Right about the time that the New York Times was beginning to release their stories on the significant issues in the land of 403(b), a trade organization (the NTSA - The National Tax-Deferred Savings Association) that represents 403(b) vendors, insurance agents, brokers and some Investment Advisors told Plansponsor magazine that they would change their policy as it pertains to "Fiduciary". The Plansponsor article is short on details but begins:
The National Tax-deferred Savings Association (NTSA) has formally affirmed its support for a fiduciary standard for all not-for-profit organizations, and the extension of the Labor Department’s fiduciary rule to governmental 403(b) plans and participants.
I've not seen a copy of the actual policy and can't find it on their website, in fact, if it wasn't for the Plansponsor article I wouldn't know about this, I literally can't find any mention of it on the NTSA website (NTSA - help me out). I'm reaching out to the Director, Chris DeGrassi to clarify, get a response and to invite him onto the Teach and Retire Rich podcast to explain the new policy. I've reached out twice before and have not rated even an e-mail response.
What strikes me about the policy change is that it doesn't seem to actually impose any fiduciary standard on the NTSA's members now or at any time in the future, only a vague support of a policy that they already know won't be extended to government organizations. This feels like slight of hand to me. The NTSA publicly states they support the extension of a policy that they know has no chance of happening while not actually implementing any Fiduciary standards within their own organization (again, if I'm wrong on this, I'd invite Mr. DeGrassi to correct me and provide the documentation, I couldn't find any).
Some people within the organization have told me that the NTSA is changing to embrace Fiduciary, but I have a hard time believing that based on who their sponsors are. But don't take my word for it, here are some excerpts from one of their members who by law must act as Fiduciaries at least in some situations, Lincoln Investments (who just bought Legend Group, the company mentioned by the NY Times articles):
From the Lincoln Investments Disclosure Booklet (emphasis mine):
Overall compensation to your Advisor, as a result of your investments with us, may be in the form of commissions, concessions, advisory fees, distribution fees, persistency fees, and contest prizes, such, as cash bonuses, trips and gifts. As a registered representative, your Advisor typically will share in the compensation from the product sponsors that is received by us in the form of commissions or concessions as may be described in a prospectus, for the sale of such securities as mutual funds and variable annuities to you. We also receive from some product sponsors an ongoing distribution or servicing fee (also known as 12b-1 fees) of 1% or less for as long as your money remains invested in their product(s) that may be shared with your Advisor. As an Advisory Representative, your Advisor shares in the advisory fees paid by you for our advisory services; and he/she may also share in the ongoing 12b-1 fee of 1% or less that may be received from the product sponsor(s) in which you are invested. As a general insurance agent, your Advisor shares in the compensation received by us for the sale of insurance products to you, such as, life, health, disability, long term care, and fixed annuity products.
The majority of Lincoln Investment's revenue comes from the commissions, concessions and distribution fees associated with the sale of mutual funds, variable annuities, stocks, bonds and insurance to our clients.
Your Advisory Representative may have more than one relationship with you – one as an Advisory Representative over an advisory account and one as a Registered Representative/Agent over a non-advisory account where he or she may receive a sales commission for the sale of securities or insurance products which shall be in addition to any advisory fees earned on your advisory assets. In these situations, our Advisory Representative may have greater financial incentives to offer you both investment and /or insurance sales as well as advisory services.
It's difficult to think that given the above, Lincoln could be considered a Fiduciary. But this points out what many don't know about the term, Fiduciary. Fiduciary can have many meanings and there is currently a battle to define and redefine the term into something that is less restrictive, we can't allow this to happen. The above is disturbing and should be all the evidence you need to reject working with the company, but what follows is the best evidence that the throwing around of the term Fiduciary is simply a marketing gimmick:
Lincoln Investment offers sales contests that may provide additional incentives to your Advisor to offer one product or service over another. Lincoln Investment offers sales contests based on such criteria as gross compensation to the Advisor, net sales of Lincoln Investment and Capital Analysts managed advisory programs, net sales of Advisor managed programs, and net sales of third party managed advisory programs. These contests may provide your Advisor with an incentive to offer you fee-based advisory services over commission-based brokerage services. Top achievers in these contests may receive Lincoln Investment-sponsored trips, cash prizes, bonus commissions, extra club points, monetary donations in their name to a charity of their choice or other nominal prizes. No contest is offered which will award the Advisor based upon a specific investment product or on a specific product sponsor. Lincoln Investment will not accept any business that is not deemed suitable for the investor. Lincoln Investment’s Advisors may also be licensed and appointed with various insurance companies to offer insurance products to you. Although Lincoln Investment does not offer specific product sales incentives for securities products, issuers of non-securities insurance products, such as fixed annuity issuers, may offer sales incentives to our Advisors in the form of cash bonuses and trips if certain sales thresholds are met. You should ask your Advisor about these incentives at the time of sale.
There is no scenario where the above is ok, these are not statements made by true fiduciaries. It gets even worse though. If a product provider wants access to Lincoln reps, they have to pony up. I encourage you to read the above linked document under "Additional Compensation", you'll find items that will blow your fiduciary mind. Bottom line, it's pay to play at this organization in my opinion and according to the evidence in this document.
Lincoln states the following:
Overall, in 2015, additional compensation revenue received by Lincoln Investment from Sales and Marketing Support, Administration Services, and Due Diligence Seminar expense reimbursement fees represented .0404% of total investor assets or $4.04 of additional compensation to Lincoln Investment for every $10,000 in an investor’s account.
I've been a Fiduciary since 2001 and this is not fiduciary behavior. Disclosure is not enough. These are easily eliminated conflicts of interest, yet they continue to exist.
My point is not really about Lincoln, it's about the NTSA saying one thing but apparently allowing another. DeGrassi stated in the Plansponsor article that:
"America’s teachers need and deserve access to the best, and most transparent financial advice as they work to prepare for their future, and NTSA’s members have long been an integral part of that planning."
I'll agree with him on the first part, but to say that the NTSA has been an integral part of pushing for better fiduciary rules is in no way an accurate statement. I've been fighting for a fiduciary standard for everyone for years and specifically in 403(b), the NTSA has opposed me for as long as I can remember. There might be some great advisors (true fiduciaries at Lincoln Investments) and if so, they should be joining me in this fight to rid their firm of these hideous conflicts.
I certainly hope they are turning over a new leaf, but if so, the above items in the disclosure document shouldn't be allowed. If the NTSA truly wants to lead on Fiduciary, then set out clear policies for members and vendors. Almost all of the above would not be allowed under the DOL rule - certainly not sales contests.
Once again, if anything I said in this post is inaccurate, I invite Mr. DeGrassi to correct me and provide the evidence to support, I would gladly retract any statement not supported by evidence. My opinion remains though that the NTSA is only giving lip service to Fiduciary, not fighting to make it happen.
Mr. DeGrassi will you come on the Teach and Retire Rich Podcast?
Scott Dauenhauer, CFP, MPAS, AIF
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