Jeremy Weisz 15:39
What did you learn working the LeFrak Organization,
Jason Mandel 15:44
I learned a lot about what an ultra-wealthy person cares about, because for the most part, and I think the LeFraks are like many people that have achieved extraordinary success in business. And they come from a humble story as well, of a family that that worked incredibly hard. But what I learned was that it’s not all about the return. It’s about the after-tax return, taxes were incredibly important. Tax minimization was important. But nothing that would be interpreted as a tax like a Dodge, or an aura or a shelter, these would have to be clear black and white tax benefits of assets, like real estate, or assets, like depreciation, and things like aviation. So I started to really in that job, I started to study and that really was transformative for me, where after that I left working for the LeFraks and started my own firm in 1999. And when I did that, I took some of the ideas that I had developed, one of the core ideas that I developed was the idea of wrapping assets inside of vehicles which are not taxed. So therefore, this is not a question of tax elimination, because you’ve done something crazy this is the entity itself is not a tax entity. If someone’s money was, let’s say, all in a Roth IRA, now there’s a minimums maximums you could put in every year, so it’s hard to get a lot of money in a Roth. But just imagine for a second that you had a billion dollars in a Roth and you manage it compliantly would you owe taxes, if your stocks and bonds were traded, and you made money, there’ll be no taxes due because the entity of a Roth is not a taxed entity, you paid your taxes already. And when you distribute the money out, it’s tax-free. So that idea of could you create a synthetic Roth, could you create a structure that could give you all the benefits, but you wouldn’t be limited in the amount of money you could deploy into it. So for an ultra-wealthy family, the minimums for rock don’t fit the incomes, restrictions don’t fit, it was not applicable entity. But what is an applicable entity, and I was one of the earlier people to focus on it is private placement, life insurance. So don’t get freaked out when I mentioned the word life insurance. Just forget that for a second. And let’s pretend we have an audit that evil word that nobody wants to hear. Let’s imagine the word I said was a structure, this structure is protected from creditors. This structure allows the building the compounding of the cash and the investments inside the structure. This structure is immune from taxation. And when you want to access any money inside the structure, you could do it in a tax-free way, unlike what I call the evil 401k. Because I think it truly messes people up because they think they’re ready for retirement, they put money in every month. And then retirement comes along. And it’s not there for them. And we can drill down as to why it’s not there for them. It fails them on the tax basis because when you pull money out, it’s taxable. It fails them on a performance basis because of the period of time when they want to withdraw think about last year the market was down 23% in the S&P, if you are hoping to retire this year, you really had a big setback last year, if you were allocated significantly to S&P 500 index, you probably had a delay your retirement a few years until it bounces back. And that’s unfortunate. So, I think if we talk about a structure that’s immune from taxes, we give people a chance to compound faster. We give them a chance to avoid God forbid litigation. Imagine a doctor works his whole life builds up when something happens whether it’s their fault or not. There’s a judgment against them. Sometimes it’s an unfair judgment. Sometimes they’ll just settlement just to make something go away. But I’ve had horror stories that I’ve heard from doctors where they’ve lost their entire nest eggs and sometimes gone into debt to deal with litigation. That’s come in some of the justified some of it not. And those are assets. Those are deals we can avoid. Those are situations we can avoid by protecting their assets inside of a structure again, I do not say the word life insurance, but a structure. And that structure eliminates taxation allows the ability to compound tax-free, passes the wealth to your children or heirs tax-free, and allows you to use that during your life without taxation, you could borrow against it, these end allowing you more flexibility in what you invest in, you don’t have to be limited to stocks and bonds, you can invest in other assets that are interesting to you. If your financial advisor likes asset-backed lending, which is a strategy that unfortunately most people don’t know about. But it’s basically the idea of lending against an asset, that’s simple. Imagine you have an asset worth $10 million, would you lend someone a million dollars against the $10 million asset, they didn’t pay you back, you can get their asset. It’s almost when you think about asset-backed lending, it’s almost like a pawn shop, have you ever gone to one of these stores where you bring your watch, and here’s my Rolex, here’s $500, for a $5,000 Rolex, if you don’t come back, and pay them what you owe on the interest, they keep your Rolex, and it’s worth five grand. So are they hoping you don’t pay it back yet, and making you alone at 14%, 15%, 18% whatever it is, but they really hope you don’t pay it back. Because if you don’t, they take the watch, and they sell it, and maybe they’re not gonna get five grand that you paid for it, but they may get three, as long as they lend you much less than what they can sell it for. And that’s an idea of an asset that we focus on. And most people don’t know anything about.
