Author Topic: A New Start with Everest Wealth Management - Q&A with the management  (Read 34537 times)

arebelspy

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #50 on: March 19, 2014, 10:01:36 AM »
Wow, this is lame.  I'm with Arebelspy.    Can we go back to the lawsuit?   

lol.  I wouldn't go that far.  I still have hopes that we can benefit from this.  I'd just like to see more in the way of openness and transparency from Everest Wealth Management.  Answering the above numbered questions one-by-one would be a great start.
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brewer12345

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #51 on: March 19, 2014, 10:50:21 AM »
I've no information on what EWM exactly sells and how they determine client suitability, etc.  Since EWM says they are held to the fiduciary standard rather than the much looser suitability standard, I will presume that their regulator and their errors & omissions insurer are ensuring that they are doing all of the things they should be doing to behave as a fiduciary when helping their clients choose investment and insurance vehicles.  I don't know any of this since EWM has not said a whole lot aside from what is in the marketing pitch, I merely presume it.

All that said, I will briefly outline why I really do not like FIAs/EIAs.  EWM is welcome to offer a rebuttal, but if it is just cut and paste from the canned marketing schpiel I think we can all assume that they are not really interested in substantive discussion of this product and merely want to paper over everything and get on with their business.

- Terrible product economics: at its heart, an EIA is very simply a bond stapled to a bull call spread on the index of your choice.  Anyone can replicate this package of 3 securities (bond, long call, and short call at a higher strike) for a nominal cost ($50, tops), can do so with as much flexibility as they desire (no need to be stuck in a insurance contract for 5 to 15 years) and can choose whatever reference index or traded underlying they wish to participate in (Emerging markets index, commodities index, a single equity, etc.).  In contrast, an EIA locks you in for years, restricted choices of what you can participate in and is burdened with large costs unique to such contracts (paying commissions, all the costs of running an insurer, profits for the insurer, cost of capital the insurer must hold, premium taxes etc.).  The retailers of this product like to claim there is no expense ratio or fee associated with it, but this is disingenuous because while there is no explicit fee or charge the cost is passed through to the customer via the contract giving the less of the underlying economics of the bond plus the calls.  But most customers never figure this out because of...

- Unnecessary product complexity.  For something that is just a package of 3 simple securities, EIAs sure have a lot of bells, whistles and gotchas.  You might think that you could get it all down in a few pages, but insurers have intentionally hung lots of additional "features" and complications on the base contract in order to obfuscate the product's underlying economics.  It is still possible to reverse engineer these products and figure out the product economics, but it takes a lot of time, energy and know-how to do so.  The relatively unsophisticated customer base for EIAs is never going to try or be able to do so.  This is intentional.

- Adverse tax treatment.  Gains (if any) are indeed tax deferred, but these things are taxed as deferred annuities.  As a result, when funds are eventually withdrawn from these contracts the accumulated gains are taxed as ordinary income.  If you withdraw the funds before 59 1/2 you get an additional tax penalty on your withdrawals.  In contrast, someone simply investing in a bond and a call spread can place the package in a taxable account (which can give LT cap gains treatment on the calls), a traditional IRA or a Roth IRA.  You get your choice of tax treatment and in most cases you get better tax treatment and more flexibility than is the case with deferred annuities.

- Insurer counterparty risk.  Usually poorly understood by the target customers for EIAs, the money you put into one of these contracts is an unsecured policyholder obligation of the insurer.  If the insurer becomes insolvent, you get to stand in line with all the other policyholders to see what you will get (possibly less than you were promised).  There are state guaranty associations which are intended to make up any policyholder losses in an insolvency, but they are a far cry from something like the FDIC.  The guaranty associations have limited resources and are funded solely by assessments on the insurers doing business in that state.  That is it.  Neither the federal government nor the states stand behind the guaranty associations.  If they run out of money, tough luck for the policyholders.  Insurers range from pretty shaky to financial fortress and most EIA customers don't distinguish between them.  Simply owning a bond and a call spread completely avoids all the insurer counterparty risk.

Those are the main problems, but this is by no means an exhaustive list.

EWM

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #52 on: March 19, 2014, 11:58:58 AM »
Mustachians, if you are interested in researching more on fixed annuities then by all means, I encourage you to read the Wharton white paper or visit http://www.indexedannuityinsights.org/.  It is not possible for us to explain every type of solution or carrier out there, since there are literally thousands. 

We have answered many of your questions, and I am more than happy to answer others.  I believe we all agree that by no means does a fixed annuity make sense for everyone, nor is it an answer for everything.  Fixed annuities donít have fees, so all the chatter on fees is not accurate.  Our clients are well aware of how we are paid, how much we get paid, and how these contracts work; I could not agree more with comment made by someone that clients should know how their representatives are paid.

