The Study Of Our Business – Episode 029

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[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your hosts, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome to another edition of the Prosperity Podcast. This is No BS Money Guy, Todd Strobel. Once again, we’re fortunate enough to have our financial expert and bestselling financial author Kim Butler with us. Hi, Kim. Hello, Todd. We’re going to have a fun discussion today about what’s up at P4P. Is that what we were talking about? Absolutely. And we say P4P, we mean Partners for Prosperity and on the web, that’s partnersthenumberforprosperity.com. And we have a free set of information for you there.

[00:49] So if you go to partnersthenumberforprosperity.com backslash ebook, you can download some special stuff that is just there for our listeners, but let’s jump in at what’s up at P4P. Well, this is kind of a fun discussion that’ll be a little different than we’ve had in the past. And it’s because we at Partners for Prosperity had a portion of our business analyzed recently by one of the insurance companies that we represent. And so they took a look just at a portion of our business. So we have three main products that we provide and life insurance is one of the three. And they took a look at all of the insurance that we have on the books over the last 20 some years. And so it was interesting because one of the things that they told us is that we

[01:39] have one hundred and fifty six million dollars of death benefit on the books. In other words, we have throughout the country placed one hundred and fifty six million dollars of death benefit, a million at a time, one hundred thousand at a time, a couple million at a time or twenty five thousand dollars at a time. I know we have policies that small and, of course, bigger than a couple million, but not a lot. We have a nice, broad practice with lots of people in it. So how does this help you, the listener? Well, it’s an interesting number to just think about. So, you know, this is one agent out there in the marketplace with one hundred and fifty six million of death benefit that are going to be paid to families

[02:24] over the next, who knows, good heaven, some of those policies could last a hundred years. And so it’s interesting in the financial planning arena, which if you’re a listener to this podcast, you know that one of the e-books that we give away is about how financial planning has failed. And yet many, many times life insurance agents are lumped into this category of financial planning. And one of the ways that our industry, the quote financial services industry, I’ll use that term, measures its success is by something called assets under management. And so if you get an article about the top financial planners or you get, you know, Worth magazine profiling a particular financial planner or financial

[03:10] advisor, sometimes the term is used as well, they will be talking about how many dollars they have in a term called assets under management or AUM. Now, this always interests me. If I were a consumer, I were a client, I were a prospect, I were a person that had money and I wanted to go visit somebody to help me with that money. I’m not really sure that I would care how many assets under management they had, but it is a very common measuring tool. And so it’s interesting to look at our business that way. We do not have technical assets under management. First of all, because those are typically measured as stocks, bonds and mutual funds, and we’re not big believers in those. So we don’t have any, but we do have about six point eight million dollars

[04:03] of cash value across our client base. And then, as I indicated, this one hundred and fifty six million of death benefit. So Todd, what do you think some of that death benefit might do for our clients over the course of time? Any guesses? Well, quick question before I answer yours. And that’s is there a particular type of insurance that that one hundred fifty six million dollars represents? Oh, that’s a great question. So it is made up of both whole life insurance and term insurance. So not any universal life, not any indexed products, not any variable products, just basic, old, boring, whole life and term. Now, somebody might be a little surprised. Why do they have term insurance? Because we believe in a concept called human life value.

[04:51] And every client will want to have their human life value, which is typically going to be done in a combination of whole life insurance and term insurance. And the human life value definition is typically about 15 to 20 times your income. So if you take your basic person that’s maybe earning one hundred thousand dollars, this is an individual, not a family. Their human life value could be as high as a couple million. And that for a family is going to have way too high of a premium and pay to petition contribution level to it. So maybe that two million is made up of two or three or four or five hundred thousand of whole life insurance and let’s say a million five of term insurance. And we have a fabulous term shopping service that lets our clients

[05:48] type in a few things on the Web and get very inexpensive term insurance shopped for them all across the country and a whole variety of companies. And it enables them to make sure that they’re getting the cheapest term insurance out there. Now, we could have a discussion about whether it’s convertible or not and is cheap, always the best, etc. But maybe we’ll save that for a later day. I just am grateful for your question because it is definitely term insurance and whole life insurance combined super. Now I need to answer your question. And to me, that hundred and fifty six million dollar death benefit represents a permission slip for those people who are the insured or the owners of those policies to go out and use

[06:34] the money that they have that they would need to save otherwise to take care of those people that they’re responsible for and hopefully invest in themselves or in a business. Absolutely. So a lot of people look at life insurance as death insurance. Oh, somebody is going to get money when I die. But life insurance is called life insurance for a reason. And so this permission slip concept is one that we’ve talked about before. If you’re not clear on it, I would encourage you to check out that e-book because we do speak about it a little bit. So partners for prosperity dot com slash e-book. And you’re absolutely right. It’s a permission slip to spend other assets and create good while they’re living because they know that death

[07:19] benefit is going to be there for them later. And then, of course, there will be the occasional client that does pass on early. And that death benefit cares for their family the way death benefits are supposed to. Awesome. So we had the one fifty six million in death benefit. And then what was the cash value? Six point eight million in cash value. So let’s talk about what that does for our clients. So any ideas on what people can do with that cash value? Anything they want to. And that’s what’s important. Yeah, that’s right. Back to the clue acronym, right? You can use it. See, you use it for anything you want. So I know personally that we have bought cars and real estate and investments with it.