Jeremy Weisz 21:28
Why is that most people don’t think about know about or do it.
Jason Mandel 21:34
I think there’s something to do with the economics of the way Wall Street works. Wall Street firms are normally valued on assets under management, the strategies, a lot of them that relate to insurance sometimes have a one-time fee, but not a residual fee every year. So I think there’s a belief on from financial advisors and the big brokerage firms they work for that they really want to attract assets, they get a multiple on the valuation of their business based on assets. And some of the strategies we use do not have residual income, it might be a transaction, or it might be no fees. We have structures that don’t create fee income. And we charge like an hourly consulting fee in order to generate income from some of these ideas. So I think it all goes back to money. Unfortunately, if you trace any decision there’s a lot of ways you can trace it back to how people are paid. And I think Wall Street is very flawed in that way. And I think Wall Street does not put the client first they do everything they can to benefit themselves first, and then they need to treat the client decently so the client doesn’t leave. But really, it’s a question of how can they maximize the income they generate? That’s why I started my own firm in 1999. Because I wanted to offer strategies that didn’t correlate stock markets. I didn’t want to be involved in strategies that could go down in value. I said, how do you build a relationship with clients if you’re losing the money? It’s not a very good relationship, right? So why don’t you focus on things that don’t go down in value? And that’s how I kind of came to the strategies that I invest in. I mean, my first strategy was a long short equity fund. So imagine if it was those pairs, imagine if you bought Coca-Cola, and you thought Coca-Cola is a great stock, you wouldn’t just hold Coca-Cola, but you’d find another stock with similar characteristics, but you didn’t think was as strong, and you would bet it would go down. So imagine you’d bet against Pepsi. And if you look at the historic patterns behind stocks, there is an opportunity to make money looking at patents. That was my very first product. It was called mean expansion, statistical arbitrage a fancy word for pairs trading using an algorithm verse the human dynamic, I wasn’t saying Coke was a great stock, but I loved drinking Diet Coke. It wasn’t that it was rather the fundamentals of the way stocks traded. And eventually, those strategies, those computer-based strategies transitioned into allocating to other managers using indicators. So we use the platform issued by society, general bank, in which they had hundreds of different alternative managers all doing non-correlated strategies. And we were actually trading those managers the way some people trade stocks. And it was a very effective way we wrapped around it a principal protected note. So clients would know they couldn’t lose their principal. We even leveraged a low-risk basket of these funds that were generating consistent returns low volatility managers, and our belief was even using leverage. We were still half the volatility of the stock market. And many people couldn’t get that. What do you mean, you’re using leverage I leveraged is wrong. I said, no, no, even with my leverage, I’m less volatile than the S&P 500. I’m half the risk of the S&P. And for many people, they couldn’t understand that. But if you’re allocating to low-volatility investments and using calculated forms of leverage, you still may outperform a volatile index like the S&P 500 which is how most people invest. So it’s a different way of thinking.
Jeremy Weisz 25:03
It is a different way of thinking I notice, with your process, you come up with a question. Like you said, how do I create a synthetic Roth? And then you go about solving that question that maybe other people haven’t thought about? Would you say that? I don’t know, if you’re doing it consciously or unconsciously, but I find you’re coming up with these questions, and then just setting out to answer them.
Jason Mandel 25:32
Absolutely. And a lot of these things over the course of time, it’s been a natural evolution. So for example, when I got involved in private placement, life insurance, shielding assets from taxation by putting them inside of insurance contracts, all of a sudden, there were a lot of other concerns people had they said, well, how do we do this effectively? How do I move my $10 million portfolio and shield it, I use the example of an umbrella. And I say the same way an umbrella protects you from the rain. This insurance wrapper wraps around your portfolio of investments, your stocks, your bonds, your cars, you don’t have to change money managers, if you like your advisor, that person can stay your advisor. But the question is, who’s the client? Does it need to be Jason Mandel individually, or Jason Mandela’s LLC, or Jason Mandel, the trust that I’m trustee of these entities all get taxed. Now a trust may not get taxed on the estate tax if you removed it from your state, but your cap gains taxes every year would be taxable. So is there a way of shielding that and putting that inside of an insurance wrapper is one way of doing it. The negative there is there’s a cost of the life insurance inside the wrapper, of course, otherwise, it’s not insurance, you need life insurance. So what we’ve done is we’ve figured out ways of making that a little bit more tolerable for people who might not otherwise be jumping up and down to buy more life insurance, they may view it differently. I view it as a foundational investment, which guarantees the legacy to leave to your children or heirs. Some people say, well, I’m never dying, so I’m not buying life insurance. And I say, okay, that’s great. I’ve heard that from real serious people who believe that never going to die. Right? Okay, let’s move on.
