"The Retirement Gamble" - The Producers Reverse Course and Embrace Wall Street's Claims

A documentary which was more than a little critical of the financial services industry, the PBS Frontline episode The Retirement Gamble, has generated a storm of controversy. Today, in a stunning reversal, the producers of the PBS’ Frontline episode have reversed their views and now agree with their critics (Wall Street firms and insurance companies). These producers now agree that the focus of the documentary on fees was misplaced.  The producers now embrace the view that higher fees and costs nearly always lead to better investments, as Wall Street currently attests.

Said the producers in a recent interview, “Most illuminating to us is the discovery of group annuity fees, often 1% a year or greater. Imagine the huge benefits such additional fees must be generating for investors in 401(k) accounts. We can only speculate at the many advantages investors must be accruing from such costly ongoing fees.”

This is not to say that economies of scale are not possible in 401(k) plans. In fact, several Wall Street executives were heard to say, in response to the PBS Frontline show: “Of course, there are economies of scale. The more Americans put into their 401(k) accounts, the greater our personal economies get. Our fees go up and up, and we rarely are pressured to cut them.”

Fortunately for the producers, in an interview at www.FiduciaryNews.com, a popular web site covering the retirement investment industry, Craig Morningstar, Chief Operating Officer at Dynamic Wealth Advisors in Scottsdale, Arizona was quoted as saying that “the show only covered 1/3 of the typical hidden fees.” The producers felt relieved, as they now have even greater belief that the even-higher-than-suspected fees must result in “SUPER INVESTMENTS.” The producers added, “We are so glad that we omitted discussion of the '28 hidden fees' which Neda Jafarzadeh, a Financial Analyst at NerdWallet Investing, San Francisco, observed were present, in the article posted at www.FiduciaryNews.com.  [For the entire article, visit http://fiduciarynews.com/2013/04/exclusive-interview-frontline-producer-explains-controversial-401k-documentary-the-good/]. All of these fees must ... must ... be good for investors."

Of course, the strong negative correlation found in academic research between higher fees and  long-term investment returns has not gone overlooked. The producers of the PBS Frontline documentary have agreed with Wall Street, “Statistics, of course, never  speak the truth. Active management must trump low-fee, low-turnover passive index investing. It’s just common sense. For if that were not the case, why would we spend all that money advertising actively managed, high-cost investment strategies?”

The lack of academic evidence supporting the superior returns of index funds over actively managed funds, on average, over time, has not deterred the producers. The producers now cite Christine Marcks, President of Prudential Retirement, who was asked in the documentary about the overwhelming evidence that exists on indexing beating expensive active investing. Her response, with a straight face, was, "Yeah, I haven't seen any research that substantiates that. I mean, it – I don't know whether it's true or not. I honestly have not seen any research that substantiates that." The fact that one of the largest providers of retirement plans in the country has not done due diligence on this issue, by examining the academic evidence, does not deter these tireless producers, who were heard to state: “When a Wall Street executive speaks, the public must believe her. We all know that we should place blind trust in Wall Street and the insurance companies, especially after the financial crisis of 2008-9 and the great actions taken by Wall Street firms thereafter to restore faith in the securities industry, by returning to high levels of profitability so soon while individual investors and small businesses continued to suffer.”

The producers of the PBS documentary are now working tirelessly on a sequel, “The Retirement Gamble II: Why We Should Ensure the Bonuses Paid to Wall Street’s Executives and Analysts, To Ensure Their Retirement Succeeds.” Stated one of the producers, “It is so important that at least a few Americans have a successful retirement. In that way the rest of us can applaud the success of the few, who took so much from us. We have to have someone to cheer about, when we are in our used trailer in Florida watching old PBS documentaries on over-the-air television, while sweltering in the oppressive heat because we cannot afford to run the air conditioning. Financial security is, of course, so over-rated; the anti-depressive effects of cheering on in retirement those early-retired Wall Street and insurance company employees who profited so much by their greed should not be underestimated.”

The producers are also relieved that 85% of “financial advisors” were found, in the original documentary, to not be fiduciaries. (As stated in the original PBS Frontline documentary, only 15 percent of advisers are “fiduciaries” — advisers who by law must operate with the best interests of the plan sponsor or plan participant in mind.) The producers stated: “We are so glad that there are so many choices available. We would never want to limit the many business models, nor reduce the number of non-trusted advisors from which we can choose. Wall Street and the insurance companies should be able to extract excessive fees and costs from us in many different ways ... Why? Because it's what they do best!”

The producers added: "Is it too much to ask that financial advisors act in the best interests of their clients? Yes, of course it is, for that would destroy the high extraction of rents which occurs by Wall Street from the overall U.S. economy. Isn't it great that over 35% of the profits generated by the U.S. economy now occur in the financial services sector ... and that doesn't even count the huge bonuses awarded to Wall Street's executives! We certainly don't want to disrupt the high profits of our Wall Street firms and executives, just for the sake of the expectation of a consumer that his or her advisor is acting in the consumer's best interest. Let's not sacrifice Wall Street profits for some nebulous 'principle'!"

Asked about the fiduciary standard, the producers now question their earlier promotion of a higher standard for all retirement plan advisors, stating: “Who cares about a standard that consumers can’t even spell?” When asked about the huge potential benefits, in terms of lower fees and costs, which would result for 401(k) and IRA investors if ERISA's strict fiduciary standard were to be applied, the producers replied, "We should never interfere with a centuries-old business model. The dinosaurs that are Wall Street's proud institutions need not face an extinction event, simply because consumers desire trusted advice."

Upon hearing of the PBS Frontline documentary producers’ “change of heart” and their embrace of all of the hype promulgated by Wall Street, some industry observers were more than a little perplexed. Then again, an explanation soon became apparent. It was overheard that the producers' next documentary would be funded by a generous donation from FINRA, SIFMA, FSI, and many broker-dealer firms and insurance companies, with huge salaries to be paid to the producers along the way. When questioned regarding their objectivity in response to these new sources of funding, the producers brushed aside such concerns. “Of course we need higher salaries. This permits us to save more for retirement, as we have and will continue to promote. Only in such way can we ensure the high extraction of rents from our retirement accounts by Wall Street. Even though Wall Street is paying us a lot to do this next documentary, we are certain they will get their money back, and then some, over time. It will all balance out."

This interviewer then questioned the producers. "What about the trust of individual Americans in our financial services system? Without trust, investors have and will flee the capital markets, depriving American business of much-needed capital, and driving up the cost of capital. This will impose a brake on U.S. economic growth, leading to lower standards of living for all Americans than what could have been obtained." The producers responded, "We are so glad that we never paid attention in our college Macroeconomics class."

Stay tuned for more in "The Retirement Gamble" documentary wars. Wall Street and the insurance lobby are gearing up for "the next big show," confident that their message of "high costs, high fees, speculative products, and ensuring the financial security of Wall Street firms and their executives by preserving archaic, conflict-ridden business models" will resonate conclusively in the halls of Congress.