Bringing Tontines Back from the Dead

Published on
February 17th, 2020
Duration
49 minutes

Public Employee “Plunder” and California’s Perfect Storm


Bringing Tontines Back from the Dead

The Interview ·
Featuring Dean McClelland

Published on: February 17th, 2020 • Duration: 49 minutes

If you've heard of tontines, chances are what you know is colored by stories of century old death pools plagued by murder and deceit. It probably even makes sense to you that this product with almost five centuries of history fell out of favor in the early 1900's. But what if the reason why tontines lost their popularity had nothing to do with the murder-inducing incentive structure of tontines and, in fact, had more to do with the abhorrent behavior of insurance companies? Dean McClelland, CEO and Founder of TontineTrust, sits down with Real Vision's Max Wiethe to explore the problems plaguing public and private retirement solutions, the rise and fall of tontines as an insurance product and funding mechanism, and the technological advances McClelland is incorporating into his modern tontine that he proposes as a viable alternative to private annuities and public pension structures. Filmed on January 28, 2020 in New York.

Comments

Transcript

  • NI
    Nate I.
    18 February 2020 @ 03:54
    Great discussion gents. Thanks RV. It would have been interesting to know more about how the tontine fund is invested. Pension funds are obviously not acting in the best interests of their members with risk parity, private debt, ludicrous IRR assumptions, yada, yada. All formulas for complete disaster. I call it the "dunce at the helm" risk, but in fairness much of pension fund manager behavior is dictated by government regulation where dunces are even more highly abundant. Do the tontine participants have any say or rights over the investment strategy? Something along those lines would be very interesting.
    • DM
      Dean M. | Contributor
      19 March 2020 @ 11:17
      Hi Nate, Sorry to say but I am happy that this crash came before we launch as the current environment is just toxic overall. Fully agree with your points though. We have realised that the investment strategy will have to be tailored for each market primarily due to exchange controls but we will work with top tier firms in each market whom will be overseen by a team that RV & its viewers will approve of. Initially we will offer a vanilla portfolio suitable for widows & orphans that can be sold as a universal product regardless of investment knowledge but we have also scoped out a solution to enable sophisticated investors to manage their own portfolio within a portfolio. Fire away if any more questions. Regards Dean
  • HK
    H K.
    18 February 2020 @ 10:18
    Not directly investible, but a v interesting interview nevertheless - brought an idea into the foreground, and that is worth something.
    • DM
      Dean M. | Contributor
      19 March 2020 @ 03:32
      Not yet HK but soon! 👌
  • PL
    Pete L.
    22 February 2020 @ 16:13
    Great interview on a fascinating topic. However, due to Draconian laws here in the U.K. it is currently illegal to run a tontine. I really hope that this can be changed but when considering the vested interests of the life companies and the actuarial profession, I doubt that change will come soon enough.
    • DM
      Dean M. | Contributor
      19 March 2020 @ 03:28
      I have good news Pete, Actually Tontines are perfectly legal in the UK & better yet the Department for Work & Pensions are advocating that the pension industry begins switching to CDC pensions which are a subset of Tontine defined ambition pensions. In fact Royal Mail recently received a 90% vote from members in favour of switching to such a pension. The UK is one of the only major markets from which we have not had a suitable approach from an asset management / pensions partner but I'm sure that will change soon. Regards, Dean
  • RA
    Rick A.
    11 March 2020 @ 00:12
    I laughed through much of this video, because Max, the "interviewer," did more talking than McClelland, the interviewed.
  • CY
    Christopher Y.
    24 February 2020 @ 01:45
    Couple thoughts for Max when interviewing: When you're discussing something most aren't familiar with don't keep that item in the dark i.e. set out to first clearly define the problem then what the proposed (tontine) solution is. If you go from problem to solution to details the interview will flow much better.
  • JL
    Jinny L.
    22 February 2020 @ 21:13
    Very interesting as I had never heard of tontines. I think it’s important that everyone’s situation is somewhat different so it needs to be tailored. With that said annuities should be a part, the the only strategy, of one’s retirement portfolio as tontines are still not ubiquitous.
  • WM
    Will M.
    22 February 2020 @ 14:38
    You need to go to 21 mins left to get the history and basis of a tontine which then makes the interview more lucid from the start. Max is clearly enthusiastic, just needs to learn to cut his input by about 75% to extract more from the interviewee.