Jeremy Weisz 27:12
Do they know something that we don’t know?
Jason Mandel 27:14
And by the way, that is the mindset of an entrepreneur, in some cases, right, they can never in some way they view themselves betting against themselves, I have to always position it to them in a different way, which is, if you’re looking to ever raise money from investors, they’re going to be concerned that something happens to you death or disability. So think about the insurance as a way of raising money. When you have key person coverage, when you have an ability to do a Buy Sell arrangement of your partners. Life insurance is an easy cheap way of accomplishing solving major problems that will allow you to grow your business. So for them, if you said this is going to go to your heirs, I’m sure they love their heirs, but I think they’re more interested in how’s this going to help them. And insurance can truly help them a lot. Now, we use the insurance as a necessary part of this wrapper. So when we talk about the insurance, nobody wants to pay for it. And that’s where we started to develop an expertise in financing the cost of the insurance component that goes inside the wrapper. So we use banks the same way people use a bank to get the home of their dreams, and they put down some money and get a mortgage for the rest of it, we’re able to go to banks and finance 100% of the cost of the insurance inside of the wrapper or if the insurance stands on its own because they need it for a Buy-Sell arrangement or collateral support for a bank loan. Insurance has multitude of usages. So what we’ve become experts on, and I’ve actually financed several billion dollars’ worth of insurance in my career. And I’ve done that using bank money. I actually had a hedge fund that did that as the strategy. We raised almost $300 million from investors, and we financed life insurance policies for family offices and patriarchs and matriarchs of family businesses. And that was a very effective strategy because we were able to create a significant amount of new life insurance that was used to deal with estate taxes for clients, and they might not otherwise have been willing to do that without the ability for us to provide that collateral. And we limited the collateral to in many cases, the policy itself, which was very unique, commercial banks wanted dollar-for-dollar collateralization. And we did so that was a unique product that we brought to the market. And then I guess there’s a segue here, when we move certain assets or buy certain assets, sometimes there’s a tax implication. And what we look at in those circumstances is what do we do for clients that have already made money? We have not shielded their assets, they’ve made money and it’s taxable. And a lot of what we’ve done over the years is used depreciation. The idea of buying an asset that allows us to depreciate that asset earlier, it’s an offset to income. And that’s an important part that obviously I’d love to talk to you more about.
Jeremy Weisz 30:01
We’ll talk about that I think that relates to your white paper. But I want to go back to what you said, because I’ve heard you talk about financing your retirement. Is that what you’re referring to when you talk about financing your retirement?
Jason Mandel 30:16
Well, I think the idea of financing can be utilized for both a Buy Sell arrangement for business owners to protect themselves that can be used as a retention tool for your employees, it can be used to attract new employees. But what you’ve just asked me about is the idea of creating a tax-free income plan, which could be used in retirement. But if you’re 22 years old at a college, and you create a tax-free income plan, our plan start to create tax-free income and 15 to 20 years, maybe sometimes way sooner. So if you imagine being 22 years old, my time you’re 40, you’ve got money coming in every single month tax-free to you, and you’ve not done that much to get it, you’ve instead, the idea that we have is partner with a bank, the same way you partner with a bank to go buy the house you want, you put down 20%, you let the bank own 80% of your home and over time, you get more equity, same idea for a retirement income plan or for just a tax-free income plan, having nothing to do with retirement, the banks are willing to be your partner, if you know the right adviser, and not a lot of advisors have this knowledge, unfortunately. But if you’re working with an advisor that understands the importance of creating tax-free income, because we don’t know what the tax rates are going to be in the future, there’s an argument that the tax rates will spike. People forget that in the 1970s, the highest tax rates were up to 70-80%. It was unbelievable what people were paying in taxes. Nobody remembers that nobody believes me when I mentioned that I mean, 78%, or something that was insane. But the reality is, we don’t know what tax rates will be, we don’t know what the future is going to be. So if you create a tax-free income plan, it will be helpful and allowing you to enjoy your retirement, you’re not going to be worried about tax rates going up when you pull money