Tony Robbins and Surrender Fees — Really?

Think surrender fees went the way of B-shares and annuity CDSC? Think again

Are 401(k) surrender fees the next outrage?Are 401(k) surrender fees the next outrage?

Whatever the advisor’s personal bias for or against Tony Robbins, he’s making a splash in the 401(k) space, and it will impact their business.

The “low fee” conversation is everywhere, driven by litigation and regulation, but Robbins and partner Tom Zgainer, CEO of America’s Best 401k, are singing loudest. Their current tune?

Surrender fees. If you thought they went the way of B-shares and annuity CDSC, think again.

“Whose money is it anyway?” Zgainer irately states, speaking for Robbins as the latter (what else?) currently travels with disciples in India. “With all the talk about increased fiduciary standards and doing something in the ‘sole’ best interest of the 401(k) plan sponsor and participants, the fact is the financial services industry will still line their pockets first and add shareholder value second.”

While more plan sponsors and participants are cognizant of the effect of fees over time, he says it’s “fascinating” how few plan sponsors proactively take action to reduce or improve their costs a full four years after the release of the fee disclosure regulations.

“One fee-type that garners virtually no conversation is the surrender fee,” he argues, noting they’re most often seen in plans with insurance companies as record keepers. “Business owners are so busy running their company that when 401(k) providers are chosen, they’re presented with documents to sign here and there, but they spend no time projecting the ramifications of a surrender fees on the participant’s balances into the future should they choose to leave that provider.”

Zgainer says he recently reviewed a plan currently with a major insurance company. It had $3 million in assets, investment-related fees of 2.05 percent and 2.88 percent in surrender fees. The total amount of just the surrender fee on that $3 million? $86,400.00.

“I understand that the plan sponsor signed the agreement, that was the first mistake,” he concedes. “But aside from that, ethically, how could such a fee type even exist? If the record keeper is failing to provide quality service, and the plan sponsor chooses to move to another provider, why do these hard working Americans that are saving for their families’ future have to take a direct hit. It’s their money!”

Zgainer claims that at least five of every 10 insurance company provided plans he reviews have surrender fees in place.

“It’s a golden handcuff if there ever was one and no one is talking about it. The plan sponsor is faced with the extremely uncomfortable position of knowing they want to leave the provider. Yet, they feel they have to stick it out and get beat up with the embedded investment-related costs for a few more years.”

Of course, the DOL has noticed the surrender fees, which Zgainer concludes “are not reasonable and certainly not prudent.”

“Until such time we address every line item of potential cost that affects the accumulation of income in our corporate-sponsored retirement plans, American workers will continue to have significant shortfalls related to the financial resources needed to sustain themselves after active work is completed.”

5 Comments on "Tony Robbins and Surrender Fees — Really?"

  1. I guess Tony and Zgainer do their work for free, right?

  2. Call the surrender fee by its proper name, the sales commission, and everything falls neatly into place.

  3. 5 out of 10??? I’m not buying it. Sounds inflated to me for sure. The only time I see surrender charges is when a plan had to have their current record keeper “buy-out” the surrender charge from their old program, because they didn’t want their employees to take the hit for their mistake in signing a bad deal. And it’s not very often. What’s sad is that some employer will read this nonsense and take it as gospel.

  4. Michel Baumgardner | October 31, 2016 at 10:35 am | Reply

    Do these people work for free? I don’t think so! Do you ever consider the services that are provided for free? As a financial advisor for over 30 years I can tell you most advisors I know work their tails off providing services above and beyond what employers ever see.

  5. In the non-profit space, the individual annuity providers have brutal discontinuance charges (that never go away, so long as contributions continue) but I agree it’s very rare even with group annuity products these days. I suspect they may be including the lack of portability from a Stable Value or GIC as a “penalty” in their calculation as to how prevalent this practice still is.

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