Popular 403(b) resource launching directory of fiduciary advisers

The clearinghouse won't include registered reps or insurance agents

Feb 26, 2018 @ 2:12 pm

By Greg Iacurci

A popular resource for participants in 403(b) plans, which are retirement plans for educational institutions, nonprofits and churches, is trying to stop what it sees as abusive sales conduct toward retirement savers by launching a directory of fiduciary financial advisers.

403(b)wise, a website offering 403(b) educational materials, plans to launch the national directory in March. It's meant to help plan participants distinguish fiduciary advisers from brokers and insurance agents when deciding whom to work with as a financial adviser.

Fiduciary retirement plan advisers have long lamented what they see as the poor state of so-called advice received by 403(b) plan participants. In particular, public K-12 teachers often get plans that receive little oversight from their school district, allowing brokers to peddle high-fee investment products to unsuspecting investors, according to advisers.

"They're the ones that are most ripped off," said Daniel Otter, founder of 403(b)wise. "[People] always call it the Wild, Wild West, the K-12 403(b)."

Advisers must apply for inclusion in the directory, and the website is placing strict standards on the advisers included. At a minimum, advisers must be fee-only fiduciary financial advisers and hold the certified financial planner designation.

403(b)wise isn't accepting applications from registered representatives or those licensed to sell insurance, though that may change in the future, said Scott Dauenhauer, principal at Meridian Wealth Management, a friend of Mr. Otter's who's helping to vet applications.

"We don't want our participants working with the people we rail against every day," said Mr. Dauenhauer, whose clients are primarily school teachers. He also consults with a few 403(b) plan sponsors, including the California State Teachers' Retirement System.

(More: In K-12 403(b) plans, employees and their unions can be their own worst enemy)

403(b)wise will charge an annual $695 listing fee for individuals. There's a $200 discount for members of the National Association of Personal Financial Advisors, XY Planning Network and Garrett Planning Network, whom Mr. Dauenhauer called "our ideal candidates."

Mr. Otter, a former teacher and currently associate dean at the University of Redlands, a private university in California, launched 403(b)wise in 2000 as a "passion project." Today, the site averages about 1,000 page views a day and 7,500 average unique visitors per month (86% of whom are new to the site), Mr. Otter said.

"This directory is unique. I don't know another directory of fee-only fiduciaries with 403(b) expertise," he said. Eventually, he'd like to have a listing of advisers in all the big counties in the country.

403(b) plans are different beasts from their 401(k) cousins. For one, they're not covered by the Employee Retirement Income Security Act of 1974, a federal law that establishes protections for retirement savers. That means employers don't have a federally imposed fiduciary responsibility with respect to their plans.

Many employers are therefore hands-off when it comes to plan management, allowing brokers and insurance agents to solicit business within the walls of schools one-on-one with participants. In contrast, with 401(k) plans, employers serve as a central conduit and decision-making power.

The Department of Labor's fiduciary rule, which raised investment-advice standards in retirement accounts when parts of the rule went into effect in June, doesn't cover non-ERISA plans like K-12 403(b)s. So brokers don't have to alter their conduct.

At least one state, Connecticut, is trying to help. The state's governor signed into law last year a bill that mandates disclosure of investment fees and adviser compensation by providers serving municipal 403(b)s.


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