    • WM
      Will M.
      22 February 2020 @ 14:45
      Sounds like an interesting concept though. I have a pension that offers an annuity initially at 6% of capital. BUT it offers no inflation protection so clearly even at 2.5% per year, your annuity real payment halves in less than 18 years. Further there is always the risk of annuity failure in a crisis and of course you lose all the money in the end.
  • JF
    Jennifer F.
    22 February 2020 @ 01:15
    Why does the interviewer talk so much?
  • SB
    Sean B.
    21 February 2020 @ 02:47
    This is fascinating and a product I’m interested to learn more about. Obviously there is not a lot of trust that social security, annuities, and defined contribution will achieve our retirement goals. So, I’m interested to learn more about strategies like tontines. The story of them being killed off reminds me of absinthe being killed off by the wine industry around the same time. Thanks Dean and RV. Cheers
  • EB
    Eric B.
    20 February 2020 @ 19:08
    Defining a tontine would have been a great start. I’d never heard of it. Dean was awesome and I hope you have him back. The history behind the to time, his personal experience discovering it, and his approach going forward are great.
  • NR
    Nathan R.
    17 February 2020 @ 20:28
    Tell the young fella to stick a sock in it and let the Irishman talk...
    • RP
      Raoul P. | Founder
      17 February 2020 @ 22:04
      Dude, be polite please. This isn't the youtube comments section. Just say it respectfully if you think Max talked too much in your opinion.
    • TS
      Tim S.
      17 February 2020 @ 22:33
      I thought he was fine. He was excited and wanted to participate but did not take the interview onto a tangent. I'm enjoying the rookies.
    • NR
      Nathan R.
      17 February 2020 @ 22:37
      I apologize if my language was too harsh.
    • MM
      Michael M.
      17 February 2020 @ 22:46
      I thought he was the perfect interviewer, very knowledgeable and he guided the conversation along nicely.
    • MW
      Max W. | Real Vision
      18 February 2020 @ 01:07
      Hi Nathan. No offense taken. I approach every interview I do with a “stick a sock in it” mentality. Occasionally, like in this interview, a guest or subject matter lends itself to more interjection and discussion from my side. For the most part though, I know I’m not Mike Green or Raoul, and I try to conduct myself accordingly.
    • SC
      Shawn C.
      18 February 2020 @ 04:52
      I read a comment the other day about Mike Green and how his questions are as long and entertaining as the answers. Max, I thought you provided key insight based on your experience in the annuities market. I'm especially glad you circled back to the "History" aspect of Tontines, having never heard of them before. Well done on all accounts. Fascinating topic.
    • RA
      Robert A.
      19 February 2020 @ 01:06
      Max, appreciate your humility, but I thought your interview was perfect and your comments on Annuities were not only apropos, but spot on as well. Don’t sell yourself short Max—with time you can develop the chops to be in the same league with the very best. Just keep watching your RV hero’s....you have the opportunity of a lifetime to hang with the RV crowd.
    • WS
      William S.
      20 February 2020 @ 18:46
      The kid stays in the picture! Apologies to Robert Evans....
  • GF
    George F.
    20 February 2020 @ 14:15
    This is an important subject but I think it would be better as a lecture than as an interview. PS In general, RV has a technical problem with its audio-video synchronization, at least on my iPhone XS Max
  • DS
    David S.
    17 February 2020 @ 08:14
    At 73 the problem of how much to spend during your retirement is real. Tantines, however, are dead on arrival with low interest rates and markets at inflated P/Es. Where are you going to invest these funds without impairing the principal?? In the old tantines the distributions were funds in excess of the principal. Do you really want to go to all this effort to to divide up the current gains on the principal with conservative investments?? If you want to bet on being the last person alive, have mutual life insurance policies paying off to members of the group. Invest your own money and leave the residual to your family, not to whomever lives the longest. Buy a lottery ticket if you want to gamble. In desperate times, all kinds of schemes come out of the woodwork. Please be really careful with your retirement money.! DLS
    • DM
      Dean M. | Contributor
      17 February 2020 @ 09:09
