The Derivative Project

New York Times’ Article on 403B Plans: Sponsored Advertising for “Wealth Management Firms”?

New York Times’ Article on 403B Plans: Sponsored Advertising for “Wealth Management Firms”?

New York Times’ Article on 403B Plans: Sponsored Advertising for “Wealth Management Firms”?

Tara Siegel Bernard, personal finance reporter for the New York Times, wrote on October 21, 2016, “Think your Retirement Plan is Bad?  Talk to a Teacher.”  403(b) plans traditionally used for non-profits and schools, not only may not be covered by ERISA, but have traditionally pushed annuities that carry high fees and redundant mortality and expense ratios, another hidden fee earner for the insurance industry.

Recent class action lawsuits have raised awareness of these issues in 403b plans. Unfortunately, that has been the only avenue to effect changes in the defined contribution market that has taken excessive fees and promoted poorly performing mutual funds, since their inception.

An understanding on the difference between 403b and 401k plans, and appropriate regulatory/legal action to correct deficiencies in defined contribution plans, is long overdue.

However, Ms. Bernard’s article focused principally on the intermediaries that plan participants are introduced to as “advisers’ in these Plans, who often sell product that is not in the best interest of the participant, particularly high commission annuities, that also carry redundant mortality and expense ratios, a gravy train for the insurance industry.

403(b) plans have traditionally held more annuities, carrying redundant mortality and expense ratios and excessive commissions for their sales force.  This issue needs to be addressed by the Plan Sponsors, from non-profits to Universities to school districts and the courts, if action is not taken by the Plan sponsors to provide products and education in the best interest of their employees.

However, media, such as The New York Times, raising awareness of the issue, by further promoting redundant, costly intermediaries, as a solution, without full disclosure and facts, is simply sponsored advertising, at the request of these intermediaries.   Social media comments (printed at the end of this article) seem to imply the New York Times’ Ron Lieber was approached by several so-called 403b advocates, (or he initiated?) who also peddle investment products for fees ranging from .70% to 1.50% to smaller teacher retirement savings balances, within or outside a 403b.

Ms. Bernard effectively endorsed a “financial planner”, Scott Dauenhauer, in her article, further confusing the reader.  Did Ms. Bernard misrepresent the role of this “financial planner”, SEC registered investment advisor’s “investment advisory services” as disclosed at the SEC?  Did this SEC registered investment advisor, misrepresent the nature of his services, reported to the SEC, to The New York Times?

Mr. Dauenhauer’s SEC disclosure states this “financial planner” doesn’t have many financial planning clients -from “1 to 10″.  Ms. Bernard did not clearly disclose the intermediary’s main activity was “investment advisory” as disclosed at the SEC, where he has 355 investment advisory accounts.

From Ms. Bernard’s article:

“It’s a wealth transfer from those who don’t know any better — Main Street — to those who do: Wall Street,” said Scott Dauenhauer, a financial planner who works with public schoolteachers and as a consultant to school plans. “What makes me the most angry is that public school employees are not protected the same as their private sector counterparts.”

Ms. Bernard failed to disclose that Mr. Dauenhauer is a former sales assistant to a (Morgan Stanley broker) turned SEC registered investment advisor and sole employee of his firm Meridian Wealth Management, whose principal services are “investment advisory” accounts, as disclosed at the SEC.  Mr. Dauenhauer is an intermediary that packages together investment products for teachers for an annual fee, beginning at .70% of assets under management.  Mr. Dauenhauer wrote of his business his website with Dan Otter, 4o3bwise

“School employees became my niche market but I still took on other clients. I had also become a fee-only planner, which meant I took compensation only directly from my clients, not from product providers. At first I offered my services purely on an hourly basis, but I couldn’t live on what that generated and began also managing money for a retainer, usually based on assets. I joined NAPFA (National Association of Personal Financial Advisors), became a NAPFA Registered Advisor and this exposure also helped me gain new clients, but it was still a rough first three years.”

A SEC registered investment advisor files a regular description of their service at the Securities and Exchange Commission (SEC).  Mr. Dauenhauer, although described in Ms. Bernard’s article as a “financial planner”, disclosed at the SEC his main business is not financial planning, since he has only “1 to 10 planning clients”.  However, he represents on his website that “financial planning is the cornerstone of any good financial relationship.”

Mr. Dauenhauer’s main business is “investment advisory” where he disclosed to the SEC, March 2016,  that he had 26-100 advisory clients in 355 accounts for total assets under management of $ 47,687,038.  He charges on the first $300,000 a fee of .70%.  25% of his clients are “state or municipal government entities.”

