Frontline--The Retirement Gamble

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Re: Frontline--The Retirement Gamble

Postby DoubleDraw » Wed Apr 24, 2013 1:03 pm

As others have mentioned, this piece reminded me of credit card and mortgage crisis documentaries which basically all fall under "I didn't pay attention to what I signed and now I take no responsibility for that decision". I don't understand why we, as a society, let these people of the hook or blame the businesses that set up deals to benefit their business instead of the customer. Personal responsibility, or rather the lack of it, seems to be the real underlying problem in most of these "crises".
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Re: Frontline--The Retirement Gamble

Postby StormShadow » Wed Apr 24, 2013 1:03 pm

Family update!

Because of this episode, my mother has decided to transfer her investments over to Vanguard. :D :D :D
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Re: Frontline--The Retirement Gamble

Postby snowman » Wed Apr 24, 2013 1:13 pm

Grt2bOutdoors wrote:
snowman wrote:
statsnerd wrote:
Grt2bOutdoors wrote:The JP Morgan guy - I hope he took the rest of the week off :oops:. Can you imagine - an executive VP of retirement savings at a major institution - on national television, looked quite incompetent. Not that Wells Fargo did such a hot job either. Prudential, tsk, tsk, not keeping up with the ongoings of your competitors? Come on now, even the business majors at Rutgers know how to perform competitor analysis. Not aware of competitor research? Yeah right.


"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair


While this may be true, I actually think they are those same people telling Jason 2 beers later that 90% of their own investments are in indexes. OK, maybe not the JPM guy, he clearly looked worried he might be missing something, but the Prudential lady for sure.


Nah! The Prudential lady's investments are in "whole life insurance, variable life annuities and Prudential stock". :twisted:


OMG! How did I miss that? You are probably right, I cannot picture her drinking beer with Jason... But what about Wells Fargo lady - she looked knowledgeable... Can she be indexer?
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Re: Frontline--The Retirement Gamble

Postby steve r » Wed Apr 24, 2013 1:26 pm

donaldfair71 wrote:...

There are plenty of high school teachers qualified to teach this stuff at basic levels (trust me, the 17-year old would lose interest in 12b definitions above that-- and the types of moves that would provide savings, such as an understanding of Expense Ratios/Load Fees/etc., are VERY basic).


The Bloomberg equivalent story had the NEA (teachers union) have an annuity product with 12.9 percent expense ratio.(page 1 of this thread)

The problem is more complex ... undoubtedly some lost money because they took a retirement "gamble." Yes some fees are a rip off ... but some on this site, myself included, needed to learn some investment lessons the hard way.
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Re: Frontline--The Retirement Gamble

Postby BruceM » Wed Apr 24, 2013 1:42 pm

Most of what this special covers is already well known by bogelheads and Diehards. Its just good to see it so widely broadcast.

I particularly liked the explanation of how our current situation has evolved. In the 80s and 90s, with 12% annualized returns being the 'norm', who cared about this expense ratio....we were all making so much money, why be bothered with counting the pennies. But it seems this time was used wisely by the financial services and products industry to engineer expenses so as to make them ner' impossible for the average investor to find, even when he/she is actively looking for the price tag.

A quick look into the managed MF industry this AM shows them all lit up with vitriolic shouts of 'fix' and 'hatchet-job' and shouts for 'equal time'. Its tough being told you offer no value and make no difference....except in a negative way.

Bet there are a lot of smiles this morning in Malvern, PA.

And although this was a good showing of the damning effect of long term expenses, I wish it would have spent more time looking at household budgets of those featured, to show where monthly expenses could be redirected from 'nice-to-have's' to one's TIRA (deductible for many), using automatic paycheck allotments so the contributions come out first....and are allocated to something as simple as a very low expense target date fund. The simplicity of this would be a great message.

I've read there is going to be an online discussion of this special today at 11 AM PDT.


http://www.pbs.org/wgbh/pages/frontline ... d-2-pm-et/

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Re: Frontline--The Retirement Gamble

Postby bayview » Wed Apr 24, 2013 2:03 pm

StormShadow wrote:Family update!

Because of this episode, my mother has decided to transfer her investments over to Vanguard. :D :D :D

Excellent! :beer

I sweet-talked my hubby into watching with me, and he has now eased ever so slightly away from "they're all crooks, and there's nothing we can do" to "well, OK, I can see how low-cost index funds might give you a fighting chance..."

Ta-da! This from a man who has grimly left his money in money market funds, despite knowing what inflation does.

And it really helped when one of the good guys was on, and I was able to say "Yeah, I read his stuff on the BH forums."

