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Episode 59: The World of Premium Financing with Michael Rothman
206 Plays5 years ago
For us, financial planning has three essential components: flexibility, the ability to customize for your specific needs, and the ability for you to control how your money grows.
In our most recent episode, we unpack one of our favorite financial tools—whole life insurance—in a way that carries through on those values of flexibility, custom-fit, and control. We’re talking with guest Michael Rothman about premium financing; a system where you can borrow the life insurance premium to pay for that policy and then you pay interest on the money that you just borrowed. Now especially, high net worth people can leverage these low-interest rates environments and gain the death benefit that they need, the cash value that can grow for them, while paying a small interest rate to do it.
Michael has an in-depth understanding of advanced tax and estate planning techniques as well as sophisticated leveraging and wealth preservation strategies. He works with Succession Capital out of California. The firm was formed in 2004 to address a void in the market: understanding and communicating about life insurance with advisors and high net worth individuals and business owners.
Michael joined Succession Capital in 2008 and is responsible for business development on a national level. He oversees all major initiatives at SCA. He’s an accomplished speaker throughout the financial industry and has his CFP designation. Michael is responsible for case design, presentation, and implementation of these advanced planning concepts.
what you will learn in this episode:- What premium financing is
- Who premium financing is for
- New ways to use life insurance to accomplish your goals
- The many ways the cash value of your life insurance is protected
- How to use long term loans just like big corporations do
- How to finance life insurance premiums the same way you would for property
- The tax and gift planning ramifications of premium financing for life insurance
- Why premium financing makes sense even when interest rates rise
Recommended
Transcript
Introduction to Pursuing an Uncommon Life
00:00:02
Speaker
Everyone dreams about living an uncommon life, but how we define that dream is very different for each of us. And for most, it's a lifelong pursuit.
Introducing Guest Michael Rothman
00:00:11
Speaker
Welcome to the Uncommon Life Project podcast. We're going to introduce you to people who are living that life or enjoying the journey to get there. We're going to also give you some tools, tricks, and tips for starting or accelerating your own efforts to live an uncommon life, a life worth celebrating and savoring.
Meet the Hosts: Phillip Ramsey and Brian Dewhurst
00:00:30
Speaker
Please welcome your hosts, Brian Dewhurst and Philip Ramsey.
00:00:34
Speaker
Hello and welcome everybody to another episode of The Uncommon Life Project, where I am your host, Phillip Ramsey. And I am Brian Dewhurst. Thanks for tuning in. We love that you came back, listened to another one. We have a really fun show for you.
Michael Rothman's Expertise in Wealth Preservation
00:00:47
Speaker
We have Michael Rothman from Succession Capital here. This is another tips and tricks that we like to implore for you guys just to be able to hear some different uncommon solutions to help you achieve your goals faster. So Brian, give us a bio and then we'll jump right into it.
00:01:05
Speaker
Yeah, Michael has an in-depth understanding of advanced tax and estate planning techniques as well as sophisticated leveraging and wealth preservation strategies. He works with Succession Capital out of California, and the firm was formed in 2004 to address a void in the market, understanding and communicating about life insurance with advisors and high net worth individuals and business owners.
00:01:27
Speaker
Michael joins Succession Capital in 2008 and is responsible for business development on a national level and oversees all major initiatives at SCA. He's an accomplished speaker throughout the financial industry, has his CFP designation, and Michael works with highly successful financial advisors and high net worth individuals. Michael is responsible for case design, presentation, and implementation of these advanced planning concepts. Welcome to the show, Michael
What is Premium Financing?
00:01:54
Speaker
Rothman.
00:01:54
Speaker
Well, thank you, Brian and Philip. Thank you for having me.
00:01:58
Speaker
Absolutely. And so we are going to be talking about a concept called premium financing today. So this concept, Brian and I were introduced to because we love to look at different strategies in a different light. And this is a perfect strategy, but it's not for everybody. So first I'd like to just talk about what a high level, maybe 30 seconds, what is premium financing? And then let's jump into like, who is it for? Cause it's not for everybody. So let's start with what is premium financing?
00:02:26
Speaker
And then maybe who is it for, Michael? Yeah, great question. So premium financing, I can give you a simple answer, Phillip, but in many ways, it's used in a variety of techniques that can be a little bit more complex than I'll let on here. But to keep it very simple, our clients are clients that need, want, and have value to own lots of life insurance to protect their assets.