out of your existing 401k. And everyone knows that’s the failure in my view of a 401k is you’re normally allocated to aggressive assets like equities at any time, you could lose your shirt. And then worse than that, when you pull the money out, it’s all taxable. I mean, we all we need to do is look at Japan, you had a 30-year period with a market traded in a range. If you put money in an index like the Japanese Nikkei, and let’s say we did it here in the S&P, there is an argument that we will follow what happened to Japan. And for 30 years, the markets going to trade up and trade down and trade up and trade down. And then eventually, when you look at the index over an extended period of time, your flat. Well, what does that mean, if you started work for 30, 40 years ago, and now you’re flat, it means it’s only the money you put into the plan is going to be there, there’s going to be no growth, and everyone’s anticipating growth. So I’m a big believer and looking at ways of using equity markets to avoid the volatility in equity markets. And insurance actually offers us a chance to do that, the bank will give us the money, the bank doesn’t even need the 20% down the way you would need normally with a mortgage on a house, many places banks will take zero down and finance 100% of the premiums that you need for your plan. And in the plan, the reason the banks love this is real estate can go down in value, think back to 2008. Think about 2024. Who knows where it’s going to be. But what we do know is that these contracts are guaranteed in their principal, they cannot go down and you get the upside of a market index. Now many people respond back to me as well. It’s capped upside, yes, it’s capped, but many of them are capped at a large number. And there are products that are not capped. People don’t realize that we have a relationship with a multitude of different insurance companies. So we represent the client to the insurance industry. We’re not employees, the way you might work with a person at MassMutual. In New York Life, or Northwestern Mutual, those people tend to be employees of an insurance company, and they represent the insurance company to you. Their legal responsibility is to their employer, as any employees would be. I chose a different path for my relationship with insurance companies. I act as an independent advisor, I bring my clients to the insurance company and my legal obligation is actually to my client, not to any insurance company. And I look for companies that don’t have a cap on their index. I want an uncapped index and they exist, but not many people know about them, unfortunately.
Jeremy Weisz 34:44
Jason, who are the types of clients you work with?
Jason Mandel 34:47
So historically, I have worked with ultra-wealthy families. And I actually had one family that frankly paid me very well and didn’t want me to ever publish a book and didn’t want me to take on other clients and they made it worth my while to do that now, the combination, frankly, of losing my dad, who was not an accredited investor, who I wouldn’t be able to talk to, and the idea that this one family, the patriarch, unfortunately passed away. And I don’t have this type of restriction on me anymore, I still help them, but they don’t care if I publish. That was one of the reasons I finally was able to publish a book, I have two more books in development. So I intend to write and my dad was an author as well. And I really believe in sharing this information. So what I would say to you on the insurance products, solutions, like for example, buying a product where you had no downside, and yet upside of the stock market, people don’t know that exists, there’s no limit and is no minimums. Somebody can buy, as tiny a policy as they want, they could put, I think it’s the minute I think it’s $500 would be the minimum investment for something like that. And I am happy to talk to people. Now, I am busy. So sometimes I have people on my team that help a smaller client. But frankly, if somebody catches me, I pick up the phone, they can reach email me, I’m happy to help. And probably I bring somebody in to make sure someone’s always there to help you. But my average client probably has a net worth well in excess of $50 million. And I help them on a holistic basis. But I don’t want that to dissuade anyone from reaching out to me, I am very happy to talk to anybody of any asset size. I’m a big believer that some of the restrictions that big brokerage firms put on their advisors are really unfair, for example, if you are coming in and this is for many firms, and your net worth is less than $5 million, they will not allow you to look at alternative investments, they want you to be a qualified investor, they want you to do very, very few people have access to strategies that don’t correlate to the stock market. And that’s something I’m very against, I believe there are products or mutual funds out there that mimic some of these non-correlated strategies. So I think it’s really for everybody, and my ideal client is someone that has some type of intellectual curiosity, because I don’t think it’s great just