by George Ray
This week I had an opportunity to be one of about 10,000 people who attended a webinar titled “Your TSP Account - What to Think About When Nearing Retirement or Considering Leaving Government” -- which is in the running for the award for the longest presentation title ever. It was presented by the SEC Office of Investor Education and Advocacy and the Federal Retirement Thrift Investment Board as part of World Investor Week. The presenters included Randy Urban for the TSP and several speakers from the Securities and Exchange Commission.
The first 45 minutes of the session provided a variety of information that’s important for employees who are using the TSP and are getting ready to retire. Mr. Urban began with offering advice to maximize your matching contributions and discussed the need to make sure that you report errors and update your personal data before separating from service. He also covered all of the various withdrawal options that are available both pre-retirement and post-retirement. Required Minimum Distributions (RMDs) were particularly of interest to many in the live audience who attended at the SEC’s headquarters.
I’m very familiar with the rules around distributions (an entire module in my e-learning course covers post-retirement TSP distributions), and Randy did a fine job. He had the challenge of talking about one aspect of the TSP (i.e., turning your savings into income after retirement) without the advantage of getting all of the attendees on the same page first. Varying levels of knowledge and understanding about the Thrift Savings Plan and how it works by those attending became clear as he later answered questions from the audience.
I have to admit that I was much more interested in the second portion of the webinar and what the SEC had to say. Their presentation focused on the impact of fees, red flags to avoid fraud, and provided tips on using the SEC’s resources.
The SEC’s Alan Sorcher began by telling us that “All investments have fees. And they matter”. He listed commissions, fund loads, fund expenses, and surrender charges as a few of the potential fees that can impact the return on your investments. Of course, the TSP has very low expenses (about $.38 per $1,000 invested on average) so he emphasized that if you move your TSP savings to an outside investment or account make sure to ask lots of questions about expenses and do your research. Naturally, he showed an illustration of the growth of $100,000 over 20 years with expenses at 1%, .5%, and .25%. The problem that I have with these types of examples is that they lead investors to look myopically for the manager or fund that is the least expensive. Is the least expensive the best? It may be, but not necessarily. Maybe an adviser or fund is able to charge more because they do a better job, but the challenge is how does the typical TSP retiree determine that? As Mr. Sorcher suggests, you’ve got some research to do.
The red flags to watch for include ‘if it sounds too good to be true, it probably is’. The pitch that goes ‘let me show you how to consistently get above-market returns month after month with little to no risk’ should immediately raise a red flag. Also, if you're receiving pressure from the ‘adviser’ to make a decision immediately as in ‘this offer is only good today because these things are going fast’ you should walk away. And finally, a lack of documentation should also cause you to proceed cautiously. Legitimate investments usually have a prospectus or offering memorandum that provides details about the fund or product and offers lots of information about the potential risks.
One other area of fraud that the SEC frequently sees includes ‘affinity fraud’. This happens when someone you don’t know says that they are affiliated with a group that you do know. For example, maybe someone in your church or club is working with members of your group (or claims to be) and is using this affiliation to get you to trust them. A variation of this includes someone that you do know and trust who may not realize that he is also being scammed when recommending to you that you get in on the deal. Another form of affinity fraud includes gaining a reputation by claiming that someone who is respected or has authority approves your product or service. The SEC recently brought suit against a firm claiming that their program for Federal employees was approved by the Federal government. (Use this link to scroll down to this story previously covered in Weekend Reading on Your Federal Benefits for more.) Both the SEC and the TSP’s Randy Urban emphasized that government agencies don’t approve any company’s investment programs. By the way, Randy also said that they don't approve TSP apps for your phone, which seems to be a growing trend.
The session closed with some valuable resources that you can access to help you. Start by typing in the adviser's name at the SEC’s investor.gov website. (This assumes that the person is licensed, and is actually an adviser. Unfortunately, many scamsters are not. If your guy/gal doesn’t show up, then the first question to ask them would be ‘why aren't you licensed or registered?’). Tom Manganello of the SEC showed an example of this information by looking at the record for Jordan Belfort, the Wolf of Wall Street (played by Leonardo DiCaprio in the film of the same name). As you can imagine, Mr. Belfort’s record indicates that he has been forever barred from selling securities.
Next, after checking out the person, check the investment recommendation, at least to see if the investment really exists. Use the SEC’s EDGAR database to get information on companies, mutual funds, variable annuity products, and more. After checking on the adviser and the investment, you’ll still need to ask lots of questions and do more research to determine the merits of the investment and whether it fits your personal needs.
If you decide to withdraw your funds from the TSP, there are many opportunities to consolidate your retirement funds, diversify your investments, and potentially enhance your returns. And, if you ask questions and do your research, there are many capable and caring advisers who can help you if you desire. Keeping your Thrift Savings Plan money safe after you retire or when you leave Federal service isn’t easy, but the folks at the SEC and the TSP have lots of useful information to help you make better choices. Let's be careful out there.
(If you're interested in watching it, a recording of the webinar will be available from October 4 - 19th, 2017 by going to this link. The webinar can be found in the archive, and the slides can be downloaded as a PDF.)