Brewer, your comment isnt accurate nor does it paint the true picture, its too simple.  Insurance companies vs FDIC just isnt how this works.  There is not one person who invested in a fixed annuity in the history of America (200+ years) who lost money due to the company becoming insolvent.  Period.  You cant say the same for the banking industry, just look at 2008 for proof of that and the S&L Scandal's of the 1980's.  So to simply state that the insurance company industry regulation isnt as strong as the FDIC isnt really accurate.  If you invest your funds in a CD, the banks have a 10% reserve ratio requirement (higher for State vs Federally chartered), meaning they are leveraged at 7-10x.  Insurance companies have "reserve ratios", which are what they are required to keep on hand for meet policy holder needs.  Most companies we work with have reserve ratios exceeding 150%.  So, your right, insurance companies arent backed by the US Government, but guess where a majority of the insurance company assets are invested?  You guessed it right if you said US Government Bonds. 

I think its worth noting we also advocate investing in the market and do so for our clients. You might be surprised to know we believe in the efficient market theory for the US Large Cap market and also believe in using low cost ETF's (we stay clear of funds due to the non disclosure of trading costs which add to the fees/reduce performance) where appropriate.   

We look at the annuity in two ways, as an alternative to bonds in this low interest rate environment and as a way to set up a pension style income for retirees.  We donít view them as something to outperform the market. 
« Last Edit: March 19, 2014, 12:11:34 PM by EWM »

MDM

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #53 on: March 19, 2014, 12:07:53 PM »
EWM,

Ok, I'm skeptical (based partly on family experience described above), but willing to consider that you may be different. 

12. Would you post contracts for 2 or 3 of your products so the readers here can see the details for themselves?

arebelspy

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #54 on: March 19, 2014, 12:11:33 PM »
We have answered many of your questions, and I am more than happy to answer others. 

Have you? I've had trouble getting clear answers from all the marketing speak.

I'd appreciate if these questions were answered, directly one-by-one, in a clear way:
Quote
1) In the past, there has been debate on the Internet on whether or not Everest can really guarantee various return rates. I have not researched the company's services myself, but can you explain exactly what you do, and who is your ideal target customer?

2) Who is your target audience?

3) Why should I choose you rather than managing my own investments?

4) How much sales commission is EWM typically paid for selling indexed annuities?

5) How do insurance companies structure and hedge indexed annuities? What is their typical annual profit margin on these products?

6) Is a return of "up to" 7% guaranteed by capping the return at 7%?  E.g., in 2013 the S&P 500 index rose >>7%, but investors in annuities capped at 7% would indeed have a return of "up to" 7%.

7) Is the "up to 7%" guaranteed in the video the rollup rate, or the IRR?

8. Why on earth would anyone ever buy an equity indexed annuity when anyone with a brokerage account and 15 minutes could replicate the base contract at a fraction of the price and with far better economics (as detailed here http://lifeinvestmentseverything.blogspot.com/2012/01/rolling-your-own.html)?

9. How do you help your investors manage the counterparty risk they take to insurers when buying these products, considering that state guaranty funds are ill-equipped to deal with the failure of a major insurer?

10. So, what's average?

11. Are you fiduciaries for your clients?  Or do you only have to meet the suitability standard?

12. Would you post contracts for 2 or 3 of your products so the readers here can see the details for themselves?


A few of them you did answer, so feel free to cut and paste parts of your earlier responses if you feel they answer a particular question, no need to retype it out.

I think its worth noting we also advocate investing in the market and do so for our clients. You might be surprised to know we believe in the efficient market theory for the US Large Cap market and also believe in using low cost ETF's (we stay clear of funds due to the non disclosure of trading costs which add to the fees/reduce performance) where appropriate.   

13. What do you charge for putting an investor into a "low cost ETF"?
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
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EWM

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #55 on: March 19, 2014, 12:18:12 PM »
 I am not able to discuss securities in this forum for compliance reasons, so the scope of things will be limited to fixed annuites.

1) In the past, there has been debate on the Internet on whether or not Everest can really guarantee various return rates. I have not researched the company's services myself, but can you explain exactly what you do, and who is your ideal target customer? 

The guarantees are backed and given by large financial Insurance companies/financial organizations, not EWM.  We provide financial planning for retirees and pre retirees.  Our clients are probably a little bit different from most of the readers of this blog, our average client is someone who is a baby boomer and is looking to secure their retirement and reduce risk.  They are seeking professional help.   


2) Who is your target audience?

I believe this has been addressed with question #1

3) Why should I choose you rather than managing my own investments?

The education, designations, and experience.  This is not to say you cant do it yourself, you could also fix your own vehicle, build your own home, and perhaps even perform minor surgeries on yourself.  This doesnt mean you should.  I suppose if you have the time, the experiences, and resources, and the formal training we could all do alot of things ourselves.  I also think people chose to work with us because we are independent and able to use the best solutions for the client without a board or shareholders telling us what is best.

4) How much sales commission is EWM typically paid for selling indexed annuities?

This can vary, it depends on the carrier and the clients age.  For most, we are able to earn a 1% trail for the life of the contract.

5) How do insurance companies structure and hedge indexed annuities? What is their typical annual profit margin on these products?

This is something that is better answered by an actuary of a company who manages the assets, which we are not. 

