent is probably salivating for the second insurance company’s lucrative commission, which is higher than the first. Both of these teachers’ financial naiveté has been deliberately exploited by unethical advisers because they can in this Wild West 403(b) world.
Scott is appalled and told me that stories like these “are not right.” In the 401(k) tax-deferred retirement world, those advisers’ and their licenses could be revoked, fined or jailed, where federal fiduciary requirements are binding and enforced by the Department of Labor. Federal regulations do not apply, which is bad enough. The exploitation illustrated by the two stories above are not only legal, Scott’s Wild West metaphor is protected by many states’ insurance codes!
There is nothing anybody can do to stop this, until now. Even though I am not a financial adviser, I read Scott’s book and gave an enthusiastic five stars. The author has been a friend since he was a young financial professional starting his private practice. I recommend this book because of Scott’s fiduciary integrity to my public school colleagues around the country. He documents his journey of fighting for 403(b) reform for 15 years in his book. He shows his professional colleagues how they can join our movement and succeed in their private practice.
Fifteen years ago, Scott dropped in at one of my informational meetings. I was an elementary teacher with my amateur and informal advocating for improved 403(b) plans for thousands of my Los Angeles Unified School District colleagues.
At the time, I avoided these advisers as I have been personally exploited by the powerful annuity sales machine. The 18% surrender fees cost me $6,000! Thus, I developed a simple, one question analysis to find out if Scott was one of us, or one of the self-serving, annuity sales force: “What is your professional opinion of Vanguard Group, Fidelity Investments or TIAA?” (TIAA is the prestigious, low-cost pension plan for higher education). Scott passed my test in a nanosecond when he answered, “I like them.”
Scott takes you along on his journey into the murky 403(b) world with this book. Scott has lived, worked, and dreamt solutions in this secretive and protective public K-12 culture. His wife is a teacher, and her experience gave him access, and evidence the 403(b) smacks with unethical practices.
He digs deep into the technical issues that have resulted in the two teachers’ exploitations reported at the beginning of this review. He also addresses the political, policy, and compliance complications with professionalism and thoroughness. There are no shortcuts—the 403(b) world with K-12 public school districts is the most complicated, opaque, and self-serving retirement system created. You will discover annuities and their complex contracts, how this industry exploits people’s natural stock market fear, and then develops, markets, and delivers their costly products right into classrooms.
The industry has a lot to lose and will not give up their self-imposed claim to vulnerable educators. Because of his straight-shooter approach, he has taken much heat from the insurance industry, broker-dealers, and the teachers unions. Scott has guts and the courage to take on a powerful insurance industry with all of their lobbyists.
There is still no protection from these sharks by district benefit departments, School Boards, District legal counsel, and the unions. Agents roam campuses with immunity, entering classrooms during recess, interrupting teachers’ valuable preparation time. District’s benefit departments will not intervene or provide objective information because they are terrified of violating state insurance codes.
Most of California other nonprofit public employers have ignored the code: state, city, county governments, UC system, state universities, and many public hospitals opted to do the right thing for their employees. Why won’t California’s public school districts and the teacher’s unions change along with what is happening right under their noses? Worse yet, to my knowledge, no ongoing public discussion of the 403(b) among any of powerful California state (or national either) teachers’ unions has ever materialized. Whereas, health, dental, and pension benefits are discussed frequently and publically within the unions, but never publically and ongoing about the 403(b). There is a precedent for statewide reform in Wisconsin: Scott reports that the Wisconsin teacher’s union has taken notice and has done the right thing.
Have you gotten the picture? This market needs fee-only fiduciaries! Scott is asking you to help reform this self-serving environment via growing your practice. If you are a fee-only, fiduciary-minded adviser looking for a market to grow, Scott’s book shows you how to serve public school educators. For the first time in 403(b) K-12 history, somebody outlined a clear path to providing fiduciary service in this market.
Here is a real life example of the demand for trustworthy advisers by educators. I asked my neighborhood fee-only adviser to present to an investment workshop I helped coordinate for my teacher colleagues. My neighbor and fee-only financial adviser, who is another Vanguard aficionado, attracted six new clients and four more leads, as a result of one 50-minute presentation. All are educators from the Los Angeles Unified School District.
So Mr. or Ms. Adviser, what are you waiting for? The public educational culture needs you immediately. Scott shows the current financial professional, how to generate clients, set up your business model so you can survive and grow, consult with district employers and teachers’ pension plans, all in one-fell-swoop. He has practiced what he preached with skill, professionalism, and keen intelligence.
Of all the obstacles listed in Scott’s book, none can stop you from acting in the interests of my K-12 colleagues in the privacy of your office.
Scott’s Book on Amazon: Wild West: Providing Fiduciary Advice to Public School Employees
Scott’s blog: The Teacher’s Advocate.
Advisers. Read the following articles from Plan Adviser and Think Adviser. The non-profit non-ERISA DC plans are growing and the employees in public school K-12 markets need you. This opportunity for you is not my opinion!