00:02:50
Speaker
protect their families, to protect their businesses. When buying these large life insurance policies, most of these clients have better uses for their money than writing these very large premiums that it requires to purchase these large life insurance policies. As a result, premium financing becomes an incredibly powerful tool for these clients to purchase the needed life insurance, the large amount of needed life insurance.
00:03:14
Speaker
while being able to maintain their assets in other more profitable or more important investments in their overall portfolio, we like to use the term, fill up, retain capital. Using premium financing allows them to retain the capital that otherwise would be used to pay life insurance premiums in these other investments. Perfect. Now we're going to jump into further that, but okay. So who is this for? Let's talk
Who Benefits from Premium Financing?
00:03:39
Speaker
about that.
00:03:39
Speaker
Well, primarily, it is for high net worth individuals. Now that's a broad statement. So I'll try to qualify that as best I can. The absolute minimum net worth to look at a strategy like this would be $5 million. Now the net worth includes things like real estate, business interests, stocks, bonds, cash. Those are kind of the key elements. So it's illiquid assets, liquid assets, many of the clients we work with.
00:04:04
Speaker
are farmers. So for example, they have large amounts of farmland that are highly illiquid, but yet their net worth is very high. In essence, once you reach that level, you are typically in the higher tax brackets, you have things like estate taxes that prevent you from being able to pass assets on to the next generation. And in general, you have more to protect. So the need for life insurance and this type of planning
00:04:26
Speaker
becomes very important most of the clients i would say that we work with are in the fifteen to twenty million dollar range and higher but we do do a fair amount of cases year by year with clients in the five million dollar range as well typically those clients are younger i'd say fifty five and under.
00:04:44
Speaker
earning larger incomes, half a million dollars to a million dollars and above. There's a little bit of a range there, but 5 million would be the minimum I would consider to look at this type of strategy.
Partnership with Succession Capital
00:04:55
Speaker
Like you said, it's definitely not for everybody.
00:04:58
Speaker
And I think it would just be kind of fun just to point out, so you only work with like high, I would say, people that understand, advisors that understand concepts in life insurance. And so Brian and I got introduced to Michael and Succession Capital, because as you guys, and the more the majority listeners know, we know how to, I would say, look at life insurance in a different perspective. And this is exactly that, is looking at life insurance in a different perspective, knowing there is a need there
00:05:27
Speaker
but then also knowing how to use that and use life insurance for accomplishing goals for our clients. And so it's been a really good partnership and we've been super happy and thankful that we've had Succession Capital in our back pocket to be able to walk us through some of these more in-depth cases. Because as you understand, as net worth gets bigger,
00:05:48
Speaker
these solutions get a little bit more complicated. And it's really nice to have somebody to be able to bounce ideas off of and strategies. And Michael's been a great resource to us. And so, Brian, I'm going to shoot it over to you because I know you have a whole bunch of questions too. So go ahead. Yeah, thanks. And that's a great breakdown of what premium financing is. I was hoping, you know, because people hear the word life insurance, Michael, and they automatically default to death benefit. And that is, you know, the cases you're talking about one of the main
00:06:16
Speaker
reasons that premium financing works. Can you also get into some of the other use cases or design cases for premium financing that you guys are doing?
Life Insurance Planning for Clients Under 60
00:06:30
Speaker
Yeah, Brian. What's interesting is most of the clients we work with, we focus on flexibility and options when we look at life insurance planning. Most of the clients that we work with have the ability to use life insurance in a multitude of ways.
00:06:44
Speaker
I would say if your client is 60 or under, especially, that marketplace. When I say that, Brian, when you're looking at the 60 and older market, for the most part, those are clients that are buying these policies primarily for death benefit to protect the assets they've spent a lifetime building.
00:07:02
Speaker
But when you get the clients under 60, all the way down to 20, I mean, we have cases that we're working on in this moment with clients in their 20s that are doing very, very well. Those clients are using life insurance for a variety of reasons. One is, as you said, the death benefit protection, which is there to protect the assets that they built in many cases that they continue to build at these young ages.
00:07:22
Speaker
But it also is the tax-free cash value that builds up inside of these policies. In many states, and we work all over the country, those cash values are protected from creditors. In all states, those cash values are tax-free, sort of like a Roth IRA from a growth perspective.
00:07:40
Speaker
What's interesting is the policies that we finance, index universal life, whole life, are products that cannot lose money. In a market like this, where you have investments that can't lose money, that get conservative, consistent rates of return, and that we can then come in and loan money to the client, they could borrow money at incredibly low interest rates. As many of you know, in this moment, as we're talking, interest rates are very close to all-time lows.