6) Is a return of "up to" 7% guaranteed by capping the return at 7%?  E.g., in 2013 the S&P 500 index rose >>7%, but investors in annuities capped at 7% would indeed have a return of "up to" 7%.

The return on the accumulation value is not capped at 7%.  One of the vehicles we use quite often, has an uncapped index with a spread of 2%.  This simply means, if the underlying index returns 10%, the client earns 8%.  Unlike investing directly in the index, the gains and principal are protected from market flucutations and cant lose money.

7) Is the "up to 7%" guaranteed in the video the rollup rate, or the IRR?

Roll up rate, and today its currently 8%

8. Why on earth would anyone ever buy an equity indexed annuity when anyone with a brokerage account and 15 minutes could replicate the base contract at a fraction of the price and with far better economics (as detailed here http://lifeinvestmentseverything.blogspot.com/2012/01/rolling-your-own.html)?

I disagree for reasons in previous posts, in 2013 alone $38 billion went into these solutions, I think that speaks volumes.

9. How do you help your investors manage the counterparty risk they take to insurers when buying these products, considering that state guaranty funds are ill-equipped to deal with the failure of a major insurer?

By doing due diligence and working with market leaders, the same way one protects themselves from working with brokerage firms that could become insolvent.  I touch on this in previous posts as well. 

10. So, what's average?

Average?  I am not sure what you are asking for?  If returns, I would point you to the Wharton paper.

11. Are you fiduciaries for your clients?  Or do you only have to meet the suitability standard?

Fiduciaries

12. Would you post contracts for 2 or 3 of your products so the readers here can see the details for themselves?

We cant post contracts, since they contain client information.  You can not invest in an annuity yourself so you would have to work with a licensed agent.  I would encourage you to call one of the major carriers such as ING, Aviva, Allianz, F&G, or even GenWorth to find out what products are available in your state.  Remember, the product lineup varies by state.
« Last Edit: March 19, 2014, 04:16:40 PM by EWM »

Russ

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #56 on: March 19, 2014, 12:24:19 PM »
We have answered those questions in previous posts.  I am not able to discuss securities in this forum for compliance reasons, so the scope of things will be limited to fixed annuites.

A few of them you did answer, so feel free to cut and paste parts of your earlier responses if you feel they answer a particular question, no need to retype it out.

It would still be much appreciated if you could reformat these as answers to the specific numbered questions. Just to help the folks playing along at home keep track. Productive discussion and all.

If you feel like you can't answer a specific question, feel free to note that as a response to the numbered question itself.

ed.: thanks!
« Last Edit: March 20, 2014, 01:49:02 PM by Russ »

arebelspy

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #57 on: March 20, 2014, 01:34:15 PM »
12. Would you post contracts for 2 or 3 of your products so the readers here can see the details for themselves?

We cant post contracts, since they contain client information.  You can not invest in an annuity yourself so you would have to work with a licensed agent.  I would encourage you to call one of the major carriers such as ING, Aviva, Allianz, F&G, or even GenWorth to find out what products are available in your state.  Remember, the product lineup varies by state.

Would you post a contract for 2 or 3 of your products with all client information removed/anonymized?
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brewer12345

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #58 on: March 20, 2014, 02:12:37 PM »
Hahahahaha!!!  F&G Life?  Really?  Oh this is too precious. Says it all, really.

Nords

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #59 on: March 20, 2014, 03:58:22 PM »
Brewer, your comment isnt accurate nor does it paint the true picture, its too simple.  Insurance companies vs FDIC just isnt how this works.  There is not one person who invested in a fixed annuity in the history of America (200+ years) who lost money due to the company becoming insolvent.  Period.  You cant say the same for the banking industry, just look at 2008 for proof of that and the S&L Scandal's of the 1980's.  So to simply state that the insurance company industry regulation isnt as strong as the FDIC isnt really accurate.  If you invest your funds in a CD, the banks have a 10% reserve ratio requirement (higher for State vs Federally chartered), meaning they are leveraged at 7-10x.  Insurance companies have "reserve ratios", which are what they are required to keep on hand for meet policy holder needs.  Most companies we work with have reserve ratios exceeding 150%.  So, your right, insurance companies arent backed by the US Government, but guess where a majority of the insurance company assets are invested?  You guessed it right if you said US Government Bonds. 
I think you're missing the entire point of the question.

Why does EWM need a complex annuity contract when EWM could just go out and, as Brewer puts it, "staple a bond to a couple of options"?  Mark it up a little to reflect your trading costs and overhead, and then market yourself as the Vanguard of EIA companies.  You'll be swamped with business and you won't have to pay such hefty commissions to your retailers.  After all, you're so heavily regulated and scrutinized, with such high reserves requirements, that nobody could ever possibly lose money. 

We're not asking for brilliant complicated financial engineering here-- just someone who knows how to make the trade and could possibly hold the hand of the investor.