[08:02] I know other families that have bought businesses with it, educated children with it, gone on vacation with it, bought a home with it. We just had a client bought a home as used their cash values, the down payment. And now then they’ll work on paying their mortgage. Thirty year mortgage, of course, no extra payments. And they’ll work on paying their life insurance loan back. And they’ll do the life insurance loan maybe over five or ten years. And of course, the mortgage over 30 years. So the whole idea of being able to borrow against your cash value and use it while at the same time it is sitting there growing is so effective for clients, because most people, if they save up a bunch of money to buy a home and they then drain

[08:46] their savings account, then they’re starting over again at ground zero. Whereas our clients get to borrow against it, keep that savings account continuing to grow at its full value while at the same time they got to use it as a down payment for their home. And then you have to take a minute to educate our listeners a little bit about one of the things we’re focusing on so much lately. And that’s creating an arbitrage with that money. Absolutely. So you have an opportunity to borrow against cash value at five, six, seven, eight percent, depending on what company you’re using. And then you can invest it at 10, 11, 12 percent. So we talk about bridge loans as an investment. We talk about life settlements as an investment.

[09:28] Both of those environments can easily earn low double digits. So let’s just use the worst case scenario on the loan side of, say, an eight percent cost and the worst case scenario on the investment side of, say, a 10 percent gain. Well, a lot of people will just immediately assume that’s a two percent improvement. But it’s not. It’s actually a 25 percent improvement. If you have a cost of eight and a gain of 10, you’re getting a 25 percent improvement in your situation. So this arbitrage idea is not for everybody. We want to make sure that people have their emergency slash opportunity fund covered before they start to borrow against their policies for investing. But it is interesting to me how much conversation is out there

[10:15] about borrowing against policies, using the infinite banking idea or bank on yourself or what have you for debt. When to me, the real value is to leave the cash value alone and have it available for opportunity and emergency if needed. But of course, it’s way more fun to think about an opportunity fund and then to have the ability to borrow against that and invest that money. So let’s be borrowing against our cash value for opportunities instead of for debt. And that can put our situation that much further ahead because we have the opportunity for a incredible return where we’re literally getting to use the dollars in lots of different ways. So our dollar is used for the cash. It’s stored as cash value.

[11:01] It gets the dividends. And then it can also be used for investments in addition to that. Now, we are recording this in July of 2015. And I’m thinking of the cash value that’s stored in banks. And certainly, I don’t think even 156 million, even if we looked at all that, would compare much to what’s being stored in banks. But the rate of returns at the banks right now is far less than the rate of inflation. So the money you save today will be worth less a year from now. Same problem at the insurance company, you think? Definitely not. And that’s one of the real values of using cash value of whole life insurance as your savings vehicle instead of at the banks. And so I want to make darn sure that our listeners know

[11:53] if you own whole life insurance, you should keep it no matter what the company is, no matter whether you had manual paid up additions added to it or not. That existing whole life product is valuable. And I’m always so disappointed when I hear that a client didn’t feel like their whole life insurance was helping them. And so they canceled it. Now, sometimes it just happens you can’t do anything about it. But typically, when there is insurance agents out there that are replacing whole life insurance policies with other policies, it’s because they truly do not understand what whole life is. And again, one of the best things that you can do if you own whole life and there’s families out there that have old, old whole life policies,

[12:36] keep them. They are the best product that you have for storing cash. We don’t call whole life an investment. It’s a place to store cash. Awesome. What other numbers do you have for us? Well, there was a variety of other interesting things that they shared with us, those that analyzed that part of our business. And one of the other pieces is on the whole life side, the average death benefit was four hundred thousand. I think a lot of times people think, oh, I have to have this big million dollar policy to do any good. Not true. We definitely have clients that do, but the average was four hundred. And then back to the bigger picture and our discussion that we had at the very beginning of our conversation

[13:18] about the assets and our management that other financial advisors talk about. We definitely could add up all of the money that we have in life settlements, which is one of our alternative investments that’s earning those double digits. And we could add up all the money that we had in bridge loans. And that’s another investment that we offer that is earning those low double digits. And I am going to guess that those might be in the eight to 10 million realm. So kind of interesting when you look at our business, pretty evenly dispersed between the one savings vehicle that we offer the whole life and the cash value. And then the two investment vehicles that we offer in what I would call about a one third to two third split.