to trust someone with your money, I think you have to take the time to understand what’s being done. Because I don’t believe I’ve ever had an unhappy client. It’s because I talk too much. And I make them acknowledge what we’re talking about. And I tend not to want to work with people that have zero interest in talking through these ideas. I don’t expect them to have my fascination. I literally enjoy reading insurance contracts to see where are they trying to screw you. Like I literally think somewhere in that contract, the insurance company is going to try to screw me over. So I want to read it on behalf of my clients. Now, many times companies I like to work with, they don’t do that. But I’m just giving you an example of you’ve got to read the fine print. And I do that on behalf of my clients. But I would say my clients are of all different net worth’s. As I said, my dad was an educator, I happen to love dealing with educators. My wife is a lawyer, I love dealing with lawyers, lawyers are intellectually curious for the most part. So I’m able to share this knowledge with them. And my favorite people are CPAs, because, frankly, many of them are just record keepers, right? They just you go to your CPA, you tell them what you did last year, and they fill out the form and they help you prepare a tax return. I have probably personally changed the mindset of hundreds of CPAs over my career, where I’ve said to them, hey, look, you’re more than that. You’re not just I mean, somebody can outsource their tax return to somebody in India if they wanted to for $29, it’s there with AI, you’ll be able to do that for nothing. So what value do you bring Mr. CPA or Mrs. CPA? And the answer is idea flow, the idea of creativity. So I know that a CPA may not have the knowledge I have I share that knowledge with them. I want their clients to have access to these ideas. Why wouldn’t the CPA want their client to have a structure which doesn’t pay taxes? Well, here’s the selfish thing, maybe they’re afraid there’s not going to be a tax return anymore. And I have to remind the CPAs there’s still a tax return, that the trust, which owns the policy files a tax return, so you still get your return. But selfishly, maybe a CPA feels that their job is going to be in jeopardy, but I also include them in the process. And we legally get some of them to be able to be compensated for the structuring. They give the analysis on the accounting side and write a memo for that. We work with lawyers, they help us there as well. So I think it’s a team approach, Jeremy. And someone said, well, what are you Jason? Are you an insurance broker? Are you an asset manager? Are you the owner of a law firm? Are you an accountant? I said, no, I think of myself as like a maestro of an orchestra. And if you have players that you want to bring to the table, you have your favorite lawyer, your favorite account and your favorite money manager, but you need me to structure your wealth inside of a vehicle that’s tax-immune. I can just do that one function. If you have all these functions, but these guys don’t know what they’re doing, they’re not moving in the same direction, because they each want to be the big shot in the room and justify their existence well bring me in as the quarterback. And make sure the team gets a touchdown, at what, which is what you’re looking to accomplish. And that’s how I really view myself is that maestro of an orchestra, making sure that we’re getting everything we need out of everybody. And whatever service providers you don’t have, I’m able to recommend to outside law firms outside accounting firms, and I’m able to help you on all the insurance structuring, on all the insurance issuance, I sometimes work with somebody’s brother in law, who’s an insurance broker, he says, I got to pay my brother in law, I say, great, but he doesn’t have my ideas. So why don’t you put the two of us together, and we’ll share the revenue and do a deal together, I’m very creative that way. And if somebody has their asset managers, I don’t need to be involved in that. I’m very happy. I’ve got a team of RIAS, I’ve got a team of asset managers of people that I trust. And if someone says, well, this is what I want, I can point them in the direction of someone that could give them what they need. And that’s what I pride myself on is being a holistic advisor, where I’m not just focused on this is what I do, this is the money I can make from doing this. So this is what I want you to do. It’s more about I really want to know what that person cares about. And I’ve had clients for five years, they pay me a consulting fee. And that’s all I do. I provide some hourly consulting, and then something comes up in the future, they need something more, and there may be another opportunity for us to work together. And I really enjoy those relationships very much.
Jeremy Weisz 41:35
You talk about Jason, there’s four members someone should have be having, should have their financial team and obviously, you have those in-house capabilities. But some people don’t even know what are those four team members that people should have on their team?