As a side issue, your commentary on this forum may be directed at investors who have built entire careers at Wall Street firms and financial regulatory agencies... and who know the banking & insurance industries very well.  So if compliance reasons keep you from discussing securities on this forum, then perhaps you could provide links to places where you can discuss those topics.

brewer12345

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #60 on: March 20, 2014, 04:43:24 PM »

Brewer, your comment isnt accurate nor does it paint the true picture, its too simple.  Insurance companies vs FDIC just isnt how this works.  There is not one person who invested in a fixed annuity in the history of America (200+ years) who lost money due to the company becoming insolvent.  Period.  You cant say the same for the banking industry, just look at 2008 for proof of that and the S&L Scandal's of the 1980's.  So to simply state that the insurance company industry regulation isnt as strong as the FDIC isnt really accurate.  If you invest your funds in a CD, the banks have a 10% reserve ratio requirement (higher for State vs Federally chartered), meaning they are leveraged at 7-10x.  Insurance companies have "reserve ratios", which are what they are required to keep on hand for meet policy holder needs.  Most companies we work with have reserve ratios exceeding 150%.  So, your right, insurance companies arent backed by the US Government, but guess where a majority of the insurance company assets are invested?  You guessed it right if you said US Government Bonds. 


In my opinion, you are offering a very inaccurate view of insured deposits vs. insurance policyholder claims.  We could stand here all day arguing about it, but the fact remains that insured bank depositors have Uncle Sam writing checks to them if the bank blows up, while insurance company policyholders can say a prayer, light a candle to the saint of their choice, and hope that the state guaranty's limited resources can make up any shortfall.

I would like to point out a very obvious incorrect statement on your part.  You suggest, "...guess where a majority of the insurance company assets are invested?  You guessed it right if you said US Government Bonds."  This is wildly incorrect.  If you look at http://www.naic.org/capital_markets_archive/130924.htm it is pretty easy to calculate that at the end of 2012 the life insurance industry held 4.1% of total investments in the form of government bonds (143.2 Bn/3,483.8 Bn).

Hope you are not using that line with clients and prospects.

grantmeaname

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #61 on: March 23, 2014, 08:28:17 AM »
Sorry in advance for the novel, everyone, but somebody's slinging shit and needs called out on it.
Mustachians, if you are interested in researching more on fixed annuities then by all means, I encourage you to read the Wharton white paper or visit http://www.indexedannuityinsights.org/.  It is not possible for us to explain every type of solution or carrier out there, since there are literally thousands. 
There is a great white paper that was put out through a professor at Wharton, which I would encourage your readers to dive into who have an interest in learning more about these.  The fascinating part about this paper is that they (Wharton) back date test the returns of these solutions and come up with some remarkable results.   When you compare the fixed annuity to other "safe" solutions such as government bonds or CDs they typically outperform them, and by a lot.  Even more fascination is during certain periods the annuity even outperformed the Vanguard low cost index fund(s).  I have attached the white paper to this post for those of you interested in this.
Let's get a couple things straight: first, that's not a whitepaper, it's a slide deck. Second, Wharton did not publish anything. Wharton is a business school.  The author of the slide deck, David Babbel, i) never published this work in a peer reviewed journal, and in general  ii) based on his CV appears to only publish in fourth-string bullshit journals like the "Retirement Income Journal" and not the top journals of the field. As far as I can tell, the last contribution that Babbel made to his field occurred in the early 80s, and he now spends most of his time consulting. So he's certainly a professor at a prestigious school, but the research is not by Wharton, and it's not even really by much of a researcher - it's by a practitioner at best and an industry shill at worst.

Finally, the numerous flaws of the whitepaper very nicely constructed powerpoint presentation itself:
  • The presentation as far as I can tell seems to be a narrowly-focused rebuttal of one prior paper, not an exoneration of the entire area of FIAs. Further, the rebuttal itself is methodological in nature, not substantive.
  • This is ironic because Babbel makes some enormous mistakes to set himself up for success. His benchmarks are the S&P 500, a never-rebalanced 50/50 portfolio with no international exposure, and a random money market index with a giant extra drag of fees thrown in to bias the conclusion more just for good measure. (Slide 16)
  • Babbel opens himself to survivorship bias by ignoring the fact that some insurers fail (Hello, AIG!). This counterparty risk is a significant portion of the risk in an annuity, yet Babbel feels justified in assuming that no insurer will fail.
  • Babbel never discloses the fees considered by his study. As far as I can tell he's assuming there are no fees, but his disclosure of his actual methods are vague and do nothing to allow us to question or attempt to understand the methodology
  • In Babbel's methodologically-oriented critique of McCann's work (slides 48-81), it's clear the author is all sold on the idea of baffling with bullshit when dazzling with brilliance is impossible. He demonstrates that stock returns do not follow a normal distribution, which every serious financial economist and every business school undergraduate can tell you. What he does not do is demonstrate that this assumption biases McCann's result in any meaningful way. He doesn't even demonstrate the direction of the effect, if any. The normality and IID assumptions simply aren't that important to the model - yet they make up well over a third of the presentation.
  • Babbel closes with a risk-aversion model. The idea here is that we look at the range of risk-aversion and see how risk-averse investors must be before they prefer an annuity to another investment. He is still ignoring counterparty risk, of course, and he never specifies the risk aversion model, so the viewer has no way to calibrate whether or not the range that Babbel presents is reasonable (if he did, we could go look up the predicted risk aversion coefficient of the target demographic and easily determine which product would be predicted to be the best for them. Since I'm an undergrad at a school half as good as Wharton and it would take me less than twenty minutes to do look it up, it's a safe assumption that Babbel already done so and didn't like what he found. (Slide 88)
  • We can take a good guess about the appropriateness of those graphs: by the time the shitty never-rebalanced 50-50 portfolio has the same risk premium as the annuity, the risk aversion is so high that individuals would prefer to have nothing rather than owing the S&P 500 index! Clearly that's well beyond the range of feasibility - it suggests that the range of the study should only have been up to a risk aversion coefficient of perhaps 8 or 10. (Slide 91-on)