00:08:06
Speaker
There are some really phenomenal opportunities to borrow money at really low rates, invest it at consistent conservative returns that are higher than those low rates, and get some level of arbitrage on a tax-free investment. And it becomes incredibly powerful for these high net worth clients in addition to the death benefit that they're buying as part of their overall plan as well.
00:08:27
Speaker
Yeah, that's great. So I want to caveat this because we're shooting this, I think it's like March 27th, every day kind of feels like a Wednesday or something. So we're in the middle of COVID-19 and the stock market has gone down about, I don't know, 30%, 35%. And you see, Michael, lots of companies borrowing money and you'll see Apple go out and do a bond offering for $5 billion.
00:08:53
Speaker
And they're doing that at 1.5% to 2.5% interest rate. I think Berkshire Hathaway did a 30-year corporate bond offering in Japanese yen for like 1.8%. So you see
Leveraging Low Interest Rates for Life Insurance
00:09:05
Speaker
these big Fortune 500 companies going out and borrowing money long-term.
00:09:12
Speaker
at incredibly low interest rates. And so that's what I think you're saying is this can work too for your own personal plan and creating something outside of your business. Is that a fair generalization? Right. So when companies like you mentioned Berkshire Hathaway are able to borrow money at such low rates, it's because they are giving the clients incredible collateral, a company that has been one of the top companies in the world for many, many years.
00:09:42
Speaker
The average client, even high net worth client can't just borrow millions and millions of dollars to put into any investment that they would like. What's interesting though is when you look at life insurance, because these policies are issued by AA, AAA, A plus rated insurance carriers, because these policies, as I mentioned, can't lose money.
00:10:01
Speaker
As long as our client has a strong net worth, they are able to borrow millions of dollars to put into these policies and let them grow on a tax-free basis to support a tax-free death benefit that is typically millions and millions of dollars above the amount of the investment, and do so at rates in the 2%, 2.5% range, similar to a Berkshire Hathaway in a lot of ways.
00:10:24
Speaker
It's a phenomenal opportunity for these high net worth individuals to get a tax-free asset, to leverage it up with millions of dollars from lenders who are willing to do that and take the cash values as collateral. It's a really great opportunity for clients. I do want to mention, we'll probably get into this Brian and Phil eventually, many of the clients that we see
00:10:46
Speaker
because we work exclusively through other advisors. It's advisors like you, Brian, and Phillip, and advisors that are probably listening to this podcast that would bring us in to help them with this type of planning for their clients. Those types of clients today really have this phenomenal opportunity to look at borrowing these dollars, but many of those clients already own life insurance. That makes it an even better opportunity.
00:11:11
Speaker
Because those life insurance policies can allow us to help collateralize these loans more effectively, to make those policies more efficient by loaning the premiums that they're already paying, and take their overall insurance portfolio to the next level. So there's lots of opportunities out there if you take the time to call clients. And even in a time like this, where a lot of advisors are maybe struggling to find ways to reach out to clients,
00:11:35
Speaker
We have seen our business actually tick up since the last couple of weeks when COVID-19 has become prevalent because they realized this is a phenomenal buying opportunity for what we put together for clients.
Comparing with Corporate Borrowing Strategies
00:11:47
Speaker
That's really cool. I want to kind of pull back here because I want to just show like, I think the listener, the average listener that listened to us is probably don't have a $5 million net worth. And so if you're still listening to me, like now, this is what I would say is at the end of the day, we all know that life insurance, we have to put some kind of premium in to get the life insurance, even term insurance. Like let's say you want a million dollars worth of term.
00:12:10
Speaker
It's, let's say, $50 a month, $600 a year. Let's just say that. Well, in this example, the death benefits that these high net worth earners need are exponentially bigger than a million dollars, sometimes upwards of $25 million.
00:12:26
Speaker
And these are permanent, I would say, policies, so they're more expensive. Therefore, for a $25 million death benefit, a lot of times that carries a significant premium that they have to come up with in order to secure that life insurance.
00:12:42
Speaker
And what succession capital does is has a system where you can borrow the premium in order to pay for that policy. And then you pay an interest rate on the money that you just borrowed, which is so powerful because these high net worth earners that we have and clients are trying to figure out how to leverage these low interest rate environments without necessarily going and buying a commercial property.
00:13:08
Speaker
or real estate. So this is a really powerful strategy. And what they've come up with is so perfect for this marketplace of this niche, because now they can actually leverage these low interest rates environments and have it all systemized. So it's perfect for them for the death benefit that they need and the cash value that can grow for them. And they're paying a small interest rate in order to do it. It's pretty powerful. So I hope that kind of helps put this in perspective.
