Can someone help translate this financial adviser speak for me?

[Incandenza]

My wife is a teacher and we recently enrolled her in the school system's 403b and 457 plans.  I'm currently at an expense ratio of .9%, which I'd like to beat, if possible, although the alternative options are limited.  Below is a response I got from one of the other companies who offer the plans.  It's at least party gibberish to me:

"The 457 is a variable annuity product with a M/E fee. However, if we use the Structured Investment Option (SIO), this is an investment option based on the S&P 500's performance over a period of time with no M/E fee, no expense ratio, and no management at all. Instead, it has a downside buffer and an upside cap. This might fit your needs more; however, because it is 100% invested in equity, the investment risk tolerance is aggressive."

Can anyone help me decipher this?  I find the total lack of fees and management both promising and suspicious.  I also don't fully understand what a SIO is, how it works, and whether it's advisable.  Also not sure about the reference to upside cap.   Any help would be much appreciated. 

[JAYSLOL]

i can almost guarantee you it's not a good product to invest in.  It's hard to tell exactly what's being offered here, but looks like a fund that gives you S&P 500 gains as long as they fall within a certain range, i.e. -5% to + 5%.  You get some downside protection if the S&P falls more than a certain amount, but are limited on the upside.  And I can tell you over the medium or long term you would likely do worse with this fund than a mutual fund with even a 2% MER

[terran]

Sounds like some kind of annuity or insurance product. A google search for "Structured Investment Option" seems to agree. I would stay away.

[Dicey]

Why not respond to the guy and ask him for a description in plain English? Chances are he doesn't know what he's selling well enough to explain it without jargon or acronyms. My vote is to avoid anything with the word "annuity".

[Incandenza]

Thanks all.  Very helpful. Unfortunately all of the other alternatives have either 1) not responded to my request for info on their lowest expense funds, or 2) replied with options with greater than 1% MER.  May be that I have to just keep paying a company .9% to put my money in VTSAX, as frustrating as it is.   

Why not respond to the guy and ask him for a description in plain English?

I will.  I trust you all far more than I do him, though, so I wanted to take a first pass here so I could approach the call with the best info I could get. 

[Goldielocks]

Terran -- this is an annuity product, but the challenge is that the 457 plan looks like it can ONLY be invested in annuities, to create a pension-like cashflow at retirement.

So, some definitiions...

A variable annuity is a tax-deferred retirement vehicle that allows you to choose from a selection of investments, and then pays you a level of income in retirement that is determined by the performance of the investments you choose. Compare that to a fixed annuity, which provides a guaranteed payout.

-- A variable annuity will move up and down with the investment... but the standard one is likely restricted to conservative investments that will always pay out a return in your 457, and it has M/E costs reducing returns a bit, too.   Think of this like a bond fund?

To combat the low returns of the regular variable annuity and possibly increase the range of investments and returns available, while conforming to the "must be an annuity" in your 457, the company is offering a second product the SIO.

This is invested entirely in equities, with a guaranteed return between two numbers.

There are still usually some costs with the SIO, but if you have a very large pooled 457, these management costs may be waived / paid as an annual fee by the employer to maintain the plan, or something else.   The managment company does get the extra increase in the plan above a certain number, so that is profit for them.

Ask what the SIO is invested in, what the caps are, and how the SIO's administration costs are paid / funded.

I am not sure if I would go with the SIO, unless you have the "large plan" advantage and minimal fees and you like the investments.   

[Incandenza]

Ask what the SIO is invested in, what the caps are, and how the SIO's administration costs are paid / funded.

I am not sure if I would go with the SIO, unless you have the "large plan" advantage and minimal fees and you like the investments. 

Thank you.  And because I'm already invested in a 457 that invests entirely in VTSAX with a .9% expense ratio, really the question for me is whether this would beat that. 

I'll need more information based on the advice given here, but it sounds like the likely answer would be no.  The one thing I like about our current plan is the simplicity of being invested in VTSAX, rather than some more complicated product. 

[terran]

Terran -- this is an annuity product, but the challenge is that the 457 plan looks like it can ONLY be invested in annuities, to create a pension-like cashflow at retirement.

This may (or may not) be true of this 457, but it's definitely not true of all 457 plans. My wife's plan has access to a full suite of vanguard funds and is administered by Fidelity.

@TPGW, what are the companies you're allowed to use? If your wife's employer is large enough that you're comfortable saying what it is that could help people suggest an option too.

