California Teachers Association - Role play slides


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  • As a busy educator, you may not have a lot of time to investigate all of the investment options available in your 403(b) or 457 plan. A predatory agent may take advantage of that. Here are a few things to be aware of and how to resist.
  • Well, you should consider that, as a California educator, you already have a guaranteed retirement income – your CalSTRS or CalPERS pension, which is essentially an annuity – a guarantee of income for life. So, if you want to increase your retirement income, you may want to consider investing at least a part of your 403(b) or 457 money in stocks, which have historically provided the greatest potential for return over time, although past performance is not a guarantee of future results Also keep in mind:A guaranteed annuity is only as good as the strength and stability of the insurance company that issues the annuity. Annuities are not guaranteed or insured by the federal government . The state insurance agency may offer a guarantee program for failed insurance companies, but only up to certain limits.A fixed annuity may offer a guarantee, but generally the amount your annuity can earn is quite low – usually lower than the prevailing rate of inflation. That means even if you don’t lose any principal, after 20 years your investment could be worth less than the amount invested.A variable annuity’s return is not guaranteed – it is based on the performance of the underlying investments.
  • In many cases, tax deferral is a good thing, because it means you’ll pay taxes later rather than now. But take a step back – your 403(b) or 457 plan is already tax-deferred. No matter what contributions you make or what investments you choose, you won’t pay taxes on the money until you start taking it out. So you aren’t getting any more tax benefit by putting a tax-deferred investment into a tax-deferred retirement plan – and you’ll probably pay more fees for the privilege of getting no extra benefit.
  • If you do decide to invest in an annuity after exploring all of the fees, the surrender fees and the potential return, then your agent may try to sell you on some bonus features. These may include things like a bonus rate, extra mortality coverage, a guarantee on your variable annuity, etc. These are almost always a bad idea. Here’s why:Bonus rate – you may pay extra for this, and it will probably increase the length of surrender fees.Guaranteed withdrawal benefit – this could cost you as much as an extra 1% per year.Death benefit riders – cost you more. Why not purchase an inexpensive term life insurance policy instead?
  • Yes, the stock market did have a challenging decade, there’s no doubt about that. However, historically, over time, stocks have outperformed other types of investments. Think about it this way – you already have a guaranteed pension benefit. Why not try to optimize your voluntary savings as much as you can? By choosing an appropriate asset allocation – that is the split among stocks, bonds and cash – you may help manage the risk in your portfolio but still pursue growth.
  • Yes, your agent is correct. There is no free lunch in the investment world.
  • And your response to this should be … so? What works for your co-worker is not necessarily what works for you. Remember the brother-in-law analogy. Not all of your colleagues have the same financial goals you do, the same risk tolerance, nor will they necessarily retire in the same number of years.
  • The ultimate pressure – if you don't act now, you'll miss out. No, you won’t. Whatever you do, don’t succumb to sales pressure. If a person is pressuring you to buy something, that should always be a red flag. If it is a good investment, appropriate for your goals and timeline and risk tolerance, it will still be a good investment tomorrow or a week from today – and you will have time to think it over, read the paperwork that should be offered and decide whether it makes sense for you.Resisting sales pressure isn’t always easy, especially if the person projects an aura of authority or starts making you feel foolish for not seeing the “tremendous benefits of this investment.”
  • Don't work with someone who refuses to take the time to explain all your options and/or who makes you feel uncomfortable. A good advisor wants you to know what you are buying. The National Association of Personal Financial Advisors lists fee-only financial planners.Second, if you feel uncomfortable asking the right questions, take advantage of the CTA-developed booklet “Selecting a Financial Advisor & Understanding Plan Fees,” available at There are sheets in the back with lists of questions, and you can ask the advisor to fill out the information about the different investments he or she is recommending.So … don’t be sold! Be informed.
  • Of course, if you feel confident and comfortable selecting from the investment options available in your plan, you can certainly choose your own. Here are some resources that can help you.Note that resources on the web, such as Financial Engines, provide unbiased advice based on the information you provide – they are not selling anything. A financial engine would not recommend a fixed annuity unless you’re a very conservative investor just a few years away from retirement. And even then, it might recommend a fixed annuity for just a portion of your money, because when you put all your money in one basket, you’re not adequately diversified. Financial engines and other resources on the web have no reason to recommend an investment based on anything other than what’s best for you.
  • Here’s one more thing to think about when you are ready to retire. You suddenly become a very attractive target for financial institutions that want to invest your retirement plan money for you (and reap large fees in the bargain). So keep in mind, if you start receiving solicitations from banks, credit unions, brokerage houses, insurance companies or others who want you to invest your retirement plan distribution with them, the same cautions apply as when you are accumulating your money.