00:13:37
Speaker
Yeah, I think that was super helpful synopsis there. Michael, I want to go backwards to like, you guys have been doing this when I say you guys, I mean, succession capital, you are the foremost authority, you know, I'd say from my understanding, like in the world on this concept and help to kind of create this niche market.
Evolution of Premium Financing Since 1996
00:13:57
Speaker
Can you kind of just go backwards and kind of talk about how this was created premium financing in your role as a firm and bringing that kind of to the marketplace?
00:14:06
Speaker
So the idea was created in 1996. The founder of our company, Julian, who is my business partner, Julian Mavazian, had a client case in Beverly Hills where the client was 71 years old, buying about $40 million of life insurance for estate planning. They had a large real estate portfolio.
00:14:25
Speaker
and they had a large estate tax due at mom's death. And so therefore the family was buying $40 million of life insurance on her. And the premium was close to a million dollars a year. And this is 1996. I mean, a million dollars a year in 2020 is a lot of money. A million dollars a year in 1996 was really a lot of money. So with that being said, the
00:14:48
Speaker
The client wanted to buy the insurance. They had all the planning put together to do that, but at the end of the day, when they were about to write the check, the CFO of the company, who was the client's son-in-law, said, you know, at the end of the day, we're going to be writing almost $2 million a year in pre-tax dollars to pay for this policy.
00:15:09
Speaker
Yeah, we're buying a 40 million dollar policy, but moms in the early 70s, if she lives 20 years, we're going to end up spending 40 million of income to get 40 million of insurance, and I don't think that's such a great return. When we buy a building, we don't put 100% down, we put 20% down, finance the rest, and that's how we built our portfolio, why can't I finance my life insurance? In 1996, there was no opportunity to do that.
00:15:34
Speaker
you know, a variety of factors coincided to make this work. And at the end of the day, it became a really powerful planning technique that we set up with lenders around the country that would loan on this. In fact, at the time, there was one particular lender who signed an exclusive with us and they did the majority of the loans in the country. And then in 2008, when the financial crisis happened, that lender sort of sold off the portfolio, we opened it up to a variety of lenders.
00:16:02
Speaker
But even going back 24 years, the concept hasn't changed that much of what I described at the beginning. Client understands leverage, client understands that they have better uses for their money than putting it into life insurance in this moment. So why don't I borrow the money, keep my investments going and still get the life insurance. And that concept, while it has evolved in many ways, at the core is still the case.
00:16:25
Speaker
And in the world of high net worth individuals, that speaks really powerfully to them. They understand that concept. And the fact that this is a conservative investment that is underlying the loan, we have clients in the Midwest especially that are farmers that are really conservative that don't borrow money ever for anything. And what we have found is those clients love this strategy.
00:16:48
Speaker
because it's not your typical debt. It's backed up by cash value of a life insurance contract.
How Does Premium Financing Minimize Costs?
00:16:53
Speaker
And so at the end of the day, it's just a better way to buy life insurance. And that's true 24 years ago, and it's true today. So again, for any client who has assets to protect life insurance as value fill up, like you said, whether you finance it or not, or whether you qualify for financing, but once you reach a certain level of net worth,
00:17:13
Speaker
this becomes sort of a no-brainer. And last point I'll make on this is we like to use the term power of choice. Even if we're talking to a client that qualifies, we don't tell them here's financing and that's it. We say here's life insurance, paying cash, here's financing that life insurance with our program, compare the two side by side. And if the client doesn't want to finance, that's absolutely okay. But most of the time, almost 100% of the time, they see the value.
00:17:36
Speaker
Totally. And so I want to go to this thing that you mentioned earlier called retained capital. So normally when, let's say that example that had a million dollar premium, one for the, for the first year, every year, you borrow that money. And then inside the life insurance, there's going to be cash value that is associated with that million dollars. Now it won't be a million dollars.
00:18:00
Speaker
Therefore, the bank, and this is why you said it was safe, will obviously retain that cash value and then the excess that they might not have in there. Let's say there might be $400,000, $500,000 of cash value in that policy. They are going to collateralize some portion
00:18:18
Speaker
of the client's assets, but it doesn't have to be changed. It can stay wherever it's at, but then they'll want that retained capital. So talk through that component of it because I think it's really powerful and really helpful for the client.