[14:06] And I was talking with a client the other day. Well, what should my asset allocation be? And I said between 20 and 30 percent of all of your dollars sitting in a liquid account, cash value, life insurance, the most effective place for that. And then the other two thirds, if you will, possibly even up to 80 percent invested in split 50 50 between these two alternative investments. And that’s approximately how it plays out amongst our client base as a whole and our company as a whole. And that’s way, way different from the typical asset allocation structure that an advisor would give you with the stocks and the bonds and the maybe growth oriented things and value oriented things, et cetera. We believe 20 percent should be in cash.

[14:54] So that’s from a net worth standpoint. But it’s interesting because 20 percent of your income is also what we recommend should be going towards that cash account. Now, if you get to a point where 20 percent of your net worth is stored in cash, then maybe your savings can convert over into investing. But I find that as client families get older, they want their cash position to be higher. So where you might start out today with 20 percent of your income going to create 20 percent of your net worth in cash, then as you get older, you might continue to contribute to your income because your position in cash as it relates to your net worth goes to 30 and then 35 and then 40 and maybe even on up to 50.

[15:45] In other words, half of your net worth in cash. Our older families, I think, would be completely happy with that as long as their investments were kicking off enough money to make sure that they had enough to live for their life and do whatever kind of legacy work they wanted. So 20 percent cash, that’s a good number, whether you’re talking about income or net worth. What’s most impressive to me is that each of these policies represent somebody who came from the outside world and really had their perspective change. So the way that they saw their finance, their finances literally change so that they could change their finances for the future. They learned to look at cash flow as more important than net worth.

[16:35] They learned to look at the living benefits of life insurance and how to buy the smallest amount of death benefit for the biggest premium, which even today when I say that sounds absolutely crazy, but it’s true, isn’t it? Absolutely. And it’s something that we’re so happy to help with. And this shift in thinking that you’re speaking of is an important one. And you have to go look at the societal transactions that occur in people’s financial lives and say, are they getting good results? And I think many times we would say no. And so that means you’ll want to make different decisions and have different transactions if you want to have different results in your financial life than those of your friends and family and people around you.

[17:23] So we love helping that transition in thinking occur, which then, of course, causes a transition in action, which then, of course, gets you different results, much, much better results, way more sleep at night, much less involvement in the stock market, much less worry about what’s happening at your bank. Higher risk versus higher returns. Again, another fallacy that’s out there that represented by these folks that you’ve had a chance to talk to and educate them. First of all, if that’s true, then the casino is the best place to invest your money. Second of all, it’s usually only to encourage commissions. So we’ve talked about non-correlated investments today. We’ve talked about savings inside of whole life.

[18:07] Anything else you want to mention before we wrap up? Well, one last little thing on the study of our business, which I was just thrilled about, and that is that we have a huge disparity of ages. We have literally people in their 20s all the way up to people in their 70s. And that’s pretty unusual for a practice. Most practices hone in on a particular age. And we’ve just always been big believers in helping everybody that we can. And so I was quite proud to hear that we had a very, very wide age disbursement, and it’s not that we just had one 20 year old. We have 30 percent of our clientele under 30 and then about 30 percent in the 30 to 60 and the other 30 percent over 60. So kind of fun. Here’s a question for you.

[18:52] Those people that are in their 20s and 30s who come in off the top of your head, would you say the majority of them come to you directly or are they referred to by someone in the upper age category that wanted them to know this? Wow, that’s a really good question. My guess is it’s about 50 50. We definitely have people that find us off the web or through just their own peers or a book or what have you. But then you’re right. Many, many people come to us because a parent or a grandparent has found out about our work and is helping that parent or grandparent. And then they want those adult children to benefit from the same thing. And so that’s a fun generational family involvement that we get to have.

[19:38] Before we wrap up today, I wanted to once again mention the gift you brought for our listeners. Partners, the number four prosperity dot com slash ebook called Financial Planning Has Failed. It’s got information about our strategy work, which many people would call financial planning, which, of course, we don’t. Then it also has information about the life insurance. It also has information about the bridge loans and our effectiveness with those. And then the life settlements are other alternative investment that we like to use to get those low double digits. Super. Well, this is No BS Money Guy Todd Strobel for the Prosperity Podcast. Once again, thanking our special co-host, Kim Butler. Take care, everybody.

[20:21] Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you. Visit us at partners for prosperity dot com. If you liked this episode, make sure you subscribe and leave a review.