[Psychstache]

Run. Run away. Run far. Run fast. Delete all future emails and ignore this insurance salesman.

The 0.9% to buy VTSAX isn't ideal, but for most 457s that ain't bad.

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[Incandenza]

My wife's plan has access to a full suite of vanguard funds and is administered by Fidelity.

One of the school-system approved companies does have access to the full suite of Vanguard funds, just as with your wife. It's just the expense ratio is .9% for VTSAX, and it's a frustrating experience to pay someone so much money to do essentially nothing.  Do you know what the ER is for your wife's funds?  It'd be interesting to compare.

I'll do more research, but based on the replies here, it seems the vanguard option may be the best available for me.

[terran]

She works in higher ed, so it's not really comparable, but all the Vanguard funds she has are institutional class with no additional fees on top, so they're a bit better than what's available to retail investors. I feel for those of you in public schools -- from what I've heard you get the shaft, which is a terrible shame. Is Voya an option? I think I've seen some decent options when they're one of the approved administrators.

[Incandenza]

Is Voya an option?

Yes, but only offers a variable annuity with a 1.15% fee, so......not tempting, unfortunately. 

[terran]

Any help here? http://board.403bwise.com/topic/6130-457b-state-plans-for-k-12-employees/

I found it through https://www.bogleheads.org/wiki/403b_plans_for_K-12_public_school_district_employees which I think might be worth looking at too

That 403bwise website seems like it has some resources that would be helpful if you want to take on trying to get some retirement plan reform enacted in your wife's district.

[PizzaSteve]

Run. Run away. Run far. Run fast. Delete all future emails and ignore this insurance salesman.

The 0.9% to buy VTSAX isn't ideal, but for most 457s that ain't bad.

Sent from my Pixel using Tapatalk

The .9% is most likely going to manage the 457, and really cant be avoided.  Nothing is going to beat VTSAX.  Just roll it out in kind to an IRA when you retire to kill that performance drag.

[reeshau]

Run. Run away. Run far. Run fast. Delete all future emails and ignore this insurance salesman.

The 0.9% to buy VTSAX isn't ideal, but for most 457s that ain't bad.

Sent from my Pixel using Tapatalk

The .9% is going to manage the 457, and really cant be avoided.  Nothing is going to beat VTSAX.  Just roll it out in kind to an IRA when you retire to kill that performance drag.

This is an important point to differentiate.  Many retirement plans are supported in whole or in part by the participants--meaning, the employer/sponsor may not be contributing to pay for the administration.  My company's 401k charges .11%, even for the attached brokerage account I have with it--and invest in individual stocks.  I have seen many HSA's that charge .5%.  While .9% may be high, if you ask the plan administrator what part of that pays for the plan, you may see just how fruitless the search for something else is.  (As opposed to shopping different fund companies)

[Goldielocks]

Ask what the SIO is invested in, what the caps are, and how the SIO's administration costs are paid / funded.

I am not sure if I would go with the SIO, unless you have the "large plan" advantage and minimal fees and you like the investments. 

Thank you.  And because I'm already invested in a 457 that invests entirely in VTSAX with a .9% expense ratio, really the question for me is whether this would beat that. 

I'll need more information based on the advice given here, but it sounds like the likely answer would be no.  The one thing I like about our current plan is the simplicity of being invested in VTSAX, rather than some more complicated product.

The answer is likely no to being better. unless this particular 457 plan manages billions of pension dollars -- at that point you get very professional management for very very low / no cost to individual contributors.   -- This is just my guess based on what I have reviewed in the past.

If you have matching with that plan, of course, it almost always pays to meet the matching, even for very conservative investments.

[SquashingDebt]

Run. Run away. Run far. Run fast. Delete all future emails and ignore this insurance salesman.

The 0.9% to buy VTSAX isn't ideal, but for most 457s that ain't bad.

Sent from my Pixel using Tapatalk

The .9% is most likely going to manage the 457, and really cant be avoided.  Nothing is going to beat VTSAX.  Just roll it out in kind to an IRA when you retire to kill that performance drag.

Yes, my S&P 500 fund in my 401k is ".04%" expense ratio, but buried deep in the literature is the disclosure that EVERYTHING in the 401k is subjected to a 1.2% or so fee to pay for plan administration. 

[marty998]

Why not respond to the guy and ask him for a description in plain English? Chances are he doesn't know what he's selling well enough to explain it without jargon or acronyms. My vote is to avoid anything with the word "annuity".