So what do we have? I'll bet you sit your clients down and say "Wharton proved that annuities are better for investors", but the truth is "a professor who holds an appointment at Wharton once agreed to show a room full of annuity salesmen a powerpoint in exchange for a big honorarium. The powerpoint made critically flawed assumptions about the investing universe, then Babbel quibbled with irrelevant assumptions of a prior paper on a similar topic for half his allotted time, and the project was so methodologically flawed that the professor's peers declined to publish it and any other work from the same project in any peer-reviewed journal, even the fourth-tier ones he normally skulks around in." There's a pretty big difference between the two, especially if you call yourself a fiduciary.

marty998

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #62 on: March 27, 2014, 03:49:37 AM »

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #63 on: March 27, 2014, 06:07:33 AM »
Sorry in advance for the novel, everyone, but somebody's slinging shit and needs called out on it.
Mustachians, if you are interested in researching more on fixed annuities then by all means, I encourage you to read the Wharton white paper or visit http://www.indexedannuityinsights.org/.  It is not possible for us to explain every type of solution or carrier out there, since there are literally thousands. 
There is a great white paper that was put out through a professor at Wharton, which I would encourage your readers to dive into who have an interest in learning more about these.  The fascinating part about this paper is that they (Wharton) back date test the returns of these solutions and come up with some remarkable results.   When you compare the fixed annuity to other "safe" solutions such as government bonds or CDs they typically outperform them, and by a lot.  Even more fascination is during certain periods the annuity even outperformed the Vanguard low cost index fund(s).  I have attached the white paper to this post for those of you interested in this.
Let's get a couple things straight: first, that's not a whitepaper, it's a slide deck. Second, Wharton did not publish anything. Wharton is a business school.  The author of the slide deck, David Babbel, i) never published this work in a peer reviewed journal, and in general  ii) based on his CV appears to only publish in fourth-string bullshit journals like the "Retirement Income Journal" and not the top journals of the field. As far as I can tell, the last contribution that Babbel made to his field occurred in the early 80s, and he now spends most of his time consulting. So he's certainly a professor at a prestigious school, but the research is not by Wharton, and it's not even really by much of a researcher - it's by a practitioner at best and an industry shill at worst.

Finally, the numerous flaws of the whitepaper very nicely constructed powerpoint presentation itself:
  • The presentation as far as I can tell seems to be a narrowly-focused rebuttal of one prior paper, not an exoneration of the entire area of FIAs. Further, the rebuttal itself is methodological in nature, not substantive.
  • This is ironic because Babbel makes some enormous mistakes to set himself up for success. His benchmarks are the S&P 500, a never-rebalanced 50/50 portfolio with no international exposure, and a random money market index with a giant extra drag of fees thrown in to bias the conclusion more just for good measure. (Slide 16)
  • Babbel opens himself to survivorship bias by ignoring the fact that some insurers fail (Hello, AIG!). This counterparty risk is a significant portion of the risk in an annuity, yet Babbel feels justified in assuming that no insurer will fail.
  • Babbel never discloses the fees considered by his study. As far as I can tell he's assuming there are no fees, but his disclosure of his actual methods are vague and do nothing to allow us to question or attempt to understand the methodology
  • In Babbel's methodologically-oriented critique of McCann's work (slides 48-81), it's clear the author is all sold on the idea of baffling with bullshit when dazzling with brilliance is impossible. He demonstrates that stock returns do not follow a normal distribution, which every serious financial economist and every business school undergraduate can tell you. What he does not do is demonstrate that this assumption biases McCann's result in any meaningful way. He doesn't even demonstrate the direction of the effect, if any. The normality and IID assumptions simply aren't that important to the model - yet they make up well over a third of the presentation.
  • Babbel closes with a risk-aversion model. The idea here is that we look at the range of risk-aversion and see how risk-averse investors must be before they prefer an annuity to another investment. He is still ignoring counterparty risk, of course, and he never specifies the risk aversion model, so the viewer has no way to calibrate whether or not the range that Babbel presents is reasonable (if he did, we could go look up the predicted risk aversion coefficient of the target demographic and easily determine which product would be predicted to be the best for them. Since I'm an undergrad at a school half as good as Wharton and it would take me less than twenty minutes to do look it up, it's a safe assumption that Babbel already done so and didn't like what he found. (Slide 88)
  • We can take a good guess about the appropriateness of those graphs: by the time the shitty never-rebalanced 50-50 portfolio has the same risk premium as the annuity, the risk aversion is so high that individuals would prefer to have nothing rather than owing the S&P 500 index! Clearly that's well beyond the range of feasibility - it suggests that the range of the study should only have been up to a risk aversion coefficient of perhaps 8 or 10. (Slide 91-on)

