I have always had a great respect for educators and how they impact our society. Both my mother and aunt were teachers. I recall as a child how my mother spent countless hours working to get her Masters degree to stay certified while raising three kids. And now, my wife, Abbey, is a teacher. I see the commitment my wife has preparing lesson plans and grading papers late at night. She also reaches out to parents whose children need extra attention. More importantly, I see the positive impacts they all have had on the lives of the young children they taught.
The time and commitment they put into their profession is simply amazing. When considering the pay and benefits they get for their efforts, it truly shows what kind of people they are. Now to be sure, depending on the state and school district, educators can certainly make a decent living. However, no one ever went into teaching thinking, “I’m going to get rich!” And for those that say they wish they had long holiday vacations and summers off, I can assure you the amount of work a teacher puts in over the course of a school year (and sometimes summer) is on par with any profession out there.
What has been interesting to me while working with educators as a financial planner, is how little my industry has done to help this particular group with their finances. We do all we can to market ourselves to higher paying professions such as doctors, lawyers, business owners etc. However, you do not see many financial planners establishing a niche with teachers. I’ll share a few reasons why:
- Teachers are very busy during their careers, typically raising a family, coaching, doing after school activities etc., thus they are hard to meet with during traditional working hours.
- While they can make a favorable salary over time, they typically do not have a lot of discretionary cash to invest.
- Most of their wealth is typically tied up in their home and defined benefit pension plan.
- Even at retirement, unless they contributed to a 403(b) or 457 plan, there are no rollover opportunities, thus no revenue to the advisor under the traditional pricing methods.
There are certainly other reasons why educators are not better served by financial advisors, but essentially it comes down to the fact that under the traditional approach to pricing financial services (assets under management, or AUM*), there is not much of an opportunity for the advisor to make money. The result of this is that most educators have never worked with a true independent financial advisor acting as a fiduciary. What they do have experience with is being forced to sit down with salespeople selling products (annuities, insurance products etc.). I know this because every year my wife comes home with the list of “products” she can “invest” in through the school vendor benefits program. These range from 403(b) plans, to life insurance, to disability plans.
As a CERTIFIED FINANCIAL PLANNER™ practitioner, I am a firm believer in having the proper amount of insurance and saving for retirement. However, when a teacher is faced with all of the questions that go along with planning for the future, I do not think a 20-minute meeting with a salesperson is the best way to find those answers. In many cases, they end up with incredibly expensive annuity and insurance products that they do not need.
The most frustrating part of all is that educators truly have some unique planning opportunities. Their deferral opportunities through the STRS pension plan, 403(b) and 457 plans are incredible. Coordinating these plans with Social Security benefits (after accounting for any pension offsets) and spousal retirement plans can put a teacher in a great financial position if planned for correctly. Some of our most financially secure clients have utilized these options to set themselves up for life. Unfortunately, many go through their careers without knowing what is available to them, or worse yet, tried to save but ended up in expensive products sold to them.
How would this change if financial advisors charged clients based on the complexity of their situation instead of how much they had to invest? How would the advice being delivered to these educators change if they met with a financial advisor acting as a fiduciary, required by law to act in the best interests of the client, instead of a meeting with a salesperson? My guess is that the outcomes would be much different and more educators would be in a financially sound position. Fortunately, there are financial planning firms that act in this capacity. I am fortunate enough to work at one of these firms in PDS Planning. My colleagues and I strive every day to deliver advice that we would (and do) give to our own family and friends without the pressure to sell a product or gather assets. In my opinion, this sets our clients up for the best outcomes and eliminates most of the conflicts that are common in our industry.
* A typical “Assets Under Management”, or AUM, approach to pricing is one where the advisor charges the client a percentage of their investment assets in order to provide services in return