I agree with others that this was pretty light, but after sitting next to someone to whom much of this was new, it might have been right for the target audience. I do wish that a lot more emphasis had been placed on the need for massive amounts of savings (what many people would consider "massive.")
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Re: Frontline--The Retirement Gamble

Postby bottlecap » Wed Apr 24, 2013 2:11 pm

BruceM wrote:A quick look into the managed MF industry this AM shows them all lit up with vitriolic shouts of 'fix' and 'hatchet-job' and shouts for 'equal time'. Its tough being told you offer no value and make no difference....except in a negative way.


To be fair, it was a hatchet job in the sense that investors (even the supposedly educated ones, like Hiltonsmith) were portrayed as rubes, in that there were a lot of interviews with active investment professionals left out and in that much of the interviews shown were likely left on the cutting room floor in such a way that made the included clips very unflattering.

Nonetheless, it is a well-deserved hatchet job from an industry whose mantra dominates the airwaves.

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Re: Frontline--The Retirement Gamble

Postby Random Poster » Wed Apr 24, 2013 2:17 pm

DoubleDraw wrote:As others have mentioned, this piece reminded me of credit card and mortgage crisis documentaries which basically all fall under "I didn't pay attention to what I signed and now I take no responsibility for that decision". I don't understand why we, as a society, let these people of the hook or blame the businesses that set up deals to benefit their business instead of the customer. Personal responsibility, or rather the lack of it, seems to be the real underlying problem in most of these "crises".


While I agree in part, when it comes to 401K choices, what personal responsibility do you expect the employee to take?

If the employer only offers high-expense managed funds in the 401K plan, what do you expect the employee to do?

Just pick the lowest cost fund and hope for the best?

Put the 401K money in a money market fund?

As others have said, the Frontline piece had many storylines, one of which is the effect of high fees on your retirement savings.

One other, and not so much touched upon, storyline, though, was how there is no requirement* for employers to offer a 401K plan or to offer certain specified low-cost index funds in the plan.

* My memory is hazy, but the latter part may now be required. I don't know.
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Re: Frontline--The Retirement Gamble

Postby Fallible » Wed Apr 24, 2013 2:28 pm

Mel Lindauer wrote:
JMacDonald wrote:
Mel Lindauer wrote:Close behind was the stuttering and "deer-in-the-headlights" look of the one guy when asked about "fiduciary responsibility" and the unbelievable statement by the Prudential lady that she'd never seen any studies that show indexing consistently outperforms.

Hi Mel,
If this was a court of law, you could claim that those executives would be guilty of "willful blindness."


Either willful blindness, outright lying, or simply being inept, since it's hard to believe that industry execs aren't keenly aware of the competition and the "mathmatical certainty" plus the numerous SPIVA reports showing that indexing outperforms 70-80% of active funds over time. Studying the competition is part of Management 101. How dumb do they think viewers are? Gimmeabreak!


These execs and "pro" active management types all had deer-in-the-headlights looks, almost defenseless, defeatist, not even believing heir own words - when they could get them out. But what's surprising about this is that they didn't more adequately prepare for their interviews so they at least didn't look so unprepared. They couldn't even pretend they believed what they said. Obviously, they knew what was coming and they knew what they were going to say - had to say - and they still couldn't get it right. They must be the ones who Zweig said (with a twinkle in his eye) own index funds.
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Re: Frontline--The Retirement Gamble

Postby stevethefundguy » Wed Apr 24, 2013 3:06 pm

Yes, a few good points on fees, but almost entirely ignored the new disclosure requirements. [Political comment removed by admin LadyGeek]

Many sad stories of people who lost money in the financial crisis; one couple shown saying it would take over 10 years to grow that money back. Program never stated that in less than 4 years the market roared back and hit new highs. Etc., etc. etc.
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Re: Frontline--The Retirement Gamble

Postby George-J » Wed Apr 24, 2013 3:24 pm

Very good for Frontline!

Question - near the end the voice mentions that $10 trillion has been handed over to the money managers.

Can anyone help? What is the source for this number? Does anyone here know? Over what time period? From what asset amount? Etc
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Re: Frontline--The Retirement Gamble

Postby jay22 » Wed Apr 24, 2013 3:26 pm

It's a noob question, but I'll ask anyway. Research shows that 40% of the money is invested in index funds these days. What happens if the rest 60% is moved towards index as well? Doesn't that mean the index (and hence the index funds) will go down, since the trading and frequent sell/buy will stop?
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Re: Frontline--The Retirement Gamble

Postby Grt2bOutdoors » Wed Apr 24, 2013 3:49 pm

jay22 wrote:It's a noob question, but I'll ask anyway. Research shows that 40% of the money is invested in index funds these days. What happens if the rest 60% is moved towards index as well? Doesn't that mean the index (and hence the index funds) will go down, since the trading and frequent sell/buy will stop?