      Hi David, It is true that the investment landscape is far from ideal but that does not detract from the fact that Tontines are, for the past 400 years, the most efficient longevity protected investments available regardless of the investment landscape due to what the Wall St. Journal MarketWatch column describes as "the only asset class in the world that offers guaranteed alpha in the form of mortality credits". No doubt some consumers like yourself would rather gamble their life savings on the continuing solvency of a highly leveraged insurance company and of course that is your choice but for those consumers that do not want to accept that level of credit risk without compensation and which would prefer to invest in a longevity protection solution with 90% lower fees then Tontines are the answer as illustrated by the conversion of the $16BN Royal Mail Pension fund last year with the full backing and support of the UK government. Regards Dean.
    • DS
      David S.
      17 February 2020 @ 16:51
      It is simple. Classic tantines did not touch the principal which was invested in stable interest rates with low counterparty risk. Let's stop the fiction of back testing in a world that no longer exists. The new "tantines" you discussed merely recognize this by reducing payouts as returns and capital losses are less than enough to maintain the payouts. Why do you think you know my investments without any knowledge? I am closing in on 74. I am waiting to act with treasuries and gold for all the money to stop flooding into passive. My CPI is low. I have no leverage or debt. If I die before the next market crash, my residual will go to family and charities - not to someone else who lived longer. Professional money managers have an impossible task in today's market. This video is important to prepare them in case a client calls them about a tantine. I would like to know the percent of your portfolio is actually in tantines? What is your skin in the game? DLS
    • DS
      David S.
      17 February 2020 @ 17:58
      The Royal Mail Pension Fund is merely recognizing they can no longer be a defined pension plan in the modern world. This is not an endorsement for tantines. Many US corporation realized defined pension plans were not viable in the 60s and 70s. They switched to contributing to individual retirement plans like 401s. I wish The Royal Mail Pension Fund the best with its investments as a lot of people are depending on them. DLS
    • JW
      Jason W.
      20 February 2020 @ 11:44
      Well said 👍🏻.
  • TS
    Theodoros S.
    19 February 2020 @ 19:25
    The forerunner of financial products (tontines), so interesting. But not so sure if the tontines have a place in today's financial word and even in the actions needed to be done for the saving of pensions system.
    • DM
      Dean M. | Contributor
      20 February 2020 @ 11:16
      There are new academic publications happening every week advocating for the return of the tontines (here is one of the original advocates: https://youtu.be/tDmMgniqV_c) and I can assure you that we already have governments interested in doing this nationally having seen the effect it has had on Denmark, Netherlands and even in the State of Wisconsin. Basically it is as inevitable now as the eventual rise of index funds were once Vanguard decided to trust the academics and launch the first one.
  • JK
    Jan K.
    20 February 2020 @ 10:42
    Never heard about tontines before. Fascinating stuff.
  • VD
    Vishal D.
    18 February 2020 @ 11:04
    isn't bitcoin the tontine he is looking for...everyone lost one increases everyone else's value
    • RV
      Ryan V.
      18 February 2020 @ 22:34
      No because more shares are regularly minted. Not a tontine
    • IO
      Indi O.
      19 February 2020 @ 00:05
      Only in the sense that the value when you sell may be higher if the available supply is lower, given the decelerating rate of new issuance until it gets to zero new coins mined. However, you have to sell to make profit. Tontines supply regular income over the life of the investment.
    • DM
      Dean M. | Contributor
      20 February 2020 @ 08:01
      In a way yes. Now imagine a few years down the road when we are also allowed to create a separate alternative tontine that only invests in Bitcoin. Members benefit from mortality credits within the tontine in addition to seeing the value of the Bitcoin go up due to lost keys elsewhere in the ecosystem. True story: Lost my first Bitcoin in 2011 😆
  • SS
    Sam S.
    19 February 2020 @ 19:30
    Without having done any homework, yet, if I put in $1 Million and the Trust pays out, say $700,000 total until I die, what happens to the remaining $300,000? Additionally, if my kids buy in, say at age 40, how and when do their payouts work? I'm sure a lot more questions, but right now I'm Sgt Shultz---I know nothing!
    • MW
      Max W. | Real Vision
      19 February 2020 @ 20:22
