Financial Advisors

Rethinking the Realm of Advanced Wealth Management Solutions

There is a hard truth for advisors of high net worth (HNW) family and business wealth that they have to face: True comprehensive wealth management in this space requires a very broad, encompassing set of strategic financial solutions to properly handle complex wealth issues. That may mean challenging attitudes or embedded biases that advisors may have about tools such as insurance and annuities. There is a vast territory here representing many levels and avenues of risk management and financial engineering tools. It should be acknowledged that deep inside this landscape there is a realm of products and applications that exist specifically for advanced planning and HNW solutions. A rethinking of this arena is also warranted because there have also been many evolutionary changes in product development, in structure, pricing, applications and especially in a better client and advisor experience of these tools.

Private placement life insurance (PPLI) is one such resident of the realm that has laser-focused benefits for complex HNW family wealth planning needs and offers the ability to allocate a much wider range of investments in a tax-efficient manner. To gain a better understanding of the unique place PPLI occupies in the financial planning process, we talked to Institute members Tommy Mayes, President, and Alan Jahde, co-Founder & CEO of Investors Preferred Life Insurance Company (IPL) - a specialized insurance company providing bespoke solutions for sophisticated investors. This may be a particularly good time in the evolution of the financial services profession to re-examine specialized tools and approaches for HNW family wealth as lack of awareness or understanding have no place in standing in the way of targeted solutions.

Hortz: What are some of the unique flexibilities that PPLI offers advisors that can provide major competitive advantages and superior customer experiences?

Jahde: PPLI is not an off-the-shelf packaged product with a limited, pre-selected menu of standard, traditional investments. While the design has to follow guidelines around what was filed with the state insurance commissioners, the vehicle itself is incredibly flexible allowing for individual case design and advisors can also manage the assets around specific client needs, goals and preferences. There are a lot of things that advisors can actively do to customize and personalize the solution – both the contract and investment account - around family and business wealth issues. It is this process, involved with the individualized case design, which positions the advisor as a specialized financial solutions provider versus a financial product salesman.

Mayes: Historically the primary challenge for PPLI with clients was the limited investment solution set. Today, through separate account investment management, not only can you design a policy to match the client’s needs, practically the entire investment universe is available for allocations.  Moreover, as Alan alluded, advisors can be retained as the investment advisor for the assets assuming they meet IPL’s requirements as an advisor.

Hortz: What do you see as the best way to deploy PPLI into high net worth family wealth?

Jahde: The applications for HNW families are too numerous to elaborate here since PPLI can cover many different estate, charitable, investment and business needs. We should do another article just on the topic of how best to apply PPLI as a financial planning tool with case studies. But, suffice it to say that over my 30+ year trust and estate attorney experience, I have utilized the strategy in many ways to significantly enhance a family wealth management plan. Each case is designed to solve specific objectives for the client to improve their wealth planning profile. The key message here is the flexibility of the tool that allows for the strategy to be bespoke and always client specific.  

Hortz: What kinds of questions or issues are involved at the beginning of this process? What initially happens when an advisor brings a case to your firm?

Mayes: We work with advisors by consulting on how to best structure each individual contract to the client’s particular needs and goals. We help review and determine issues such as ownership, design, pricing, funding flexibility: Who is the insured? Who gets the payout?  Who owns it? Trust? Kids? Insured? Do you want to fund now or stretch out? Build in deposit rights so bulk of funding done when client sells their business in 5 years?  We have a strong support process for advisors from how best to frame PPLI in their discussions with their clients to advanced product/case design for its best application to the family’s wealth management needs.

Hortz: Why has PPLI not been more broadly embraced by advisors? 

Jahde: Life Insurance itself is almost a four-letter word to some HNW individuals, and even financial advisors as well.  Some unfavorable pricing and product design features of traditional insurance products have led to these lingering feelings and attitudes. In many ways PPLI is an evolutionary vehicle structure that addresses many of these unfavorable experiences of the past. PPLI was consciously designed to provide a different client and advisor experience. In fact, no other insurance policy on earth has its particular flexible structure and ability to address family wealth needs and also client friendly pricing. But no matter, PPLI in many cases is not used simply because it is one-dimensionally seen as “insurance”, not as an advanced financial planning tool and investment strategy for HNW clients.

Mayes:  For investment advisors, this is a niche product and PPLI has many applications, if positioned properly. Our experience is that a focused education process with the advisor, using case studies and case design examples, illustrates the benefits very well. We then have another advocate.

Hortz: What was your motivation in building an insurance company that focused on private placement insurance products? 