There will always be buying and selling as new and old participants enter/withdraw from the marketplace.
For those living off of assets, they will need to sell. For those who are saving, there will be a need to purchase.
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Re: Frontline--The Retirement Gamble

Postby DoubleDraw » Wed Apr 24, 2013 3:58 pm

Random Poster wrote:
While I agree in part, when it comes to 401K choices, what personal responsibility do you expect the employee to take?

If the employer only offers high-expense managed funds in the 401K plan, what do you expect the employee to do?


I would expect the employee to make informed decisions about their investments including understanding their fees and risk. My 401k has extravagent fees, my TSM index fund has a 0.72% ER and my S&P 500 is 0.68%. While these are high, they are far lower than the 1-2% ERs listed for other, actively managed funds. I will be rolling over my 401k into a Vanguard IRA as soon as I can because of these fees. I doubt I will be at this job for longer than 5-10yrs and the tax savings far outweigh the insane expense ratios in my 401k. Yes, I am working to get the fees reduced in our 401k, but I technically work for an umbrella company and they don't seem to be concerned about paying 10x the fees that we should be.

My point was that people seem to say "the bad man tricked me" rather than "I didn't make any effort to understand what I was investing in, it was my fault".
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Re: Frontline--The Retirement Gamble

Postby jay22 » Wed Apr 24, 2013 4:01 pm

Grt2bOutdoors wrote:
jay22 wrote:It's a noob question, but I'll ask anyway. Research shows that 40% of the money is invested in index funds these days. What happens if the rest 60% is moved towards index as well? Doesn't that mean the index (and hence the index funds) will go down, since the trading and frequent sell/buy will stop?


There will always be buying and selling as new and old participants enter/withdraw from the marketplace.
For those living off of assets, they will need to sell. For those who are saving, there will be a need to purchase.

I understand that. But I am guessing the trading won't be as frequent as it is with active managed funds?
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Re: Frontline--The Retirement Gamble

Postby Christine_NM » Wed Apr 24, 2013 4:07 pm

jay22 wrote:It's a noob question, but I'll ask anyway. Research shows that 40% of the money is invested in index funds these days. What happens if the rest 60% is moved towards index as well? Doesn't that mean the index (and hence the index funds) will go down, since the trading and frequent sell/buy will stop?


Jay -

That 40% is only 40% of retirement accounts, not 40% of the whole stock/bond market. There are plenty of professional Wall Street traders working to make efficient prices for us indexers. The Wall Street trader is unwittingly our friend in wolf's clothing, or something like that.
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Re: Frontline--The Retirement Gamble

Postby jay22 » Wed Apr 24, 2013 4:12 pm

Christine_NM wrote:
jay22 wrote:It's a noob question, but I'll ask anyway. Research shows that 40% of the money is invested in index funds these days. What happens if the rest 60% is moved towards index as well? Doesn't that mean the index (and hence the index funds) will go down, since the trading and frequent sell/buy will stop?


Jay -

That is 40% is only 40% of retirement accounts, not 40% of the whole stock/bond market
. There are plenty of professional Wall Street traders working to make efficient prices for us indexers. The Wall Street trader is unwittingly our friend in wolf's clothing, or something like that.

Ah gotcha, I didn't catch that correctly. My bad. :oops:
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Re: Frontline--The Retirement Gamble

Postby yeamon » Wed Apr 24, 2013 4:30 pm

I'm trying my hand at blogging (mostly about baseball eventually, which is why the blog is at MLB.com). I blogged my reaction to the Frontline episode here: http://harveymushman.mlblogs.com/2013/0 ... 01k-abyss/

I'm a recent convert to the Boglehead way, and I'm so grateful to the guidance and insight I've received on this forum. You folks have no idea the spirit of financial independence you help to spark.
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Re: Frontline--The Retirement Gamble

Postby Mel Lindauer » Wed Apr 24, 2013 4:35 pm

StormShadow wrote:Family update!

Because of this episode, my mother has decided to transfer her investments over to Vanguard. :D :D :D


Chalk up another small victory for "the good guys"!
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Re: Frontline--The Retirement Gamble

Postby Mel Lindauer » Wed Apr 24, 2013 4:41 pm

Fallible wrote:
These execs and "pro" active management types all had deer-in-the-headlights looks, almost defenseless, defeatist, not even believing heir own words - when they could get them out. But what's surprising about this is that they didn't more adequately prepare for their interviews so they at least didn't look so unprepared. They couldn't even pretend they believed what they said. Obviously, they knew what was coming and they knew what they were going to say - had to say - and they still couldn't get it right. They must be the ones who Zweig said (with a twinkle in his eye) own index funds.