      The following is my personal analysis and not that of Dean McClelland or Real Vision... In the most basic tontine that $300,000 amount would be absorbed into the tontine and paid out to surviving members, increasing the yield as members die. This is analogous to owning term life insurance and not dying within the term. You do not recoup the premiums paid, but you did have "peace of mind" during the term. In the case of tontines though, you are buying insurance on not dying. An annuity offers the same form of longevity insurance where your nominal return improves the longer you live. In both annuities and tontines dying young is bad and you "lose money", but that is not the point. It should not be compared to strategies designed to grow/preserve wealth. It is for money that is intended to be spent during your lifetime. Yes, if you live to be 120 and outlive everyone in the tontine your "return" could be high and compared with other wealth creation strategies but the more important case is that of 100 year old who has outlived all of their savings or desperately wants to leave certain assets untouched to have something to pass on to their kids. In that scenario if an annuity pool and tontine pool were started at the same time, with the same number of members, and are invested in the same way, the income check for a tontine can almost be guaranteed to be higher for an identical 100 year old in the tontine than one in the annuity because of the human mortality aspect. Thus the 100 year old tontine members are more likely to sustain themselves if it is their only income, or allow them to live with out dipping in to assets intended for passing on to future generations.
  • SS
    Sam S.
    19 February 2020 @ 19:22
    Max is young, intelligent, full of positive energy on a subject close to his experiences. Yeah, it wasn't perfect, but in my opinion (IMO) there are no full length presentations that answer all the questions. It take years of experience and study and maybe even a diploma. To be honest in all respects, I'd never heard of the Tontines Trust. RV teaches me something every time I watch a video presentation AND when I read the comments from so many very smart subscribers. Thumbs up to Max and Dean McClelland. Dean was patient and very smooth in his responses and explanations. I'm off to the internet to learn more. All Best!
  • JA
    John A.
    19 February 2020 @ 14:34
    Biggest complaint is the at 13 minutes in, I still haven’t heard what a tontine is! I had to google it.
  • MB
    Michael B.
    18 February 2020 @ 22:06
    First time I have seen an interview by Max. Great job! Love that different people on RV have their own unique style.
    • RA
      Robert A.
      19 February 2020 @ 00:55
      Agree Michael, Max was excellent. This young man has a bright future!
    • sm
      sam m.
      19 February 2020 @ 08:19
      I think (a lot) less Max and more guest would be an improvement but YMMV. Or replace max with the voiceover seen in interviews where the interviewer is not shown. Max isn't who we are paying to hear.
  • FF
    Farouk F.
    18 February 2020 @ 07:07
    Dare I say that Max is one of the best interviewers that Real VIsion has. Aside from Michael Green, Raoul Pal and Jim Grant, there is no one that I would love to see more of.
    • RA
      Robert A.
      19 February 2020 @ 00:59
      Agree Farouk, but don’t forget Justine Underhill (and of course Ed Harrison)....haven’t Justine in the “Chair” for awhile.
  • JW
    Jason W.
    18 February 2020 @ 17:45
    Whose the interviewee here ?
    • LX
      Lai X.
      18 February 2020 @ 20:32
      Ikr, this interviewer is so eager to articulate that this interview felt like a front heavy dialogue, which is fine in neutral perspective, but it is somewhat far from the typical style of a real vision interview.
    • JH
      Jacqueline H.
      18 February 2020 @ 21:50
      Exactly, I almost bailed on the video because he wouldn't let McClelland go through his own arguments without interruption.
  • JC
    Joel C.
    18 February 2020 @ 12:04
    as Dean said, a great definition of happiness is 'the expectation of positive change in the future'; great interview with a great insight into something which might just help everyone in their own futures > leaves me feeling happy! and good work Max... keep it up.
  • BT
    Brett T.
    18 February 2020 @ 08:13
    A great idea from the past. I love the change in the psychology it produces, i.e. the lottery mindset. It sounds like it is being well developed by Dean, especially with the technological aspects adopted. As Dean said himself, this is the first genuine concept I've heard of that seems made for distributed ledger technology #blockchain. It took half the interview to get to the meat of the discussion but it was worth it. Thank you to you both, and Real Vision. My mind is now spinning with how the tontine concept can be used more broadly.
  • MW
    Max W. | Real Vision
    17 February 2020 @ 19:40
    Thanks to comments below, I now realize that a standard example of a tontine is not given at the beginning of the video. If you are not already familiar with the structure it may help to look at this definition of a tontine as provided by wikipedia before viewing: "A tontine is an investment plan for raising capital, devised in the 17th century and relatively widespread in the 18th and 19th centuries. It combines features of a group annuity and a lottery. Each subscriber pays an agreed sum into the fund, and thereafter receives an annuity. As members die, their shares devolve to the other participants, and so the value of each annuity increases. On the death of the last member, the scheme is wound up." This is the basic structure, but there are many variations and features that can be added depending on the situation. In the end, a tontine is a contract and no two tontines are exactly alike.