So what do we have? I'll bet you sit your clients down and say "Wharton proved that annuities are better for investors", but the truth is "a professor who holds an appointment at Wharton once agreed to show a room full of annuity salesmen a powerpoint in exchange for a big honorarium. The powerpoint made critically flawed assumptions about the investing universe, then Babbel quibbled with irrelevant assumptions of a prior paper on a similar topic for half his allotted time, and the project was so methodologically flawed that the professor's peers declined to publish it and any other work from the same project in any peer-reviewed journal, even the fourth-tier ones he normally skulks around in." There's a pretty big difference between the two, especially if you call yourself a fiduciary.


I would really like to see EWM respond to this above. Very good insight! Thanks

PeteD01

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #64 on: April 28, 2014, 05:14:53 PM »
Mustachians, if you are interested in researching more on fixed annuities then by all means, I encourage you to read the Wharton white paper or visit http://www.indexedannuityinsights.org/.  It is not possible for us to explain every type of solution or carrier out there, since there are literally thousands. 

We have answered many of your questions, and I am more than happy to answer others.  I believe we all agree that by no means does a fixed annuity make sense for everyone, nor is it an answer for everything.  Fixed annuities donít have fees, so all the chatter on fees is not accurate.  Our clients are well aware of how we are paid, how much we get paid, and how these contracts work; I could not agree more with comment made by someone that clients should know how their representatives are paid.


Here is a real White Paper explaining how you get paid and how the contracts work:

http://www.slcg.com/pdf/workingpapers/EIA%20White%20Paper.pdf

I'm sure this White Paper is already included in the information packets you give to your customers... Just forgot to mention it, right?

« Last Edit: April 28, 2014, 05:16:34 PM by PeteD01 »

arebelspy

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #65 on: April 28, 2014, 06:06:45 PM »
Been a month with no response by them.

I think it's pretty disappointing how Everest Wealth Management had the opportunity to engage and have open dialogue and instead chose to ignore questions, use obfuscating marketing speak, and generally spit in the face of MMM and his readers.

I mean, not surprising, given their history.

But disappointing, considering the fact that they didn't have a leg to stand on, and now their assholery isn't front page on Google anymore, so there is essentially no repercussions for their actions (shutting down long term returns, abuse of the legal system via intimidation, shill company man coming on claiming not to work for them, etc.). 

All of this post is, of course, my opinion, and not implied to be fact, or the opinion of the site operators.

Again, just... disappointing.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
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Insanity

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #66 on: April 28, 2014, 06:08:49 PM »


All of this post is, of course, my opinion, and not implied to be fact, or the opinion of the site operators.

Oh nice.  Absolve the site operators but not other board members. Thanks!

;-)

arebelspy

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #67 on: April 28, 2014, 06:19:55 PM »


All of this post is, of course, my opinion, and not implied to be fact, or the opinion of the site operators.

Oh nice.  Absolve the site operators but not other board members. Thanks!

;-)

Well I know you all agree.  :)
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
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brewer12345

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #68 on: April 28, 2014, 06:53:20 PM »
Been a month with no response by them.

I think it's pretty disappointing how Everest Wealth Management had the opportunity to engage and have open dialogue and instead chose to ignore questions, use obfuscating marketing speak, and generally spit in the face of MMM and his readers.

I mean, not surprising, given their history.

But disappointing, considering the fact that they didn't have a leg to stand on, and now their assholery isn't front page on Google anymore, so there is essentially no repercussions for their actions (shutting down long term returns, abuse of the legal system via intimidation, shill company man coming on claiming not to work for them, etc.). 

All of this post is, of course, my opinion, and not implied to be fact, or the opinion of the site operators.

Again, just... disappointing.

Not surprising or disappointing at all.  The key to happiness is low expectations.

Nords

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #69 on: April 28, 2014, 07:51:40 PM »
Been a month with no response by them.
Your subpoena is in the mail...

arebelspy

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #70 on: April 28, 2014, 08:11:42 PM »
Been a month with no response by them.
Your subpoena is in the mail...

lol.  Was that a factual error on my part?  The last reply I see from them is mid-March, over a month ago.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
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Wile E. Coyote

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #71 on: April 29, 2014, 06:07:10 PM »
Ran across this article today.  I don't know a thing about indexed annuities, but this article seems to echo some of the comments in this thread.

http://www.marketwatch.com/story/confessions-of-an-indexed-annuity-insider-2014-04-29?dist=tbeforebell

jba302

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #72 on: April 29, 2014, 06:34:47 PM »
Ran across this article today.  I don't know a thing about indexed annuities, but this article seems to echo some of the comments in this thread.

http://www.marketwatch.com/story/confessions-of-an-indexed-annuity-insider-2014-04-29?dist=tbeforebell

"Another problem that the industry doesn't want to talk about is the testing and qualifications for the agent. In most states, you can take a cram course, pass the life insurance state exam, and be selling indexed annuities in a matter of weeks or less."