I agree that it was lousy preparation, Fallible. Even I could have defended active management better than they did. The reply I would expect from a well-prepared industry rep would go something like this: "While indexing may well outperform 70-80% of active funds, we think we're better than the competition of active managers and therefore expect to be in that 20-30% of active funds that do outperform." But then again, perhaps their performance record simply doesn't back that statement up, and that fact just might be exposed on camera if they used that line.
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Re: Frontline--The Retirement Gamble

Postby Mel Lindauer » Wed Apr 24, 2013 5:00 pm

The solution that would best serve investors would be for everyone to have access to the wonderful Thrift Savings Plan (TSP) that Federal employees and the military have access to. With even more money in the plan, it could be possible to adjust their already rock-bottom ERs and make then even lower.

I'm sure the greedy high-cost financial services industry would spend billions to defeat any such proposal, though, and they'd likely win that battle.
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Re: Frontline--The Retirement Gamble

Postby southport » Wed Apr 24, 2013 6:48 pm

After watching the rep from Prudential Retirement, I took a closer look at what I already knew: My North Carolina 401(k) and 457 plans with Prudential Retirement (the contracted third-party provider) offer a large-cap index fund (replicating the S&P 500) with an expense ratio of 0.20%.

Meanwhile, as a small retail investor, I can buy $10,000 of Vanguard's Admiral 500 Index shares for 0.05% all day long, 75% less. Does this makes sense to anyone?

Where's the model of TSP, where the expense ratio is 0.027%? Geez.
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Re: Frontline--The Retirement Gamble

Postby matjen » Wed Apr 24, 2013 6:58 pm

sschullo wrote:My companion and I and a LAUSD teacher were interviewed last fall for this broadcast. While the focus is on 401k plans, they might report some of the 403b costs too because we used 403bs in our working careers.


Nice interview Steve. You guys look super happy. Great for you. Congrats. :beer

I thought the Frontline piece was as good as could be expected. People who are critical on this board must remember that we are all personal finance junkies. I thought the Frontrline piece was pretty powerful and will reach most people who don't live and breath this stuff.
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Re: Frontline--The Retirement Gamble

Postby M1garand30064 » Wed Apr 24, 2013 8:11 pm

Did they post the video of Jack Bogle's interview? I watched the whole segment online, but I wish they'd post just the interview with Jack. It was a great piece, and I sent it to everyone I know! :sharebeer
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Re: Frontline--The Retirement Gamble

Postby M1garand30064 » Wed Apr 24, 2013 8:14 pm

DoubleDraw wrote:As others have mentioned, this piece reminded me of credit card and mortgage crisis documentaries which basically all fall under "I didn't pay attention to what I signed and now I take no responsibility for that decision". I don't understand why we, as a society, let these people of the hook or blame the businesses that set up deals to benefit their business instead of the customer. Personal responsibility, or rather the lack of it, seems to be the real underlying problem in most of these "crises".


I agree to some extent. The bigger issue that should be addressed is that even if you do know what to invest in there are a lot of situations where you would not have access to appropriate choices in the company sponsored retirement plans. With IRA accounts capped at $5500-$6500, the $17500 tax deffered space in company retirement accounts is a large block of space that is vitally important. I know several people who work for large companies, know that indexing is great, but their large companies do not offer those choices and have no desire to add them. What are they to do?
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Re: Frontline--The Retirement Gamble

Postby DoubleDraw » Wed Apr 24, 2013 8:28 pm

M1garand30064 wrote: I agree to some extent. The bigger issue that should be addressed is that even if you do know what to invest in there are a lot of situations where you would not have access to appropriate choices in the company sponsored retirement plans. With IRA accounts capped at $5500-$6500, the $17500 tax deffered space in company retirement accounts is a large block of space that is vitally important. I know several people who work for large companies, know that indexing is great, but their large companies do not offer those choices and have no desire to add them. What are they to do?


Ugh, that sucks. I would just consider their 401k investment options as a part of their total compensation package and compare that to other offers in the marketplace. If they work for a large company, their total compensation is likely very competitive, at least in my experience.

