Everest Wealth Management Accused of Fraud

[FBN]

Maryland Attorney General - News Release

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

Attorney general seeks to bar investment firm - Baltimore Sun

 

[scagnt83]

Damn.... I stopped counting all of the BDs that guy went through before starting his own RIA... it was like 6 or 7 I think. Forced to resign or terminated from every one!

Moral of the story, dont blur the lines between your RIA & insurance practice. And dont deviate from what is printed in your form ADV II. Oh, and dont steal a Signature Guarantee stamp and stamp your own transfer forms... LOL.
Then guaranteeing that a client will not lose money is strictly prohibited under the Uniform Securities Act. This guy had a whole host of issues... he also failed to register in the state he was doing the majority of his business in... Im guessing because he had regulatory issues there before which would have made it hard for his RIA to be approved.

 

[DHK]

I've been reading through the complaint... and noticed this little bit of "marketing":

Rousseaux also used his marketing, which primarily focused on insurance products, to bring in clients for EIA’s advisory services. During a 2013 presentation that Rousseaux gave at a “Top of the Table” annual meeting, Rousseaux discussed how he brought clients in through his insurance advertising with the full intention of offering them advisory services as well, by stating:

“Again, all of my branding, all of my advertising, it’s all about the safety, preservation, the income. It’s all the equity-indexed annuities. That’s what I’m selling. But when they come in we’re offering them a whole heck of a lot more. So it appears on the surface that all we’re doing it [sic] selling annuities, but most of the people who come in we’re selling annuities and managed money. Sixty cents of every dollar goes into the annuity. Of every dollar that comes in our door, forty cents goes to the managed money platform that we have, which does require you give them a call every quarter, even if there’s nothing to say. People like to get calls. They like to hear from you.”

So, just in case anyone had the thought (I sure wanted to) that you could just market insurance without disclosing that you're an RIA/IAR... you're sorely mistaken.

Fiduciary duty reigns supreme when you have a Series 65 license & registration... and they'll use ANYTHING against you - including published industry articles or presentations (such as MDRT above) against you.


It's also a warning to verify anything that you hear at industry conferences. Just because someone qualified for MDRT TOT doesn't mean that they are on the "up and up".

 

[scagnt83]

... and they'll use ANYTHING against you - including published industry articles or presentations (such as MDRT above) against you.


It's also a warning to verify anything that you hear at industry conferences. Just because someone qualified for MDRT TOT doesn't mean that they are on the "up and up".

Yep, his top of the table presentation was a key piece of evidence against him... lol.

This guy deserves everything he gets from what I read (assuming the accusations are true).

 

[DHK]

I agree. It just stood out to me because I was thinking of how I could do the same thing - by positioning myself primarily as an insurance agent and then offer additional services. The mere fact that it was included in the complaint tells me that it was a bad idea... despite what Roccy DeFrancesco told me on ProducersWeb in the comments of one of his articles.

 

[scagnt83]

I agree. It just stood out to me because I was thinking of how I could do the same thing - by positioning myself primarily as an insurance agent and then offer additional services. The mere fact that it was included in the complaint tells me that it was a bad idea... despite what Roccy DeFrancesco told me on ProducersWeb in the comments of one of his articles.

Unless Rocky is an Attorney specializing in securities law take everything he says with a huge grain of salt.

The problem, is that if you are advertising for annuity business, there is a high likelihood you will encounter clients with assets in securities. And as soon as a RIA encounters Securities they put the RIA hat back on. Now they can have the client sign a form stating that they are not acting as a RIA for this transaction... but they still have to disclose that they have a RIA practice.

What really got this guy in trouble was that he was advertising for Fixed business, but had every intent on making them securities clients as well. If he had put none of those clients he gained from the advertising into securities products, then he might have been fine. But in both emails, & even in his ToT speech he said that he was advertising for fixed annuities with the intent of making those clients securities clients as well.
He also stated that every client was put into the same allocation, 60% IAs, 40% managed money. Anyone who knows anything at all knows that not every client needs the exact same allocation.

To top it all off, there was that pesky little issue of not registering in the state you are doing the majority of your business in...

 

[Stephen]

Moral of the story: Listen to your compliance people. The forged Medallion guarantees are obviously willful fraud, but most of his other offenses were issues that he disregarded after compliance warned him that there would be problems.

 

[AlTheGud1sRtakn]

What really got this guy in trouble was that he was advertising for Fixed business, but had every intent on making them securities clients as well. If he had put none of those clients he gained from the advertising into securities products, then he might have been fine. But in both emails, & even in his ToT speech he said that he was advertising for fixed annuities with the intent of making those clients securities clients as well.
He also stated that every client was put into the same allocation, 60% IAs, 40% managed money. Anyone who knows anything at all knows that not every client needs the exact same allocation.

I don't completely agree here. When you talk to someone about moving a large amount (or even smaller amount for that matter) of money there's a good chance that the very best thing for them to do involves multiple products (managed money and an annuity). Also I understood his 60/split to be an average, not a one size fits all rule. Cross-selling isn't illegal, but bait and switch without disclosures about the rest of what you do is.

Not being licensed in a state you do business in though... especially if it's the majority of your business...

 

[FBN]

Rousseaux was also a finalist last year for advisor of the year by Retirement Advisor magazine.