Jahde: In my 30+-year private practice tax law career I represented many clients on life insurance issues primarily as to policy ownership choices, for example, irrevocable life insurance trusts versus other ownership choices. In the mid-1990s I became aware of a new approach to life insurance called PPLI which, being a tax lawyer intrigued me immensely as a planning tool for clients.  

The more I studied PPLI, the law and tax rulings, and attended whatever informational conferences were available, the more I realized the traditional life insurance purchasing formula needed a change. The old retail policy formula was: cheapest premium, highest death benefit, highly rated company, and a life policy that was illustrated to last the longest time prior to the policy lapsing.  Previously, very little investment element discussions occurred and in fact were avoided in the life insurance sales process.  

With traditional life insurance policies, rarely did the cash value equal the sum of premium payments made to the insurance company until maybe 10 to 15 years out after purchase of the policy (assuming interest assumptions that were used in the illustrations actually panned out – a rare event for traditional policies).  In view of such anemic cash values, life insurance as a cash value investment was not part of the sales process prior to the days of PPLI. The difference from traditional life insurance was that PPLI had a true investment component which was also a tax advantaged component, in addition to a death benefit. So from my perspective as an advisor to family wealth, I learned that PPLI was a much better way to buy life insurance.

Then the question became what carrier? However, back in the 1990s the choices of U.S. carriers were very limited and much of the private placement life insurance business was conducted offshore with offshore life insurance carriers, many located in Bermuda.

The substantial benefits of PPLI, yet the lack of awareness and choices, motivated me to build an insurance company that would have a focus on PPLI and other HNW solutions. We initially created a Bermuda life insurance company in 2001. Due to increasing regulatory pressures and with offshore businesses carrying some element of a stigma, it became apparent that a U.S. PPLI carrier could be a better business structure.  Therefore, we formed a South Dakota life insurance company and became an admitted licensed life insurance carrier in 2013. Such were the beginnings of Investors Preferred Life Insurance Company. Additionally, IPL at the time of licensure was able to enter into numerous reinsurance treaties with prominent reinsurers to cover the death benefit risk from policies it issued. Such treaties are often difficult to come by.

Hortz: What do you see and what are you working towards in evolving and further innovating the PPLI space

Jahde: Since IPL was created to address high net worth family wealth and the challenge of handling complex wealth management situations, we realized the need for advanced investment solutions. We are adding investment options constantly, and can work with qualified RIAs as subadvisors to the investor.  This realization and focus helps us lead the market in product and investment innovation, and offer one of the most flexible platforms in the industry.

Mayes: My background includes 31 years in the high net worth advisory space, including 15 years focused on family offices. The primary competitive point of leverage for us is to be able to offer and integrate compelling investment options that attract HNW and multigenerational wealth. IPL was formed to provide investment flexibility and continues to focus on building the most flexible platform of investment options for a policyholder. We will continue to add investment solutions to our insurance platform and this is why we believe the best is yet to come for the space.

Hortz: Any final thoughts you can share with advisors on how best they should look at PPLI?

Mayes: I have an extensive network in the wealth space and in every conversation with peers advising aspirational investors and wealthy families, I suggest that if they are not talking to their clients about providing a more tax efficient investment solution, someone else is going to beat them to it. PPLI can be a very strategic tool in growing their business. We have had many great meetings come from this one observation.

My best advice is to not emphasize PPLI as the product it is, but rather focus on the solutions it provides. It is typically not someone who wants insurance that is going to be a customer. It’s someone who wants a more friendly investment environment from a tax perspective or needs an efficient solution to a specific wealth challenge. Life insurance and annuities, in this case, are enablers with the bricks being the internal investments and the mortar being the vehicle contract.

Jahde: We highly recommend that every estate and financial planner, especially any advisor to high net worth family wealth, should be knowledgeable about PPLI and its many unique uses and advantages for income and estate planning. To be competitive and effective in addressing HNW family goals, they need to learn the who, what, when, where and how of PPLI, and all related planning applications.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Bill Hortz

Bill Hortz is an independent business consultant and Founder/Dean of the Institute for Innovation Development- a financial services business innovation platform and network. With over 30 years of experience in the financial services industry including expertise in sales/marketing/branding of asset management firms, as well as, creatively restructuring and developing internal/external sales and strategic account departments for 5 major financial firms, including OppenheimerFunds, Neuberger&Berman and Templeton Funds Distributors. His wide ranging experiences have led Bill to a strong belief, passion and advocation for strategic thinking, innovation creation and strategic account management as the nexus of business skills needed to address a business environment challenged by an accelerating rate of change.

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