I agree 100% about offering everyone equal access to tax advantaged retirement accounts.
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Re: Frontline--The Retirement Gamble

Postby Rob54keep » Wed Apr 24, 2013 8:39 pm

I liked the program in terms of the case against expense costs associated with 401k's and actively managed mutual funds in general....Solid. However...I sense that a case is being made here that 401k's and IRA's are a failed model for investors and that the government intervention is needed. Perhaps I am overly cautious but I have seen this setup before. What's with the gal saying that 401k's and IRA's are bad but annuities are the way to go....really? Caution flags deluxe. :oops:
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Re: Frontline--The Retirement Gamble

Postby umfundi » Wed Apr 24, 2013 10:47 pm

M1garand30064 wrote:Did they post the video of Jack Bogle's interview? I watched the whole segment online, but I wish they'd post just the interview with Jack. It was a great piece, and I sent it to everyone I know! :sharebeer

Here is a transcript of the interview with Jack Bogle:

http://tinyurl.com/BogleFrontlineApr2013

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Re: Frontline--The Retirement Gamble

Postby Mrs.Feeley » Wed Apr 24, 2013 11:25 pm

Fallible wrote:
Mel Lindauer wrote:
JMacDonald wrote:
Mel Lindauer wrote:Close behind was the stuttering and "deer-in-the-headlights" look of the one guy when asked about "fiduciary responsibility" and the unbelievable statement by the Prudential lady that she'd never seen any studies that show indexing consistently outperforms.

Hi Mel,
If this was a court of law, you could claim that those executives would be guilty of "willful blindness."


Either willful blindness, outright lying, or simply being inept, since it's hard to believe that industry execs aren't keenly aware of the competition and the "mathmatical certainty" plus the numerous SPIVA reports showing that indexing outperforms 70-80% of active funds over time. Studying the competition is part of Management 101. How dumb do they think viewers are? Gimmeabreak!


These execs and "pro" active management types all had deer-in-the-headlights looks, almost defenseless, defeatist, not even believing heir own words - when they could get them out. But what's surprising about this is that they didn't more adequately prepare for their interviews so they at least didn't look so unprepared. They couldn't even pretend they believed what they said. Obviously, they knew what was coming and they knew what they were going to say - had to say - and they still couldn't get it right. They must be the ones who Zweig said (with a twinkle in his eye) own index funds.


I wondered whether the documentary producer didn't initially approach the interview subjects by telling them only that he was filming a Frontline episode on the difficulty Americans have saving for retirement. And if their p.r. depts asked for a list of questions in advance he provided only the expected vague-sounding topics like "Why do you think Americans have such a hard time saving for retirement?" And only later in the filming, after asking the pre-vetted questions, did he whip out the knuckle-ball ones on things like fund fees and fiduciaries. So you got the deer-in-the-headlights looks. But maybe not. Maybe the execs really didn't prepare for these interviews and thought they could just brazen through by spouting the usual company lines.
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Re: Frontline--The Retirement Gamble

Postby ziszew » Thu Apr 25, 2013 12:16 am

M1garand30064 wrote:<<snip>>I know several people who work for large companies, know that indexing is great, but their large companies do not offer those choices and have no desire to add them. What are they to do?


Others here have posted good success with doing the math, bringing it to their HR/Benefit people and having good success; not a guarantee, but if they can get a few people "in" on the presentation it might swing the "vote." At the very least, pointing to the Frontline episode and then asking for TSM and TBM as options can't hurt...
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Re: Frontline--The Retirement Gamble

Postby pheleven » Thu Apr 25, 2013 12:34 am

ziszew wrote:
M1garand30064 wrote:<<snip>>I know several people who work for large companies, know that indexing is great, but their large companies do not offer those choices and have no desire to add them. What are they to do?


Others here have posted good success with doing the math, bringing it to their HR/Benefit people and having good success; not a guarantee, but if they can get a few people "in" on the presentation it might swing the "vote." At the very least, pointing to the Frontline episode and then asking for TSM and TBM as options can't hurt...


I was planning on asking my company to include index TSM/TBM options prior to this, but it made it a LOT easier. I got to work this morning, chatted with a coworker and found out he too watched this Frontline... I went to HR, explained that I was interested in more investment options in our 401k, especially index funds, and the head of HR told me she was already considering pushing for more options (because her financial adviser wasn't very happy with her options). I told her about this Frontline and she watched it during her lunch break! She's asked a few of us to gauge interest from other employees, and intends to push to improve options or move to a new vendor. Success!
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Re: Frontline--The Retirement Gamble

Postby ziszew » Thu Apr 25, 2013 12:36 am

pheleven wrote:I was planning on asking my company to include index TSM/TBM options prior to this, but it made it a LOT easier. I got to work this morning, chatted with a coworker and found out he too watched this Frontline... I went to HR, explained that I was interested in more investment options in our 401k, especially index funds, and the head of HR told me she was already considering pushing for more options (because her financial adviser wasn't very happy with her options). I told her about this Frontline and she watched it during her lunch break! She's asked a few of us to gauge interest from other employees, and intends to push to improve options or move to a new vendor. Success!


