Stealing from Teachers

I’ve posted before about the importance of the fiduciary standard for investment advisors. It would seem like an obvious statement, but when your advisor isn’t required to put your interests first, bad things can happen.

This is a horrible story of how teachers get screwed in their investments due to the lack of a fiduciary. Teacher retirement plans are 403(b) plans like 401(k) plans, with two key differences. a 401(k) plan is managed by your employer and the plan managers are held to the fiduciary standard. They must put the employees interests first. Teacher 403(b) plans are sold directly to the individual teachers, and more importantly there is no fiduciary responsibility. So salesmen can sell whatever generates the most commision.

It starts with a social studies teacher who was a former currency trader. Other teachers asked him to look at their investments and he was horrified:

He couldn’t believe what he saw. Many of his fellow teachers were in high-cost annuities, lured by tax-deferred growth and a lifetime stream of income. It made no sense—savers don’t need income; they need growth. And they don’t need tax-deferred products, since their retirement plans were already tax shelters. For these unnecessary “features,” the annuities imposed high sales charges on every paycheck withdrawal. And a 2% annual management fee. And large surrender fees of, say, 7%.

It’s a good, but very sad read.

If you need a primer on what fiduciary means, watch this: