Within the Iowa City area there are several financial
institutions that are used by many of us, such as the Green State Credit Union
(GSCU, formally the University of Iowa Credit Union or UICCU) and TIAA
(Teachers Insurance and Annuity), and IPERS (Iowa Public Employees Retirement
System). UI employees can choose between TIAA or IPERS
to manage their retirement plan. These
organizations have many positive aspects, but one can easily make incorrect
assumptions about them. For example, GSCU is listed as a non-profit which may
lead people to believe that they have your best interest in mind. TIAA by being affiliated with the UI, may
lead one to believe that everything they do is in your best interest as well. Unfortunately, this is not always the case.
Let’s start with GSCU and look at some of their
practices. One of their current pushes
in advertising is targeted at TIAA account holders with the UI. They are “informing” TIAA customers that they
can help manage those accounts through their Wealth Management division. I have received several emails and direct
mail pieces regarding this “service”. After
replying to one of these emails inquiring about what the GSCU will do for me
and how much they will charge for this. I received a detailed response:
As a UICCU member, our team works to coordinate the
comprehensive financial planning for you and your family. We operate on
an independent financial platform through Commonwealth Financial, allowing us
to offer and select from non-proprietary investment options and use independent
research in creating suitable portfolios. The Investment Allocation
process within our team involves quantitative and qualitative screening through
multiple resources, including our FI360 Fiduciary software, and ongoing
management allows us to monitor holdings and performance on a daily
basis. Consultation with our team is free and would be a great first step
to learning more about the services and unique capabilities. Should you
elect to hire our team to directly manage your portfolio and provide
comprehensive wealth management services, our fee is typically 1% of the
account value, annually, and is all inclusive.
I was unclear of what exactly they would do for me other
than charge me 1% of my total assets annually, which is expensive and in my opinion
excessive and unnecessary. For example, if
you saved $500 per month for 30 years, the 1% fee (difference between a market return
of 10% and 9%) would cost you $180,369.36.
If they recommended funds that charge higher expenses, the costs would
be even more. If they recommended a fund where there is 1% fund fee (which
isn’t uncommon), the total costs to you would be $327,153.75 out of your
retirement funds. It works the same way
if you have an existing retirement account and are close to retirement. Your returns will be substantially diminished
over the 20, 30, 40 years of your retirement.
Finally, once you start annual withdrawals from your retirement funds,
(which typically can be 4% of your funds) GSCU would be getting the equivalent
of 25% of your income.
The reply above also stated they are with Commonwealth Financial. After reading through their website, I found
out Commonwealth Financial is a service for financial advisors which provides
the FI360 software that is listed above.
It gave me pause when I saw an advertisement on the website saying they
have the highest gross revenue for advisors within their industry. This may make the advisor wealthy, but it won’t
help your accounts. It has been proven
over and over in multiple academic studies that the higher fees that you pay
the lower your return will be.
Within the GSCU
response was also the word fiduciary with the software. A fiduciary is an advisor who is required by
government regulations to put your interests first. The website said that they don’t require their
advisors to meet sales quotas or recommend propriety investments. These are good things, but nowhere did I see
the word fiduciary as to how they operate as a company or advisor. GSCU mentions a quantitative and qualitative
screening regarding asset allocation along with monitoring accounts daily. Frankly, this is just overcomplicated
financial jargon. The truth proven over
and over in academic studies is that you can invest with as few as two index
funds at a much lower cost and get superior returns.
The response also
mentioned daily monitoring of the accounts; this is the last thing a person
should do! Does this mean they would be trading
the assets around in my account based on their expertise and market values? Once again studies show it doesn’t work and
it is unnecessary. Many respected
academics say you should rebalance your accounts maybe once a year at
most. In other words, once you figure
out what you want for your low-cost index fund investments and asset allocation,
set it and forget it. Trading your funds
more often simply costs more and returns less.
started promoting their Green Account which is a money market fund with a competitive
rate compared to other local financial institutions. Unfortunately, this is offered to only new
clients and not offered to existing clients I found this very disappointing
that existing loyal customers don’t receive the same rates as new
customers. I have found there are better
options available, such as Vanguard.
They offer a Prime Money Market account with no minimums and at a
consistently higher interest rate. No
games or gimmicks, just ongoing competitive rates. If you decide to go that route, it is easy to
set up online transfers between Vanguard and your local bank or credit union.
GSCU has also sent
out direct mail advertising for home equity loans that they suggest could be
used for many things including vacations.
Is this wise to suggest financing a vacation? In my opinion this is irresponsible and bad
advice. I have received blank checks in the past from GSCU that could be used
for cash against our credit card. Again,
this is financially irresponsible to encourage borrowing money. GSCU has also promoted home loans with no down
payment; does anyone remember the housing crisis of 2008? The housing market collapse was in part due
to overborrowing beyond ones means and financial institutions were glad to
provide such loans with creative financing.
They allowed loans of 80% of the house price on a first mortgage and
then loaned the required down payment of 20% on a second mortgage. This “helps” their customer put nothing down
and avoid Private Mortgage Insurance which is required when you put less than
20% down. Is it financially responsible
to provide people an option to buy a home they can’t afford? Truth be told, being
a “non-profit” doesn’t necessarily mean an institution has your best interest
or values in mind.
TIAA is a large national financial institution that was created to help teachers fund their retirement over a century ago. They branched out to work with more academic institutions and today are available to any retail customer that wishes to invest with them. TIAA is consistently ranked highly for their services nationally. They have many fine attributes but like the GSCU, there are some things you should be aware of.
The University of
Iowa retirement plan is unique to UI although ISU and Northern Iowa are
similar. This means you are offered a
certain group of funds to invest in that are unique to your plan and there are
some good mutual fund options to choose from.
TIAA offers index funds at a low cost that is competitive with the best
prices available and started to offer funds from Vanguard which are even lower
cost. One can build a well-diversified
account at a low cost very easily.
TIAA has a local
office where you can meet with an advisor at no additional cost for information
and assistance. My wife works for the UI
and we have used this service several times over the years. Our advisor has provided us with information
that was very helpful and helped increase our investment returns. As with any financial services company, you should
keep in mind that the bottom line for TIAA is what they are ultimately
concerned about. Many years ago, our
advisor informed us that there were index funds we were invested in that were
available at a lower cost. They were the
same funds we owned but we were being charged a higher fee. We were happy to find this out, but why
didn’t TIAA notify the UI that this was available and why didn’t the UI notify
their plan participants? This program
still exists today in another form. If
your advisor convinced you to invest your money from outside the UI plan you
would be considered a retail investor. A
retail investor pays 7 times more for a Total Stock Market Index Fund than a UI
plan participant. Obviously, this is not
a good choice.
representatives are thinking of TIAA first, they are not going to go out of
their way to recommend other investments options. Their job is to increase your investment
holdings with TIAA and to make sure TIAA continues their contract with the
UI. They offer seminars once or twice a
year that can be very informative along with a question and answer
session. I would recommend attending to
learn more about their services and accounts, keeping in mind that what they do
is also self-serving. One seminar on
annuities was quite good on explaining how they work and if one may be right
for you. They do offer an immediate
annuity that may be right for some people.
This was educational because most annuities are overpriced and should be
avoided. Another seminar I attended was
not so good, as it seemed like more of advertising pitch on their investing
prowess. They spoke of the almond farms
they own and other alternative investments.
Every study I have read states to keep your investing simple and
diversified. Almond farms seem very
curious to me.
TIAA will be glad to
set up an asset allocation for you based on your risk assessment with a
software program. This will put your
account into multiple different funds in widely diversified asset classes. Sounds good on the surface but when you look
at the expense fees of the funds, they can be quite expensive compared to index
funds, which results in lower returns while unnecessarily adding
complexity. What may be easier is if you
look at one of their Target Date Funds.
Target Date Funds are retirement accounts that are set up to be
automated for you and adjust risk as you age.
TIAA’s Target Date Funds are made up of less than five index funds with
a total expense of .10%. This is a good
deal and the diversification looks excellent.
So why do the advisors put people in more complex portfolios? It would lead me to ask how are they
One other aspect that people may not be aware of is the
ability to leave TIAA after you retire.
This is an option that the advisor may not mention. I don’t advocate leaving TIAA as they offer
many good options and most other financial services will probably be worse, many
far worse. There may be some better
options such as Vanguard, but unless you thoroughly understand your investing,
I would be careful.
Overall, TIAA advisors have given me worthwhile advice; just
make sure you understand what they are telling you, not just accept it as your
I mentioned IPERS as part of a retirement plan that is
offered to many state employees. There
has been much publicity about it in the news within the past several years
regarding being underfunded. This is not
uncommon nationally as many states are experiencing the same problems. This is another reason to take charge of your
personal finances and investing. Whether
it is a private financial services company, or a government institution low
returns and mismanagement is prevalent. Understanding
your personal finances should not be left to someone else.
There are so many companies out there trying to get a chunk
of your money. David Solomon, CEO of
Goldman Sachs, did an interview on CNBC in early 2019 and referred to index
funds as a product. They are, but that
is what you must understand when dealing with your money. They are all selling you something. These companies will market to you by your
net worth or estimated net worth. They
even have names like middle class affluent, to categorize you by net worth and
income. Your individual account is just
part of what they call Assets Under Management (AUM) and the more accounts they
add the larger the AUM becomes and the more money they make. Fisher Investments runs a commercial stating
they want to help you if you have $500,000.00 worth of investable assets. They use the phrase -ready to “graduate” to
the next level of investing. By using
the word graduate, there is an implication that your investing is elementary,
and they know things only sophisticated investors know. Two additional things to notice: they don’t
want anybody below $500,000.00 (it’s not worth their time) and they don’t want
you to include your house in your net worth.
They can’t extract fees from your house.
They may be a respectable financial advisory firm but, in the end, they
want your money to extract fees. Bottomline is it is just business to them, and
you are just a number, which is the same with all financial companies- even
Within my website you will find detailed information and
resources to answer many questions.
Start today to take control of your finances. It’s too important to be neglected or left
entirely to someone else. If questions-
please feel free to contact me; I will do my best to answer them or point you
to someone who can.