Now I am confused. I thought that it would be necessary to be a 65 if you recommend moving money from securities to an FIA?

 

[DHK]

Before I say that's false, I'll also say to check with your state.

Roccy DeFrancesco (a licensed attorney in two states) and I got into a rather pointed discussion about that in the comments of his article here:
ProducersWeb - Life - Compliance bombshell: New regs to curb EIUL illustration abuses

So, what you're saying is that I cannot hire you as an attorney to represent me if I am sued.

I understand.

But you asking me if I am an attorney, no I am not, nor am I a compliance specialist, so I cannot represent anyone either.


As for this:
"2) selling a fixed product where the money comes from a security thereby running afoul of the source of funds rule."

As stated before, check with various states.

But for nebulous states, all you have to do is NOT give investment advice.

How do you NOT give investment advice?

1) Do NOT give any kind of risk analysis pertaining to their current portfolio. Don't say "you have XYZ stock and they haven't done so well", or "those mutual funds have a very low alpha and high beta... so you better get out while you still can". The first part is called an analysis. The second part is called a buy or sell recommendation.

2) Position your fixed insurance idea simply as an alternative, not as a "professional recommendation" for their portfolio.

Now, here's where it can get tricky: If they say "I don't want to put my entire portfolio into the annuity. What would your recommend that I sell?" You cannot give specific or even general advice on this. You have to be careful.

What I would do, is say "I would transfer as much as you want to guarantee the results that this annuity provides. Based on your age (example: 70), to guarantee $30,000 per year at 5.5% lifetime income guarantee, we would need to fund it with $545,454. However, as far as what you should sell to fund the annuity, I cannot make that recommendation or give you any specific advice on your portfolio."

Take the focus off the portfolio and onto the guarantees of the product that you are licensed and trained to sell.

Also, for one's own compliance notes, I would do a "switch letter" of some kind to show the specifics of the transaction: What they have now, fees, surrenders, etc., compared to where they will be, new fees, surrenders, guarantees, etc.

In any of that... did I give any kind of securities advice? No.

Well, you could hire me (I'm licensed in MI and IN), but I wouldn't take the case. I have no malpractice insurance and I'm not setup for the day to day practice of law.

I agree with much of the above.

It can be tricky. This leads into a discussion about disclosures for the client to sign and CYA letters.

If it where me and if i was an insurance agent primarily who got a 65 to protect from the source of funds rule, and if I was ONLY going to sell fixed products not give investment advice, I'd have the client sign a liability waiver saying that the client understands that I am not going to be giving the client investment advice. Further, that my advice will be solely on the proper use of fixed products and how they might be a good fit for the clients.

I'd continue by having the waiver say that the client has been told that if he/she wants investment advice that he/she should seek out that advice from someone who is properly licensed and who holds themselves out as someone giving investment advice.

Again, let's differentiate between protecting the agent from a source of funds violation and a lawsuit from the client for inappropriate advice. It is my opinion that having the 65 will insulate the client from the source of funds problem.

As raised as an issue on this blog, the 65 put the agent potentially at risk for giving bad or incomplete advice as someone who holds a 65.

That's why it's imperative for the agent to make crystal clear he/she is only giving the client advice on fixed products.

Now, in my opinion, this is a mistake. As I've advocated for nearly 3 years now, i think advisors should get a 65 and actually give advice to clients on how to best build wealth with what are deemed securities.

It allows the advisors to give more comprehensive advice as well as will allow the advisor to start building AUM which will grow over time and become a nice reoccurring revenue source.

I like the low drawdown risk platform offered by Peace of Mind Planning | Home. They use a 3 bucket approach where bucket #1 is a fixed bucket (FIAs or EIUL). It's rare to find an AUM platform that doesn't shun fixed products and it's really rare to find one that promotes them.

But there are many platforms out there agents should look at to determine on their own which one would work best for them.

You're opening my mind a bit, so I like that.

In your example of the agent who gets a 65 JUST for "source of funds"... my guess would be that they probably shouldn't advertise that service to the general public?

No sign on their office that says "Investment Advisor Services offered through XYZ Advisors".

No disclosure on their business cards that say the same thing.

In short, you probably can't hold yourself out to the public regarding investment advice and have any degree of defense, no matter what "CYA" or "liability waiver" forms you put in front of a client.

I wonder how successful such ideas could be?

But then, I recall being on a "Source of Funds" webinar with John Olsen who mentioned a case where it was stated "Why would you need a CYA letter if you didn't need to CYA?"

So even doing THAT could backfire.

For me personally, my main concern is in my life insurance recommendations. Life insurance is way too complex that I wouldn't want a layman jury to decide if my recommendation was within fiduciary duty or not.

And no, I don't do anything stupid. I do put my client's interests first... but I just don't want to have to prove it.

Right, I wouldn't advertise to the general public or to anyone investment advisory services.

The rub with this angle it trying to find an RIA that will let an advisor be an IAR undre their RIA without all the disclosure information. This will be nearly impossible which will lead the advisor to firms like RIA in a box to become their own RIA (so they have control over compliance issues).

Anyone saying "why would you need a CYA letter if you didn't need a CYA" is an ***.

If a practicing attorney made such a statement, I'd recommend he/she immediately quit practicing law and giving advice to clients.

Since I didn't hear John Olsen make such a statement, i won't attribute my the person is an *** comment to him.