00:18:33
Speaker
I'm glad you brought this up, Phil, because I want to clarify. Part of what you're bringing up is correct. And then there's a layer I want to add to that that's really critical. So yes, for the most part, the collateral that is needed for the policy will be the cash value. And eventually, the cash value of the policy should collateralize alone 100%. Early on, there's some excess collateral needed. And a lot of our clients post either cash value that they currently have in life insurance, some stocks and bonds that they have in investment brokerage accounts.
00:19:03
Speaker
or letters of credit against their business to deal with that shortfall. And eventually that goes away, but there's not a cost to that. Like you said, it allows them to keep their investments where they are. They just have to post that as collateral. That's one aspect of what you said, retain capital. But I think the biggest aspect to retain capital is if I loan someone a million dollars to buy a policy,
00:19:24
Speaker
The interest on that in today's world is probably $20,000, $25,000 in year one. To buy that same policy with cash might cost them $3,000, $4,000, $500,000 or more in premium. The real retained capital is the difference between the $3,000, $4,000, $500,000 in premium they were going to pay and the $25,000 interest payment that they are now going to pay
00:19:48
Speaker
and being able to invest that difference in other investments or keep them invested in those other investments. That's the real arbitrage, as it were, is how much less they're paying in interest than they would have paid in premiums that is now retained in their pocket to grow in these other investments. That's the core of it and then not to get too complex.
00:20:08
Speaker
But there are gifts, tax ramifications for a lot of these larger cases. And so being able to pay less money also lends itself to gift tax planning, to gift planning when you're putting money into trust that takes some time. So there's just layer and layer upon layer to this.
00:20:26
Speaker
But of course, we customize each case to the client, every client's different. And so when we give a general look at it, then we talk about these concepts. But I think clients understand uniformly that if I can keep money invested in these other investments, pay less for my insurance, then that's a win.
00:20:43
Speaker
Totally. And then if you think about that example that you talked about of the 70 year old, she would really have to pay $2 million to pay $1 million because she's getting taxed on that. So it wasn't just $1 million to her. She was getting taxed on that over and obviously she's in a
00:21:00
Speaker
pretty high tax bracket, if not the highest tax bracket you could ever possibly think of. So she was paying way more than just the million dollars because of taxes. So on top of that, Philip, sorry, on top of that gift, gift taxes as well, potentially as that money, because the money normally is going to have to go from her estate into a trust. So 2 million pre-tax income tax, and then a million dollars into the trust that could generate gift tax on top of that. So yeah, it's, it's a big number.
00:21:27
Speaker
When you can chop that down to $25,000, it opens up lots and lots of planning opportunities for clients. For sure. I want to go to the next objective because I know there's listeners now who are like, but what if interest rate rise?
Impact of Rising Interest Rates on Insurance
00:21:41
Speaker
Let's talk about that because I love your talk track on that and I love that you've already planned for that. Go ahead and speak to that, please.
00:21:50
Speaker
Well, look, we've been doing this for a long time. And we get these questions all the time. And that's a common one, right? When you're going to borrow money, one of the first things people are going to ask is, OK, well, that's great. But what happens if interest rates go up? So interest rates are going to fluctuate up and down. We've been doing this for 24 years. And we have seen interest rates on these loans as high as 7% or 8%. And we've seen them as low as 2% where they're at today. And also, in between, last year alone, they were at 4%. So they kind of go up and down.
00:22:18
Speaker
Couple of things to keep in mind. One is, as I talked about with the retained capital concept, the reason you're borrowing is to pay less and keep money invested in your other investments. As long as those investments are earning more than the loan rate, it's a really good deal. For example, even if the interest rate were 7%, if your investments can earn 10% or 12%, you're still better off. In the past, when interest rates were at 7%,
00:22:44
Speaker
Clients had no problem earning greater than 7% either in their business and even at the time, CD rates sometimes are higher than the loan rate. Remember, these are short-term loan rates for high net worth individuals. It's very rare that they couldn't invest money at a higher rate. That's one thing.
00:22:59
Speaker
The second thing is, regardless of the interest rate, you're still saving money. For that example, the client who's going to spend a million dollars in premiums, even at 7% fill up, that's $70,000. That's a lot cheaper than a million. You still get value there. I think the third thing that's really important is the flexibility that is
00:23:18
Speaker
built into these designs, which I can't go into all those details here on the podcast, but suffice it to say that the premiums and the structure of these policies are extremely flexible so that we can make adjustments as things change. And finally, and maybe most importantly, I like to use the term a positive correlation between the products that we're buying and the interest rate. So let me explain what I mean by that. Normally, when clients borrow money, for example, let's use real estate. That's a common one.