Well done
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Re: Frontline--The Retirement Gamble

Postby sschullo » Thu Apr 25, 2013 7:01 am

ziszew wrote:
pheleven wrote:I was planning on asking my company to include index TSM/TBM options prior to this, but it made it a LOT easier. I got to work this morning, chatted with a coworker and found out he too watched this Frontline... I went to HR, explained that I was interested in more investment options in our 401k, especially index funds, and the head of HR told me she was already considering pushing for more options (because her financial adviser wasn't very happy with her options). I told her about this Frontline and she watched it during her lunch break! She's asked a few of us to gauge interest from other employees, and intends to push to improve options or move to a new vendor. Success!


Well done


+1
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Re: Frontline--The Retirement Gamble

Postby hoppy08520 » Thu Apr 25, 2013 7:31 am

JuanZ wrote:Just saw it. Very educational. I'm sharing it with my mother-in-law -- an Edward Jones client.

If she watches it be sure to connect the dots for her -- the prominent case study about the investor who loses 60% of their portfolio to 2% of fees would apply to clients of EJ and similar. Most EJ funds have a ~1% ER and you also pay 1% AUM. Plus sales loads. I hope this documentary wakes her up to the fact that half of her SWR of 4% is going to EJ and her nice adviser.
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Re: Frontline--The Retirement Gamble

Postby Random Musings » Thu Apr 25, 2013 9:37 am

Watched in on IPad last night. My favorite line was when the one lady stated she never saw any studies on index funds. Even if that is true (which I doubt), why would I want to do business with the company she works for if they hire ignorant people like that? That one dude he interviewed representing the financial industry looked like a deer caught in headlights.

One point that bothered me was when Jack Bogle talked about 2% fees and how many dollars end up in the sellers pockets. Although eye opening (and that is what documentaries are for), I think examples at 1% and 0.5%, which many more people do have both inside and outside retirement plans, would have shown that long-term meaningful portfolio damage is still done at those levels. I'm not arguing that there are people who do have those 401K plans with 2% fees, however, I'm sure that far more $ in 401K plans have more choices in the 0.5% to 1.25% range (plus a few index bones tossed in).

The other point that bothered me was that the problems that the "average Joe's and Jane's" they interviewed really didn't tie into the cost problem. Their problems were more about lack of savings and other behavioral issues. It's the sob story angle, but that part really didn't fit with the main point about saving for the long-term. That costs really, really matter.

RM
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Re: Frontline--The Retirement Gamble

Postby ObliviousInvestor » Thu Apr 25, 2013 10:01 am

pheleven wrote:I was planning on asking my company to include index TSM/TBM options prior to this, but it made it a LOT easier. I got to work this morning, chatted with a coworker and found out he too watched this Frontline... I went to HR, explained that I was interested in more investment options in our 401k, especially index funds, and the head of HR told me she was already considering pushing for more options (because her financial adviser wasn't very happy with her options). I told her about this Frontline and she watched it during her lunch break! She's asked a few of us to gauge interest from other employees, and intends to push to improve options or move to a new vendor. Success!

This is super neat to hear. Congratulations!
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Re: Frontline--The Retirement Gamble

Postby ObliviousInvestor » Thu Apr 25, 2013 10:28 am

Random Musings wrote:The other point that bothered me was that the problems that the "average Joe's and Jane's" they interviewed really didn't tie into the cost problem. Their problems were more about lack of savings and other behavioral issues. It's the sob story angle, but that part really didn't fit with the main point about saving for the long-term. That costs really, really matter.

I noticed that too.

It only occurred to me this morning that this is probably because the person most hurt by fees is the one who has $X00,000 in his retirement savings rather than the $Y00,000 that he'd have if he'd used less expensive funds. But because he still has a six-figure portfolio, he's not going to elicit a heck of a lot of sympathy from many viewers. So instead they use people who are way behind schedule on retirement savings, despite the fact that those people's problems were really not all that cost-related.
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Re: Frontline--The Retirement Gamble

Postby George-J » Thu Apr 25, 2013 10:32 am

George-J wrote:Very good for Frontline!

Question - near the end the voice mentions that $10 trillion has been handed over to the money managers.

