On Sunday December 21, 2008 Oregonian columnist Steve Duin wrote a column titled “A fool and his trust are soon parted.” Clearly, Oregon State Treasurer Randall Edwards, in his management of the plan, has breached his responsibility to Oregon’s parents savings for college, saddling those making conservative bond choices with losses of almost 40 percent. President elect Obama’s home state, Illinois, also uses Oppenheimer.
In 15 years as an investment manager, perhaps the most disappointing experience for me was when Edwards, pictured below far left, and Richard Solomon, far right, who later went from the College Savings board to chair Oregon’s $70 billion PERS fund, chose Oppenheimer to be the key vendor to Oregon’s College Savings plan over Vanguard.
Most startling about the choice was that they had full information regarding why Vanguard was a better choice, including documentation from me outlining the unique risk involving the Tremont Group, a wholly owned Oppenheimer subsidiary, that lost $3 billion on the Madoff Scandal. Even today, after numerous scandals, few are openly recommending that hedge and private equity funds register with the SEC, something I have aggressively pushed for since 2003.
The deciding factor in Edwards and Solomon’s choice was $350K in advertising Oppenheimer agreed to contribute in order to promote the plan. Those would be the television ads Edwards appeared in, ads that, well, greatly simplified his re-election campaign. Also particularly disappointing was the fact that Edwards wife had recently been Chair of the Portland Public Schools board, a role in which the importance of a quality college savings plan would seem most apparent.
Hopefully the new incoming State Treasurer Ben Westlund will replace Oppenheimer as the key vendor with Vanguard and make it possible for advisors like myself, who are residents of Oregon, to recommend the Oregon plan. Thus far I have recommended the TD Ameritrade plan, based upon Nebraska’s plan, which is mostly Vanguard funds. Unlike Oppenheimer, Vanguard does not pay kick backs to advisors and public officials or what are often referred to as “fees” and “administrative reimbursements,” by recipients.
In many states, parents mistakently choose their home state plan, i.e. Oregon, in order to receive a deduction for state income tax purposes. Simply changing this policy, as Pennsylvania did, is another easy way to fix the problem. That way parents can choose the best plan for their children and escape the plans that were structured to benefit advisors. The following summarizes the change in Pennsylvania:
Pulitzer Prize winning reporter Nigel Jaquiss of Willamette Week also wrote a story this week about the Oregon 529 Plan which includes pdf files of correspondence from myself to former State Treasurer Randall Edwards regarding why Vanguard should have been chosen rather than Oppenheimer. Jaquiss story Titled “Bill Cassandra Parish” provides a good detailed summary of what happened in 2004.