This is interesting @Dicey, my vote is always to avoid anything with the word "structured" in the name :)

[Dicey]

Why not respond to the guy and ask him for a description in plain English? Chances are he doesn't know what he's selling well enough to explain it without jargon or acronyms. My vote is to avoid anything with the word "annuity".

This is interesting @Dicey, my vote is always to avoid anything with the word "structured" in the name :)

@marty998, aw c'mon, that's the beauty of FIRE. I don't have to do or wear anything structured! Unless I absolutely, positively want to.

[TomTX]

Run. Run away. Run far. Run fast. Delete all future emails and ignore this insurance salesman.

The 0.9% to buy VTSAX isn't ideal, but for most 457s that ain't bad.

Sent from my Pixel using Tapatalk

The .9% is most likely going to manage the 457, and really cant be avoided.  Nothing is going to beat VTSAX.  Just roll it out in kind to an IRA when you retire to kill that performance drag.

That seems awfully high. My 457 charges around 0.2% for plan administration (it's a tiered dollar amount, so the percentage varies a bit depending on your exact balance.)

I would suggest contacting HR and see if they can find a vendor with a low cost option.

[marty998]

Why not respond to the guy and ask him for a description in plain English? Chances are he doesn't know what he's selling well enough to explain it without jargon or acronyms. My vote is to avoid anything with the word "annuity".

This is interesting @Dicey, my vote is always to avoid anything with the word "structured" in the name :)

@marty998, aw c'mon, that's the beauty of FIRE. I don't have to do or wear anything structured! Unless I absolutely, positively want to.

I think this has gone over my head.... I was actually being serious (for a change)! Not so much talking about outfits haha.

Structured products were the sort of things that blew up in 2008. Between you avoiding annuities and me avoiding structured products I think we cover why the OP needs to avoid a bad idea.

[PizzaSteve]

Why not respond to the guy and ask him for a description in plain English? Chances are he doesn't know what he's selling well enough to explain it without jargon or acronyms. My vote is to avoid anything with the word "annuity".

This is interesting @Dicey, my vote is always to avoid anything with the word "structured" in the name :)

@marty998, aw c'mon, that's the beauty of FIRE. I don't have to do or wear anything structured! Unless I absolutely, positively want to.

I think this has gone over my head.... I was actually being serious (for a change)! Not so much talking about outfits haha.

Structured products were the sort of things that blew up in 2008. Between you avoiding annuities and me avoiding structured products I think we cover why the OP needs to avoid a bad idea.

Run. Run away. Run far. Run fast. Delete all future emails and ignore this insurance salesman.

The 0.9% to buy VTSAX isn't ideal, but for most 457s that ain't bad.

Sent from my Pixel using Tapatalk

The .9% is most likely going to manage the 457, and really cant be avoided.  Nothing is going to beat VTSAX.  Just roll it out in kind to an IRA when you retire to kill that performance drag.

That seems awfully high. My 457 charges around 0.2% for plan administration (it's a tiered dollar amount, so the percentage varies a bit depending on your exact balance.)

I would suggest contacting HR and see if they can find a vendor with a low cost option.

Agreed.  Bad vendors lure unsuspecting small business owners with 'cost savings' for the company, but then wack employeers with hidden fees.  Often these salespeople befriend top execs at some fund raiser and follow EJ like sales tactics of complexity confusion. A friends' firm had fees go up .5%, and expense ratios on funds offered were all .25% more.  The sleeze saleswomen told the boss she was lowing cost and increasing options, but what happened was higher costs for all, because the owning partners all invested in the 401k.

The fees were structured to drop with larger total balances, but what happened is migration out because company didnt match at all, so the complex tiered rates stayed high.

[Dicey]

Why not respond to the guy and ask him for a description in plain English? Chances are he doesn't know what he's selling well enough to explain it without jargon or acronyms. My vote is to avoid anything with the word "annuity".

This is interesting @Dicey, my vote is always to avoid anything with the word "structured" in the name :)

@marty998, aw c'mon, that's the beauty of FIRE. I don't have to do or wear anything structured! Unless I absolutely, positively want to.

I think this has gone over my head.... I was actually being serious (for a change)! Not so much talking about outfits haha.

Structured products were the sort of things that blew up in 2008. Between you avoiding annuities and me avoiding structured products I think we cover why the OP needs to avoid a bad idea.

Not over your head at all, I was just adding a little levity to a boring topic. Straight answer, no humor: hell no!