  • California Teachers Association - Role play slides

    1. 1. RESISTING Sales Pressure<br />Don't take anything for granted.<br />Don't be pushed around.<br />Ask the right questions.<br />Don't make rash decisions.<br />Don't be sold – be informed!<br /><br />CTA Risk Management & Business Initiatives & Development Department<br />1<br />
    2. 2. Let’s ROLE PLAY<br /><br />CTA Risk Management & Business Initiatives & Development Department<br />2<br />
    3. 3. Sales Pitch #1<br />This investment is guaranteed. Do you really want to take a chance with your retirement money?<br />But don’t I already have a guaranteed retirement benefit through my pension?<br />Don’t guaranteed investments generally have low returns?<br />Aren’t annuity guarantees dependent on the strength of the insurance company?<br /><br />CTA Risk Management & Business Initiatives & Development Department<br />3<br />
    4. 4. Sales Pitch #2<br />Annuities are tax-deferred, which means you won’t pay taxes on the appreciation until you start taking your money out at retirement.<br />But aren’t 403(b) and 457 plans already tax-deferred?<br />Do I receive an additional benefit by putting a tax-deferred investment into a tax-deferred account?<br /><br />CTA Risk Management & Business Initiatives & Development Department<br />4<br />
    5. 5. Sales Pitch #3<br />You’ll want to take advantage of all these extra annuity features.<br />Guaranteed withdrawal benefits.<br />Bonus rates.<br />Death benefit riders.<br />But these cost extra, right? Why do I need a death benefit rider when I already have life insurance?<br /><br />CTA Risk Management & Business Initiatives & Development Department<br />5<br />
    6. 6. Sales Pitch #4<br />Why put money into mutual funds? The stock market had a bad decade.<br />Yes, but historically, over the long term, stocks have outperformed other investments, right?*<br />Don’t mutual funds generally offer some level of diversification, which can help me manage market cycles?<br />* Source: Ibbotson<br /><br />CTA Risk Management & Business Initiatives & Development Department<br />6<br />
    7. 7. Sales Pitch #5<br />All investment have fees, and don’t worry, this product has low fees. <br />Don’t fees have a significant impact on the amount of money I will have in retirement?<br />Please provide a comparison of the fees in this plan with other competitors<br />What income do you receive if I buy this product?<br /><br />CTA Risk Management & Business Initiatives & Development Department<br />7<br />
    8. 8. Sales Pitch #6<br />Several of your colleagues have already decided this is a good investment.<br />Are you saying that I have the same risk tolerance, goals and needs as my colleague?<br /><br />CTA Risk Management & Business Initiatives & Development Department<br />8<br />
    9. 9. Sales Pitch #7<br />You need to decide today.<br />I have some questions for you first, can you please complete pages 16-18 of the CTA consumer guide on advisor fees?<br /><br />CTA Risk Management & Business Initiatives & Development Department<br />9<br />
    10. 10. Sales Pitch #8<br />I’m a licensed insurance agent and I also have my FINRA license. I am very qualified to help you with your 403(b) plan.<br />Can you put your recommendations in writing to me, disclose your compensation and all fees in this plan? <br />Are you acting in a fiduciary capacity?  <br />Oh, no, not the fiduciary request!<br /><br />CTA Risk Management & Business Initiatives & Development Department<br />10<br />
    11. 11. Where Can I Find a FEE-ONLY Financial Planner?<br />National Association of Personal Financial Advisors at <br />Note: Members of NAPFA are required by the organization to sign a fiduciary oath.<br /><br />CTA Risk Management & Business Initiatives & Development Department<br />11<br />
    12. 12. SUMMARY and Next Steps for You<br />Check out your broker on FINRA BrokerCheck,<br />Learn how to check out investment advisors at<br />Check the SEC’s Investment Adviser Search at<br />Read the CTA consumer guide on fees<br />Revisit your plan with your advisor<br /><br />CTA Risk Management & Business Initiatives & Development Department<br />12<br />
    13. 13. Consider a DIRECT INVEST VENDOR<br />Consider using a direct investment option. No sales force – you work with a registered investment advisor over the phone<br />Many companies offer online financial tools, professional management and online advice. The company representative is paid a salary – not on commission or tied to any plan<br />Generally lower fees<br />Financial engines/tools are objective, unbiased modeling tools.<br />Financial Engines at – a personalized, objective retirement plan developed by a Nobel-prize winning economist<br />Ask: Did your “advisor” use a financial model to recommend your investment options?<br />Web site not affiliated with CTA and is provided for information only. No endorsement is implied.<br /><br />CTA Risk Management & Business Initiatives & Development Department<br />13<br />
    14. 14. About to Retire? Don’t be a TARGET!<br />Financial services companies targeting baby boomers’ assets<br />Increased marketing for IRA rollovers from retirement plans<br />Television, print ads, etc.<br />Direct mail<br />“Free” educational seminars<br />Bombarding marketplace with “innovative” (new) options<br /><br />CTA Risk Management & Business Initiatives & Development Department<br />14<br />
    15. 15. Disclaimer<br /><ul><li>This presentation is designed to provide general information in regard to the subject matter covered. It is neither an offer to sell, nor a recommendation for you to purchase, any investment security or annuity contract. It is provided with the understanding that the California Teachers Association (CTA) is not engaged in rendering legal, tax, accounting, investment advice, or other professional financial services to the viewer. CTA does not guarantee the accuracy of the information contained herein.
    16. 16. We strongly recommend that any person using the information provided in this presentation seek counsel from his/her own professional financial advisors to determine its applicability to his/her own personal situation.</li></ul>© 2011 California Teachers Association<br /><br />CTA Risk Management & Business Initiatives & Development Department<br />15<br />