00:23:44
Speaker
I think you'd agree, Brian and Philip, that when interest rates go up, that's not great for real estate in general. Because the cost of borrowing gets larger, so people don't want to necessarily... So in their mind, the cost of capital is higher, they can't pay as much for real estate. It's what I call a negatively correlated asset. Interest rates going up is bad for real estate. Interest rates going down is good for real estate. It's an opposite effect.
00:24:09
Speaker
With life insurance, which is the underlying asset here, when interest rates go up, those policies perform better. Actually, for example, when interest rates were at 7%, whole life dividend rates were at 8% or higher. UL dividend fixed rates were at 8% or higher. It's all relative. The actual asset class moves in tandem with interest rates. We also tell clients that not only is the arbitrage between your retained capital and the loan rate,
00:24:34
Speaker
and the money we're saving you. But on top of that, these policies tend to perform better when interest rates are higher. So right now, interest rates are really, really low. Whole life policies perform a lot higher. Dividends are in the 6% range. Interest rates are at 2%. Indexed universal life products can't lose money and have the opportunity to make money, especially in a down market like this. They should be doing better than 2%. And if interest rates go up, we expect that over time, all of those will improve as well. So for all those reasons, and we have to give the client the full story,
00:25:04
Speaker
They realized that the flexibility, the positive correlation, the retained capital, and the fact that all of this is done in a tax-free environment,
00:25:13
Speaker
gives them really the confidence to move forward. And one very last point, they could pay the loan off at any time. Remember, I said at the beginning, the power of choice, these are for clients that want to buy the life insurance. So if under the one in a billion scenario where it didn't make sense to finance, pay the loan off and own the policy like you would have had to anyway, it's always an option. So when we give the clients the full story, which is part of our job, almost 100% of the time, as I mentioned, they realized that if you're going to buy insurance, this is the way to do it.
Importance of Customized Investment Plans
00:25:42
Speaker
I love this too because you can see how it correlates so well with our company and the way that we just think because our first thing is it's got to be flexible. Whatever you put your money in, it's got to be flexible. It has to be customized and that's where I think Brian and I's value shine through.
00:25:59
Speaker
And I love that we can customize each and every one of these because there's so many variables at play. So the most important thing for Brian and I when we sit down with somebody is to try to see what the perfect investment for them would be and the ins and outs and the ups and downs of what's an investing in and this and that. But it's just customization and trying to ask the right questions so then we can put in a product that's perfect. And this allows us to customize it beautifully because there's so many ways to do that.
00:26:26
Speaker
for the individual. Everyone's different, so it's kind of tougher, but it gives us the access and availability to customize it. And then the third thing is control, like you just talked about. They have the control to do whatever they want at whatever way, pay it off, keep borrowing it, but it's perfect because those three things are all in play. And we talk about that a lot in our practice and also in front of our clients, like all of your plans will be flexible, customized, and you'll have the control of it.
00:26:54
Speaker
And those three things are really important for people, at least they should be. And for those uncommon wealth clients are very important. So I love it. So Brian, I'm going over to you because I've been talking. Brian, before you say something, I just want to add one thing because we're in this really unique period.
Opportunities Amid COVID-19
00:27:11
Speaker
I just wanted to throw something out that I think you guys might see some value in because right now, we like to take the positive approach, even though there's a lot of negative going on around the world, we think this is really in the end going to be a positive thing for the world in a lot of ways and we try to help our clients look long-term, not so short-term. With that being said, think about this. For our clients that have either index universal life products or whole life products,
00:27:37
Speaker
If you have an index universal life product, you're probably not going to earn anything this year because the market's down. If you have a whole life product, you're going to get 6%. Now, on the one hand, the client with the whole life is very happy that they're getting a return even in this down market. Now, on the one hand, the index universal life client is a little upset that they're not going to earn any money this year, but they realize that they're now, because the way these products work, able to buy into the market at, as you said, Brian, 30% off of its high and very likely are going to get a huge return next year.
00:28:04
Speaker
On top of that, when they get the renewal notice, the interest rate is probably 40% less than it was last year because interest rates have come down about 40%. Even in one of the worst economic situations we faced, even probably worse in many ways in 2008, the news that we're delivering to our clients in this moment is
00:28:24
Speaker
Either A, you have a whole life product that's earning money in this environment. You have an index product that's not losing money and has the opportunity to buy back in when the policy renews at this much lower market and earn a huge return. And you have a 40% reduction in your interest rate. So it's amazing that we've set this up and set it up to work in almost any environment. And in one of the worst environments we've seen, we can deliver a really, really positive story to clients and we feel really good about that.
