The Real Cost of K-12 403(b) Enrollment
September 26, 2023
It's no secret that the majority of K-12 403(b) plans are multi-vendor and high cost. Story after story has been written about this. The agents and vendors must be killing it slinging these products right? Wrong. And that's actually bad news for participants. Let me explain...
Dirty Little Secret
Actually, let me have my partner and fiduciary advisor Scott Dauenhauer, CFP explain. He dove into this issue and looked at the actual dollar amount to be made selling the following products...
- A-Share Style Mutual Fund Programs
- A-Share Mutual Funds - top breakpoint achieved
- Fee-based accounts primarily investing in Mutual Funds
- Variable Annuities - annualized flow
- Variable Annuities - upfront commission
- Fixed and Fixed Indexed Annuities
He assumed that the average educator this representative works with will contribute $4,000 annually through ten contributions of $400 each. His chilling conclusion?
It's not a profitable economic opportunity to sign up new participants in multi-vendor K-12 public school 403(b) plans, as currently structured. Enrollments are subsidized by predatory ancillary sales and mostly unneeded exchanges. Anyone claiming otherwise is gaslighting or stretching the numbers to fit a narrative.
Conclusion? Agents are using the 403(b) as a loss leader to sell even more predatory products.
See the Numbers
You can see how much a sales agent will make selling each of these six products along with the type of products agents will upsell clients on in Scott's recent story: The Price of 403(b) Enrollment.
Scott's Message to School District Officials
When a school district allows a multi-vendor 403(b) environment, they are not increasing enrollment and providing financial advice. Instead, they are usually inviting financial predators onto their campus to sell products that no one in the district has approved or endorsed. Such policies make the 403(b) representatives significant amounts of money (or at least the companies they work for; often, the representatives are also victims).
Stay wise and well (Want to end predatory sales practices? Go single low-cost vendor).
Related Podcast:
The Real Cost of K-12 403(b) Enrollment Scott reveals the dirty little secret about K-12 403(b) enrollment: it's a loss leader which incentivizes agents to upsell. Listen Now »