Can anyone help? What is the source for this number? Does anyone here know? Over what time period? From what asset amount? Etc


In part an answer to my own question -

From Warren Buffett in 2005 -- How to Minimize Investment Returns

Near the end of the 2-page pdf -
And that’s where we are today: A record portion of the earnings that would go in their entirety to
owners – if they all just stayed in their rocking chairs – is now going to a swelling army of Helpers.
Particularly expensive is the recent pandemic of profit arrangements under which Helpers receive large
portions of the winnings when they are smart or lucky, and leave family members with all of the losses –
and large fixed fees to boot – when the Helpers are dumb or unlucky (or occasionally crooked).

A sufficient number of arrangements like this – heads, the Helper takes much of the winnings;
tails, the Gotrocks lose and pay dearly for the privilege of doing so – may make it more accurate to call the
family the Hadrocks. Today, in fact, the family’s frictional costs of all sorts may well amount to 20% of
the earnings of American business. In other words, the burden of paying Helpers may cause American
equity investors, overall, to earn only 80% or so of what they would earn if they just sat still and listened to
no one.
(with my emphasis}
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Re: Frontline--The Retirement Gamble

Postby KarlJ » Thu Apr 25, 2013 11:11 am

I watched the program with great interest. My takeaway was that the retirement situation for the Average Joe is much worse than I suspected, of crisis proportions with no clear solution for older workers that have not saved enough in their earlier years and invested in low-cost index funds. The presentation probably hit the mark of communicating the problem to ordinary people in a way they could relate to their own lives. I like to think that retirement would be possible for diligent early savers investing in index funds, but I suspect in the case of most people a pension is really needed.
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Re: Frontline--The Retirement Gamble

Postby BruceM » Thu Apr 25, 2013 11:52 am

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Re: Frontline--The Retirement Gamble

Postby M1garand30064 » Thu Apr 25, 2013 12:04 pm

BruceM wrote:Some industry rebuttals....

http://www.plansponsor.com/Documentary_ ... _Fees.aspx

BruceM


That's a very weak rebuttal IMO. They dismiss the claim that fees are the most important category for choosing funds and say that they are offering a very important service or value, but never state what that value is or what other categories are more important than what you are paying to maintain the investment.
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Re: Frontline--The Retirement Gamble

Postby Boglenaut » Thu Apr 25, 2013 12:04 pm

BruceM wrote:Some industry rebuttals....

http://www.plansponsor.com/Documentary_ ... _Fees.aspx

BruceM



It wasn't much of a rebuttal. ;)
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Re: Frontline--The Retirement Gamble

Postby newtonc » Thu Apr 25, 2013 12:04 pm

southport

I've worked for NC for awhile and know what you are talking about. I thought I was getting a "good buy" on the large cap index fund but after seeing the program and chatting online I see that I am not getting a very good deal. Also have the small cap (0.23% expense ratio) the international index (0.30%) and the fixed income with JPMorgan Chase (Yikes he did not come off very well on the program) (50%) and Bill Gross managing it (50%) and the expense ratio is 0.47%.
These are the funds I have and I guess I am stuck with these as long as I work for the state on North Carolina. However we should complain to Prudential, although I doubt it would do any good.
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Re: Frontline--The Retirement Gamble

Postby hoppy08520 » Thu Apr 25, 2013 12:17 pm

M1garand30064 wrote:
BruceM wrote:Some industry rebuttals....

http://www.plansponsor.com/Documentary_ ... _Fees.aspx

BruceM


That's a very weak rebuttal IMO. They dismiss the claim that fees are the most important category for choosing funds and say that they are offering a very important service or value, but never state what that value is or what other categories are more important than what you are paying to maintain the investment.

Yes, a pretty sorry rebuttal. I can summarize their point about the 2% fee not being an accurate portrayal: "We're bad, but not that bad. Maybe only 1.5% or so bad. But 2% ?! No, it's only 1.5%."

The rebuttal had an undercurrent of people in the industry feeling aggrieved and hurt that we aren't all so appreciative and grateful to them for the privilege of letting us serve as hosts to their parasites.

I don't think my language is incendiary. I have a significant amount of my savings held captive in a 401(k) plan where I have to pay these parasites for some value (what value?) that I don't want or need. If I could have that same money at Vanguard or the Thrifts Savings Plan I'd be saving a lot of money as the expenses in the 401(k) plan are at least 10 times what I could get independently at Vanguard, and more like 20 times what I pay for my TSP.
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Re: Frontline--The Retirement Gamble

Postby retiredbuthappy » Thu Apr 25, 2013 12:18 pm

Astounding loss of return from ERs. Who would have believed it without this show!
We were fortunate that our university employer established TIAA-CREF retirement funding for us decades ago when we were less than 30years old. Basically we were lucky that the university established the initial retirement arrangements for us and then after retirement were able to move to Vanguard. By the way, now our university also offers Vanguard for retirement investing.
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Re: Frontline--The Retirement Gamble

Postby Random Musings » Thu Apr 25, 2013 12:46 pm

In the broadcast, they stated that the average ER of a mutual fund is 1.3% (or so, I would it includes 12b-1 and the like).

