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Teachers, It’s No Longer 1983!

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An open letter to “the system” regarding delivery of financial services in Southeastern PA school districts.
Dear Mother Culture,
Time has passed you by.  Teachers and administrators no longer need to be sold financial services like they did 30 years ago.  And, they don’t need to be sold expensive financial products, especially those that pay high sales and trail commissions and lock one in for years to come.  They need an advisory relationship in which the advisor acts in the best interests of the client rather than the investment company that the sales guy is employed by, at the moment.  It’s an important distinction and called acting in a fiduciary capacity. 

Fee-only advisors act as fiduciaries.  Fee-only advisors did not really exist prior to 1983.  But, boy have things changed – it’s transparent outside of your world.  But, the “system” hasn’t changed with the times.  Teachers are still paying exorbitant fees, and they don’t even know it!  On a $200,000 investment it could amount to easily more than $2,000 more in fees EVERY year.  The additional costs to teachers is enormous over a ten or twenty year time horizon.  And, nobody seems to know.

But, your constituents need to understand that at retirement the handcuffs come off.  Teachers no longer need to stay in this antiquated system in their retirement years.  They can choose a different route, but, you need to tell them what it is and that it exists.  But, you won’t, because the “system” is in bed with the financial product providers.  In fact, just read the ADV of the NEA’s annuity provider – money flows between them!

Here’s a proposal for how the system should work:

          The endorsed 403b provider list should be cut drastically.  A negotiated relationship should exist between the “system” and a couple of providers.  It is there that incredible costs savings can occur and big dollars stay in the pockets of your constituents rather than all these financial providers due to the inefficiencies.  Maybe have one insurance company on the list that can offer fixed annuity products for those not wanting any risk, and offer a low cost marketer of index and mutual funds such as Vanguard that your folks can deal with directly.  And lastly, put a fee-only planning firm on the list who can provide pre-retirement advice and post-retirement financial and investment advice and services.

Wow, is that ever refreshing!  But, your constituents need to understand that the “system” and a couple financial services companies are holding the system hostage.  Disrupting this system is way past due to bring it out of the dark ages.

Here’s what you can do about this problem today:  If you are getting ready to retire having spent the past 30 years or so in this system, come to one of Addis & Hill’s retirement planning workshops to learn how financial and investment advice should be delivered in 2015!  

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