00:28:53
Speaker
I think that's an amazing point. That's actually kind of where I was headed with this is, you know, I think oftentimes, you know, we meet with hundreds of families, you're meeting with probably thousands of families all over the country, you know, and you work with an advisor, you're really looking for wisdom in their perspective and seeing, you know, hundreds and thousands of different scenarios. And I think, you know, if you have a net worth over 5 million and you're a business owner, entrepreneur, you know, you want to,
00:29:20
Speaker
you want to gain the wisdom and perspective from other business owners and entrepreneurs. And that's what I love about you guys and your business partner, Julian, is that you guys are business owners and entrepreneurs. You're not like captive agents with some insurance company and you can only write one product.
00:29:36
Speaker
you guys are business owners and entrepreneurs in Newport Beach, California. I mean, what you guys have seen and the caliber of people that you're working with, like that wisdom and knowledge and expertise is like second to really almost none. And so I would just, can you highlight that? Obviously I'm not asking you to name clients or anything like that, but just, can you speak to kind of like what you guys have seen with, with just the caliber of people you're dealing with, the clients you're dealing with?
00:30:03
Speaker
And I think it's just that point too, Phillip and I just shot a podcast on just kind of the response to COVID-19. And this is one of the best opportunities in the last hundred years, in our opinion, and from a lot of different angles. And if you keep that positive open mindset and you surround yourself with similar type people, the opportunities out of this COVID-19 are really amazing. So if you could just kind of speak to that, that would be awesome.
00:30:30
Speaker
I'll give you some perspective from our
Legacy Focus for High Net Worth Clients
00:30:33
Speaker
point of view. You mentioned or Phillip did at the beginning that this is not for everybody and we kind of in that moment talked about net worth as the qualifier, but what we have found is it's also not for every high net worth client. At the end of the day, clients who are buying large amounts of life insurance are typically very family oriented and not every high net worth client is necessarily that way.
00:30:58
Speaker
when you look at the political spectrum or maybe the conversation around the world about clients that are wealthier and people have their own opinions, but in our personal experience and working with high net worth individuals that we work with and the ones that are buying large amounts of life insurance, they are amazing people, people that are generous, that are giving, that are
00:31:17
Speaker
care about their kids and their families and want to do what's right and so that i want to say first of all it's not necessary for every high net worth client is for clients that really care about what they built about their legacy about their family many of them are very charitable very you know faith based very interested in in helping
00:31:36
Speaker
people beyond themselves. I did want to point that out because we have seen a lot of really, really good people over the years in these programs. I think that's critical. On the one hand, it is about opportunity, but a lot of these clients, they're not looking for opportunity because they need more money. They're looking for opportunity to also
00:31:55
Speaker
take advantage of magnifying what's important to them, which is leaving this legacy. It's a little bit different mindset because most of them, even in a downturn like this, their lifestyle, their net worth isn't going to be adversely affected to the point where they have to worry about paycheck to paycheck. They're past that point.
00:32:13
Speaker
But they're really looking at opportunities for how can I enhance my charitable giving given this opportunity? How can I give a better legacy to my family? How can I protect my business more effectively and take advantage of, for example, the lower loan rates, take advantage of these
00:32:28
Speaker
life insurance policies which in this moment can perform better and help those causes. So I think it's important to make that point. There are a percentage of our clients who are younger who are doing this and they're building a lot more wealth, but most of our clients are in a different stage and their mindset is more about generational and outside of their own personal sphere and how they can affect it. So I think that's an important distinction to make as well.
00:32:51
Speaker
And they want to do it in the most efficient way. That's important. And then they want to do it efficiently and wisely, which, of course, they do. And in this moment, they see these opportunities. Like, for example, if you're going to gift assets to your next generation and now they're 30% lower on paper than they were last week, that's a great time to make a gift, right? And we've seen clients take advantage of opportunities where they'll convert their IRA to Roth IRAs in this moment because
00:33:21
Speaker
At the end of the day, they've had a 30% reduction. They can convert it at a much lower rate. And when the market rebounds, all that's tax-free. They are doing it obviously in the most efficient way. That's important to them. But like I said, these are clients that are smart. They're very good business people. But the life insurance piece is really about, I would say, like I said, this protection, this legacy, this
00:33:45
Speaker
enhancement and they see that at the end of the day, eventually they're not going to spend all their money. How can they most efficiently pass it to this next generation or to the other things that are important to them? And you couldn't pick a better time to be buying insurance to do that for these clients. You really couldn't totally. Wow. I just, I could talk about this all day.