I took this route right after college. Passed my exams in 8 days (6,63 and something else that I can't remember off hand). Only took a couple months of feeling like a creep to quit doing that shit job.

Nords

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #73 on: April 29, 2014, 08:33:12 PM »
Been a month with no response by them.
Your subpoena is in the mail...

lol.  Was that a factual error on my part?  The last reply I see from them is mid-March, over a month ago.
They've probably given up on MMM and hired an astroturfing consultant to bury this incident on the third page of Google search results...

arebelspy

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #74 on: June 18, 2015, 10:56:24 AM »
What a shock.  Company doing scummy things online (including astroturfing/shilling under fake names, issuing frivolous take down requests, etc.) who claims to turn a new leaf and engage w/ community, then disappears when the negative posts about them are removed, now sued for doing scummy things IRL.  Whoda thunk it.

Thanks for finding and posting that, smallfrymoney!

I'm still mad they shut down LongTermReturns--that blog was incredible.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

Vertical Mode

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #75 on: June 18, 2015, 11:01:10 AM »
Sorry in advance for the novel, everyone, but somebody's slinging shit and needs called out on it.
Mustachians, if you are interested in researching more on fixed annuities then by all means, I encourage you to read the Wharton white paper or visit http://www.indexedannuityinsights.org/.  It is not possible for us to explain every type of solution or carrier out there, since there are literally thousands. 
There is a great white paper that was put out through a professor at Wharton, which I would encourage your readers to dive into who have an interest in learning more about these.  The fascinating part about this paper is that they (Wharton) back date test the returns of these solutions and come up with some remarkable results.   When you compare the fixed annuity to other "safe" solutions such as government bonds or CDs they typically outperform them, and by a lot.  Even more fascination is during certain periods the annuity even outperformed the Vanguard low cost index fund(s).  I have attached the white paper to this post for those of you interested in this.
Let's get a couple things straight: first, that's not a whitepaper, it's a slide deck. Second, Wharton did not publish anything. Wharton is a business school.  The author of the slide deck, David Babbel, i) never published this work in a peer reviewed journal, and in general  ii) based on his CV appears to only publish in fourth-string bullshit journals like the "Retirement Income Journal" and not the top journals of the field. As far as I can tell, the last contribution that Babbel made to his field occurred in the early 80s, and he now spends most of his time consulting. So he's certainly a professor at a prestigious school, but the research is not by Wharton, and it's not even really by much of a researcher - it's by a practitioner at best and an industry shill at worst.

Finally, the numerous flaws of the whitepaper very nicely constructed powerpoint presentation itself:
  • The presentation as far as I can tell seems to be a narrowly-focused rebuttal of one prior paper, not an exoneration of the entire area of FIAs. Further, the rebuttal itself is methodological in nature, not substantive.
  • This is ironic because Babbel makes some enormous mistakes to set himself up for success. His benchmarks are the S&P 500, a never-rebalanced 50/50 portfolio with no international exposure, and a random money market index with a giant extra drag of fees thrown in to bias the conclusion more just for good measure. (Slide 16)
  • Babbel opens himself to survivorship bias by ignoring the fact that some insurers fail (Hello, AIG!). This counterparty risk is a significant portion of the risk in an annuity, yet Babbel feels justified in assuming that no insurer will fail.
  • Babbel never discloses the fees considered by his study. As far as I can tell he's assuming there are no fees, but his disclosure of his actual methods are vague and do nothing to allow us to question or attempt to understand the methodology
  • In Babbel's methodologically-oriented critique of McCann's work (slides 48-81), it's clear the author is all sold on the idea of baffling with bullshit when dazzling with brilliance is impossible. He demonstrates that stock returns do not follow a normal distribution, which every serious financial economist and every business school undergraduate can tell you. What he does not do is demonstrate that this assumption biases McCann's result in any meaningful way. He doesn't even demonstrate the direction of the effect, if any. The normality and IID assumptions simply aren't that important to the model - yet they make up well over a third of the presentation.
  • Babbel closes with a risk-aversion model. The idea here is that we look at the range of risk-aversion and see how risk-averse investors must be before they prefer an annuity to another investment. He is still ignoring counterparty risk, of course, and he never specifies the risk aversion model, so the viewer has no way to calibrate whether or not the range that Babbel presents is reasonable (if he did, we could go look up the predicted risk aversion coefficient of the target demographic and easily determine which product would be predicted to be the best for them. Since I'm an undergrad at a school half as good as Wharton and it would take me less than twenty minutes to do look it up, it's a safe assumption that Babbel already done so and didn't like what he found. (Slide 88)
  • We can take a good guess about the appropriateness of those graphs: by the time the shitty never-rebalanced 50-50 portfolio has the same risk premium as the annuity, the risk aversion is so high that individuals would prefer to have nothing rather than owing the S&P 500 index! Clearly that's well beyond the range of feasibility - it suggests that the range of the study should only have been up to a risk aversion coefficient of perhaps 8 or 10. (Slide 91-on)