First question that came to my mind Is that if this calculation is a weighted average value, or not? Here is some analysis by ICI that looks at weighted average ER's both overall and comparing index to active.

Even on a weighted average, it looks like index vs active ER spreads are around 50 basis points for bonds and 80 basis points for equities. Once again, it comes down to the argument that if one goes active, you have a chance with a low-cost active. But overall the hurdle is high to create alpha and these costs do matter significantly in the long-run. I believe this would have been a more appropriate in the analysis used for the Frontline report, but sensationalism does triumph. However, I am also not insensitive to the fact that people out there (including on this board) have very poor 401K plans.

ICI Factbook 2012

Regards,

RM
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Re: Frontline--The Retirement Gamble

Postby Fallible » Thu Apr 25, 2013 1:45 pm

Mrs.Feeley wrote:
Fallible wrote:
Mel Lindauer wrote:
JMacDonald wrote:
Mel Lindauer wrote:Close behind was the stuttering and "deer-in-the-headlights" look of the one guy when asked about "fiduciary responsibility" and the unbelievable statement by the Prudential lady that she'd never seen any studies that show indexing consistently outperforms.

Hi Mel,
If this was a court of law, you could claim that those executives would be guilty of "willful blindness."


Either willful blindness, outright lying, or simply being inept, since it's hard to believe that industry execs aren't keenly aware of the competition and the "mathmatical certainty" plus the numerous SPIVA reports showing that indexing outperforms 70-80% of active funds over time. Studying the competition is part of Management 101. How dumb do they think viewers are? Gimmeabreak!


These execs and "pro" active management types all had deer-in-the-headlights looks, almost defenseless, defeatist, not even believing heir own words - when they could get them out. But what's surprising about this is that they didn't more adequately prepare for their interviews so they at least didn't look so unprepared. They couldn't even pretend they believed what they said. Obviously, they knew what was coming and they knew what they were going to say - had to say - and they still couldn't get it right. They must be the ones who Zweig said (with a twinkle in his eye) own index funds.


I wondered whether the documentary producer didn't initially approach the interview subjects by telling them only that he was filming a Frontline episode on the difficulty Americans have saving for retirement. And if their p.r. depts asked for a list of questions in advance he provided only the expected vague-sounding topics like "Why do you think Americans have such a hard time saving for retirement?" And only later in the filming, after asking the pre-vetted questions, did he whip out the knuckle-ball ones on things like fund fees and fiduciaries. So you got the deer-in-the-headlights looks. But maybe not. Maybe the execs really didn't prepare for these interviews and thought they could just brazen through by spouting the usual company lines.


That could be right, but the issues the documentary brought up are not new to the financial industry and the "Frontline" questions could have been expected. For example, the question put to one exec about whether fees could be more clearly stated or shown for investors, is not new but her reaction was almost surreal - she laughed (and then said investors probably would not understand fees because they're "complicated" - an old industry line). I'm still baffled why almost all of the execs reacted in the same "headlights" way. It says something but I'm not certain what.
Last edited by Fallible on Thu Apr 25, 2013 3:01 pm, edited 1 time in total.
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Re: Frontline--The Retirement Gamble

Postby johnkidding » Thu Apr 25, 2013 2:50 pm

Is an advisor worth his fee if he convinces you to save 2, 3, or 4 times what you would save without him? Just a thought I had while reading the rebuttal... I'm a DIY boglehead through and through... Just mentally trying to see where an advisor could add any value for what they are charging...

...For something as important as retirement savings, you should not base your decision solely on cost either.

*edit: added quote from rebuttal that sparked this thought.
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Re: Frontline--The Retirement Gamble

Postby texasdiver » Thu Apr 25, 2013 3:53 pm

Retirement savings is the biggest single investment most people make in their lives and to the extent that they are tied to 401(k) or 403(b) plans they are captive to a specific company and have no ability to negotiate on fees.

Imagine the outrage if another major investment that people make operated the same way. Car purchases for example. How many Americans would be completely outraged if their employer was responsible for choosing which car company they could deal with (Ford, Mercedes, Hyundai etc.) and the car companies we able to set their own profit margins with no ability on the part of the consumer to bargain. Your neighbor gets the Prius at 0.5% above cost. You are stuck with the Hummer at 5% above invoice because that's what your employer decided. Sorry. You want to drive? them's the breaks.
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