Succession Capital Through Economic Downturns
00:34:04
Speaker
So, um, I think my last question, Michael is, you know, you have been through,
00:34:11
Speaker
your firm has been through the tech wreck in 2000 to 2003. You have been through, you know, basically the financial depression of 0809. I don't know why we don't use that term more, but we want to sugarcoat things. And now, you know, you're going through this. And so can you kind of just walk our listener through, and I think you've maybe touched on it, but just, you know, you had loans out, you had clients in these designs in 0809. How did that look? And how did your firm kind of help people get through that
00:34:41
Speaker
So we have renewed 100% of our loans through all of those times. The lenders themselves, even when lending is tight, remember these are fully secured by cash of life insurance contracts. And in any portion, as Phillip was referencing earlier, that are not collateralized by the cash values are collateralized by some other liquid type investment, whether it's a letter of credit, whether it's cash values of other life insurance policies or stocks or bonds. So the lender has essentially zero risk.
00:35:11
Speaker
So with that being said, they view these loans at the lowest level of risk and are absolutely more than comfortable making those loans no matter what the situation is. They're perfect loans for banks to make. However, our clients' net worth can get affected in times like this. And so it's very important that we help them manage through that and we are doing that in this moment. For example, if you posted a stock portfolio to cover a certain amount of collateral and that stock portfolio is down 30%, the lender might want to make sure that you have more money to back up the loan.
00:35:42
Speaker
But we're here to help them work through that process so that we can, you know, and even for very high net worth clients, they can be short term cash liquid crunches that can can make a difference. So we're here to also work through that with them. But in our experience, we haven't had any clients not
00:35:57
Speaker
be able to renew their loans in 2000, 2003, 2008, or 2020. We're working through it in this moment. And the advisors and clients that we work with are extremely grateful to us because of the relationships that we built. I just want to touch on this. We've done billions and billions of dollars of loans with the lenders. We're not the lender.
00:36:16
Speaker
And we don't get paid by the lender. Instead, what we've done is negotiated the best rates and terms for our clients to help them buy life insurance. And at times like this, we are the biggest client of the bank. We have billions of dollars of our clients' loans with them. They work with us in ways that they wouldn't work with anybody else. And that is directly benefiting the client. Great point. So how do our listeners work with you or get in contact with you? Let's talk through that.
Encouraging Advisor Collaboration
00:36:43
Speaker
So if you're a client, an actual non-professional life insurance professional or financial professional, if you're just a client, you certainly can check out our website, SuccessionCapital.com, but I highly recommend that you reach out to your advisor, whether it's Phillip, Brian, or whoever you see as your financial advisor.
00:37:06
Speaker
because we typically want someone who has the relationship with you to bring you to the table and manage you through this process, even though we're going to be a huge part of that. We're here in Newport Beach, as you said, and we rely on the advisor locally to be our partner in this.
00:37:22
Speaker
They can certainly read about us and hear about us if you're a client and user client, but I would contact Brian and Phillip and then they can reach out to us through that process. If you are a financial advisor and you're interested in working with us, then you can certainly reach out directly to us and in our website, there's several ways to do that.
00:37:44
Speaker
Yeah, thank you so much, Michael, for sharing this. Again, this is definitely, I don't say a niche, but I mean, it's very unique thing. And your company has been on the forefront of it for, you know, near going on almost three decades. And you guys do it with such class and character. And so yeah, I just thank you so much for the time and sharing all these, you know, wisdom and principles about this concept and your experience over that time.
Closing and Listener Engagement
00:38:10
Speaker
I really appreciate you guys having me and I hope everyone stays safe through this time and hopefully we'll do it again when we're not in the midst of this. But anyway, I appreciate the time and thanks for having me.
00:38:23
Speaker
Absolutely. So if you're a listener out there and you just want to know if this concept could be a good fit for you, we would love to at least just walk through some of the questions you may have. We're totally available on that. You can go to our website, www.uncommonwealth.com. We are always here to serve you and we are grateful to do that. So again, you've been listening to the Uncommon Life Project. I've been your host, Phillip Ramsey. And I'm Brian Dewhurst. Thanks for listening. Goodbye.
00:38:51
Speaker
That's all for this episode of The Uncommon Life Project, brought to you by Uncommon Wealth Partners. Be sure to visit uncommonwealth.com to learn more about our services. Don't miss an episode as we introduce you to inspiring people who are actively pursuing an uncommon life.