So what do we have? I'll bet you sit your clients down and say "Wharton proved that annuities are better for investors", but the truth is "a professor who holds an appointment at Wharton once agreed to show a room full of annuity salesmen a powerpoint in exchange for a big honorarium. The powerpoint made critically flawed assumptions about the investing universe, then Babbel quibbled with irrelevant assumptions of a prior paper on a similar topic for half his allotted time, and the project was so methodologically flawed that the professor's peers declined to publish it and any other work from the same project in any peer-reviewed journal, even the fourth-tier ones he normally skulks around in." There's a pretty big difference between the two, especially if you call yourself a fiduciary.

I think you're supposed to drop the mic after that... ;-)

grantmeaname

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #76 on: June 18, 2015, 11:35:27 AM »
Heh. The post did its job, and that's the important thing. As ARS said, I'm not suprised to see Rousseaux and the gang conduct themselves the same way on TV as on the internet.

sunday

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #77 on: June 25, 2015, 10:15:35 AM »
I tell people this is one of the smartest/savviest forums I've even been on or seen around. You guys show it again.

ShiftUpwards

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #78 on: May 15, 2016, 07:15:14 AM »
I know this thread is old, but wanted to drop in and say that I am in the DC/Baltimore area, where EWM is based out of. It's a shame that they are sponsoring the Baltimore Orioles radio broadcasts, which I am reminded of every time I listen to a game on the radio. In fact, when coming back from commercial breaks, the broadcasters always say something along the lines of "Welcome back to the Everest Wealth Management broadcast booth".

Along with this, they have regular commercials aired during the commercial breaks. The commercials use fear as the primary selling point. This is what got me to notice EVM, do some research, and found this thread. Been a long-time MMM reader and sometimes lurker on this forum. I thought it was worth dropping a note. What a shame that EWM is still getting away with their sham.

arebelspy

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #79 on: June 28, 2016, 08:59:32 PM »
What a shock.  Company doing scummy things online (including astroturfing/shilling under fake names, issuing frivolous take down requests, etc.) who claims to turn a new leaf and engage w/ community, then disappears when the negative posts about them are removed, now sued for doing scummy things IRL.  Whoda thunk it.

Thanks for finding and posting that, smallfrymoney!

I'm still mad they shut down LongTermReturns--that blog was incredible.

Interesting.

The post I wrote this in response to, about Everest Wealth Management being investigated by the MD Attorney General for fraud was deleted. 

Here were the links it contained:

http://www.oag.state.md.us/Press/2015/061815.html

http://www.oag.state.md.us/Securities/Actions/2015/osc_everest_061715.pdf

http://www.baltimoresun.com/business/bs-md-frosh-everest-20150618-story.html

Apparently, as noted by MMM here:
[*** Moderator Note:]

 The original title of this post was "Everest Wealth Management Accused of Fraud".

It contained only the following three links to public news releases about Everest Wealth Management:
http://www.oag.state.md.us/Press/2015/061815.html
http://www.oag.state.md.us/Securities/Actions/2015/osc_everest_061715.pdf
http://www.baltimoresun.com/business/bs-md-frosh-everest-20150618-story.html

It was removed by the original poster after legal pressure was applied to that person via a lawsuit from Everest. The case is 1:15-cv-02539-JFM in the Maryland District court. I have attached a copy of the complaint to this message (a 409KB PDF).

As part of this lawsuit, I also received a subpoena from the Everest attorneys asking me to reveal anything I knew about this user "smallfrymoney".

I want the record to show that this person DID remove this content on April 13th. I have re-posted the links here in my own comment because they are public, non-defamatory information and are key to the discussion below.
 
** End Moderator Note **]

So this new user, smallfrymoney, just posts some links to public sites, and Everest Wealth Management threaten him with legal action, subpoena MMM, etc.

It was posted in June 2015, but MMM's note is April 2016 (and he says the poster removed the content on April 13).  So this was just over two months ago.  Still continuing their scummy practices.  So much for "A New Start."

It's a shock they are still in business, and sponsoring things.

What a terrible company.

All of the above, is, of course, my opinion.  My opinion is that they are a-holes.  ;)
« Last Edit: June 28, 2016, 09:02:12 PM by arebelspy »
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arebelspy

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Re: A New Start with Everest Wealth Management - Q&A with the management
« Reply #80 on: June 28, 2016, 09:03:21 PM »
And apparently they sued the Md Attorney General (Brian Frosh) and the attorney generalís Securities Division. 

http://www.bizjournals.com/baltimore/news/2016/01/19/the-money-guys-argue-against-mdattorney-generals.html

Geez.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.