    • TS
      Tim S.
      17 February 2020 @ 22:37
      Good catch, I participated in a liquor tontine and when each person died we drank their bottle. The worst part was that some of my colleagues were cheap bastards and bought a drink that would not age well. A couple even added an FU because they knew they would be dead. All in all, though it was a good time and out of 9, there are still four bottles left and I am looking to drinking my 50-year-old scotch if I am the last person out.
    • MW
      Max W. | Real Vision
      18 February 2020 @ 01:15
      I love it! Perhaps the best use case I’ve heard yet, and maybe even a great business hidden in there somewhere.
    • TW
      Tom W.
      18 February 2020 @ 01:19
      I paused the video and Googled Tontine so I had a clue about what in the world they were talking about!
    • MN
      Michael N.
      18 February 2020 @ 05:24
      thanks I enjoyed this interview very much. I like that you had some knowledge of the "shadiness" of the insurance industry. For me particularly I worked for the Snoopy one, and the "lost check" absconded by an employee was quite the frequent case. it was not unique to them, but I was horrified that this happened as frequently as it did.
  • ID
    Igor D.
    18 February 2020 @ 01:06
    I like the kid! Very passionate. Good choice.
  • tW
    tgwtom W.
    17 February 2020 @ 14:20
    Ok I'm a dummy never having heard of tontine. So the fact that it was never explicitly defined /explained in any setup early on was semi-infuriating so I could not follow any logic train of thought and had to give up on the interview. Sorry. At least I'll read up on the subject independently.
    • SP
      Sat P.
      17 February 2020 @ 19:17
      Agreed, he never explained what a Tontine was at the start so it was very frustrating to watch
    • MW
      Max W. | Real Vision
      17 February 2020 @ 19:35
      Hi Tom and Sat. You are totally right, sorry about that. The first example we give is not till later in the video. I always appreciate comments like this so that I can improve our content and improve myself as an interviewer. Wikipedia has a brief explanation which could help to frame the conversation... "A tontine is an investment plan for raising capital, devised in the 17th century and relatively widespread in the 18th and 19th centuries. It combines features of a group annuity and a lottery. Each subscriber pays an agreed sum into the fund, and thereafter receives an annuity. As members die, their shares devolve to the other participants, and so the value of each annuity increases. On the death of the last member, the scheme is wound up." This is the basic structure but there are many variations and features that can be added depending on the situation. In the end it is a contract and no two tontines are exactly alike.
    • DB
      Douglas B.
      18 February 2020 @ 00:21
      Wow. Semi-infuriated? Ever heard of Google? 🤦🏻‍♂️
  • wj
    wiktor j.
    17 February 2020 @ 17:15
    There is 2 problems with this. 1 how does he earn money? 2 what is left to the kids? There are only 2 winners the fund fees and the one left standing. In an age where people live longer ypu still risk going bust.
    • DB
      Douglas B.
      18 February 2020 @ 00:20
      Why is not leaving anything to the kids a bad thing? Let the kids self actualize and create their own wealth.
  • jS
    john S.
    17 February 2020 @ 23:48
    Many of the pension issues have come about from society moving away from family and community based structures to government and corporate controlled pension systems.
  • TR
    Thomas R.
    17 February 2020 @ 20:37
    What is a Tontine? I found this quite amusing https://www.straightdope.com/columns/read/722/whats-with-tontines-the-odd-annuities-in-which-you-benefit-when-others-die/
  • MZ
    Matthew Z.
    17 February 2020 @ 17:13
    This was awesome
  • PG
    Philippe G.
    17 February 2020 @ 16:50
    Interesting topic!
  • JH
    Jesse H.
    17 February 2020 @ 15:54
    Love this - first few minutes were hilarious. What a great storyteller and thoughtful guy.
  • CL
    Claudio L.
    17 February 2020 @ 14:00
    Great interviews, an old concept that can bring some good answers for correcting deficits on the pension system globally which can be combined with new technologies mentioned on this video to bring up more transparency into the system from all angles, a potential alternative that will have legs to evolve.
  • KG
    Kos G.
    17 February 2020 @ 06:39
    Just to save you one google search: Here is the Citi Group report mentioned at the 12th minute: https://ir.citi.com/A9PruMxsx32cucD9nPyz6VOD1aXLcqQ1bFnuNFZcDqWVvkop5NYU6Q%3D%3D