Concerns with Intermediaries in 401k and 403(b) Plans, under the Guise of “Educators”, Charging AUM Fees, as Brokers turn SEC Registered Investment Advisors Under new DOL Fiduciary Rule

It is  concerning that thousands of “advisors” with no training in investment selection and investment management are charging assets under management fees (AUM), in addition to the mutual fund/ETF’s AUM fee.   For an “advocate” that is representing to a school teacher, just beginning on a salary of $35,000, he is an “educator” and an “advocate” to  take another annual fee of  .70% or 1.50% of their savings, with no disclosure on what the fee will deliver, is unconscionable, when there are other more cost effective alternatives for this teacher.

For example, if one goes to Mr. Dauenhauer’s website, meridian, there is absolutely no data on why a school teacher would give up an additional .70% annually of every dollar saved for retirement to Mr. Dauenhauer who is the sole employee of Meridian Wealth Management.

403bwise advisors’ fees may be less than those sold by reps for insurance companies, in annuities for example, but they are still excessive, provide no transparency and the school teacher has no idea what he/she is getting for this very high annual fee.  At Meridian Wealth Management website there is no analytical data for a consumer to make an informed choice as to whether or not this fee is in their best interest:

  • No audited performance
  • No past performance
  • No portfolio turnover data,
  • No written investment objective
  • No holdings
  • No indication of blend of passive or active

In sum, how can a school teacher evaluate whether this fee adds value or if the “advisor” is any good at selecting mutual funds and ETFs, without actual data.  After the assets under management fee, the school teacher could be far worse off.  He or she has no publicly available, audited, analytical data to evaluate the value of the annual fee and whether or not it is in their best interest.

After the Great Depression, Congress established the Investment Advisers Act of 1940, to establish a dichotomy between salesperson and “investment adviser” professional. Traditionally SEC registered investment advisers (RIA’s) were associated with a SEC registered investment company (mutual fund) and filed with the SEC regular audited performance, portfolio turnover statistics, investment objective and other analytical measures.

It appears with the advent of 401k and 403b plans, Wall Street has eroded that dichotomy to create an additional, redundant source of revenues, that benefits them, but not the consumer. The consumer no longer is protected and has no proper, analytical information in the workplace to evaluate these “intermediary services” after all fees, as Congress mandated after the Great Depression, providing a demarcation between “sales” and “professional, experienced investment management.”

It appears the sources of Ms. Bernard’s research were several advisors marketing their investment product sales services to teachers under the guise of 403b education, garnered from Tweets by the New York Times Money editor Ron Lieber and the tweets of a group of “financial intermediaries” who have a business of selling “advice” to teachers and 403(b) plans for hefty annual assets under management fee, with no disclosures and data for the consumer to ascertain its actual value.

Dan Otter: @Teachretirerich is Scott Dauenhauer’s partner as disclosed at the 403bwise website that promotes and encourages the use of  “advisors” in the workplace for 403b plans.  Dan Otter hosts the website that promotes Mr. Dauenhauer’s blogs and “advice” services.




Further, it should be disclosed that Ritholtz Wealth Management, as financial intermediary, also is targeting teachers with Ritholtz’s intermediary “advice” services, with fees beginning at 1.50% annual assets under management.  The Ritholtz 403b “educator”  joined in Tweeting negative, dismissive comments concerning a Tweet raised by an educational entity that had concerns with lack of full disclosure by a “fiduciary” as to services offered and represented in the Bernard 403b article.  Tony Isola (@aTeachMoment) is employed by Ritholz Wealth Management, as “Educator/403b Division..”   Ritholtz also promotes “financial planning” on their website, but has not one “financial planning” client, as disclosed in their ADV at the SEC:



Charging a teacher on an hourly basis for bona-fide planning, budget, saving and investment selection, at $300/hour (Mr. Dauenhauer’s hourly fee) is, incidentally, well above an hourly fee charged by a CPA, but far more cost-effective for the teacher than an excessive annual assets under management fee of .70%.

Mr. Dauenhauer stated he could not make enough money through hourly fees, so he went to an AUM fee/”retainer”.

Should a “fiduciary” intermediary, with no professional experience in investment selection, also charge another assets under management fee, with no audited performance or defined analytical data for the consumer to make an informed choice?

Unbundle the pricing.  Charge an hourly fee for financial planning, that these firms represent they provide.  Assist the teacher in preparing a plan and learning how to find the most professional money manager, passive or active, that files audited returns with the SEC for an hourly fee. Neither Meridian Wealth Management nor Ritholtz Wealth Management file audited performance figures with the SEC, leaving every school teacher in the dark as to the value of their services.  If the revenues are not great enough from this service, change careers or create a SEC Registered Company (mutual fund) that files audited returns and showcases your investment selection expertise.

There is a reason why Congress created the Investment Advisers Act of 1940 and the Investment Company Act of 1940. With trillions of dollars in retirement assets, it is time to restore the dichotomy between a salesmen and a professional registered investment adviser.