Jason Mandel 41:52
Yeah, you’d be amazed at some of the sophisticated people that I talked to that still don’t have a will. I mean, it’s shocking. And I think you need a lawyer, you need either someone that you bring to the table, I’m happy to refer you to lawyers, in most states, in the country, by the tie-up for all these years have been around, there are certain states that offer benefits. So sometimes doing some estate planning in another state that you don’t live in makes sense. Nevada has a dynasty trust that lasts 365 years that’s compelling. South Dakota has certain rules that are very compelling a 1000-year trust. So there are reasons to have service providers in different areas. So a lawyer is a key person, we have in house counsel for some basic things that we can help you do. But it’s not something we don’t generate any income from it, it’s more of a service to our clients. It’s like a bank, having a notary, they don’t charge you for notarizing a doctor’s same thing, we have someone that you could talk to, we don’t charge you by the hour, it’s just a service we provide, if you want to talk to an attorney, we have CPAs, that same way. These are all people that do a lot of my personal work that needs to be done. So I make them available, I have a certain number of hours and a commitment that I’ve made to these advisors. So if you need help, I just put that all on my tab, and that builds my relationship. So we do a tax what if for many clients, they say, well, here’s my tax returns, how would you be different? They say, well, you paid a lot and cap gains. Let me tell you what private placement life is. Because if your money was inside of a PPLI policy, and not in a trust alone, but the trust would own the PPLI policy, well, this whole cap gains payment section doesn’t need to be there, because you didn’t make the money your policy did. And all the gains are attributed to the policy, which is not a taxable entity. So I think having a really good CPA analysis is critical. Now many people have us do it. They want to act smart in front of their CPA and say, well, what about this, Mr. CPA? What about that, and they don’t even mention us, but we give them the ammunition to have a very substantial conversation with your account. Some people get annoyed when they see the account is not really creative in any way and doesn’t even want to talk about people has no interest in learning about it. And they say, you know what, why don’t you do our tax returns and then we have a group of CPAs we refer people to. So that’s the second advisor, you need a good accountant, a good CPA. And the third is you really as much as people make fun of the insurance broker, you need a good insurance broker because there is such dispersion. Most people have unfortunately encountered a person has tried to scare them and say, if you die tomorrow, your family’s on the street. And that’s how insurance is viewed. Insurance is so much more Jeremy it’s such an amazing tool. Insurance is predicated based on what’s called a lapse rate assumption. lapse rate assumptions are how the entire industry is priced. So if you’re financially stable, and we could figure out a way that you won’t lapse this policy, it’s probably the greatest investment that you can make by actually buying an insurance policy and holding it till your mortality, you actually have an amazing return. When I was a kid, I worked at a bagel shop next to my high school, and it was disgusting work. I was cleaning ovens. And I was cleaning bathrooms. And everyone in my high school, went to the bathroom after school, and I had the afternoon shift. And everybody on the weekends would go there. And it was a horrible job, very character-building. As I tell my kids, everyone should clean bathrooms in their life. And I was happy when I befriended the local Allstate Insurance broker who came in every day with a smile on his face. And I couldn’t understand why this man, everyone else has a scowl. And this guy is happy as convey. And I finally got the guts one day to ask him, why, I introduced myself, what do you do? And he told me, and he said, I help people insure their families protection, I eliminate fear from people’s lives. And what he taught me this is literally, this has to be 1988. It’s a long time ago, the 1988. He said, he goes, I don’t use insurance for scare tactics. It’s an investment. It’s an all-state guy that was a visionary. And I took it, I never forgot that throughout my whole life, I use I try to think of insurance, not just for yes, if God forbid, you’re 25 years old, you’re hit by a bus, and you’re newly your spouse, and your kid has no source of income, and they’ve lost your 30, 40 year career. Yes, life insurance is so important for that person, I can’t dispute that, and you should buy it. And it’s so cheap, it’s insane. It might be one, 10, 1000. I mean, it’s so it’s miniscule pricing, you could buy a policy, a million dollar policy you’d get for $100 a year, in certain cases, it’s insane. Everyone should do it to protect their families. But if you realize it could be so much more, that’s why I want people to have a well a knowledgeable insurance advisor, because there’s so many other things that you could use insurance for, for asset protection, for tax free income creation, for protecting your business. I mean, it’s limitless, we could talk and talk. And then the final part of that magic team that we talk about is the investment advisor. And unfortunately, most people with investment advisors that offer a commoditized service, you’d probably do better opening up an account at Vanguard and buying the S&P 500 index. And just if that’s all you want to do, you’re better off because active management has failed to be proven to work over an extended period of time. And for the most part, you’re paying your golf buddy to take you golfing, that’s what you’re doing by hiring your financial advisor. In many cases, not every case, I’ve met many smart people. But in many cases, they’re limited in what they can do, they can put you in a portfolio of stocks or bonds. And that’s really what they can do. And I think there’s a lot more because last year, you recognize not only that stock market go down, but also bond values went down because interest rates went up, you have the double whammy. So I believe in what’s called Absolute Return Investing, non-correlated investing, investing in strategies that have no correlation to the broader markets. That is my job is to find these interesting strategies that exist. Someone said, give me an example. Years ago, Sony stock used to trade on two exchanges, many exchanges, but really on the New York and in Tokyo, right? Those are two major exchange, same company. But they actually traded independently, the same company traded on two exchanges. Every day, I noticed there was a difference of around 30 cents between the share price is when you did the conversion of yen to dollars. I said why would it be 30 or 40 cents different. And it really was a currency issue that people didn’t have the ability to quickly to transfer and move over. So if you saw, for example, in New York, that the stock went up a lot one day, chances are it would open up in Tokyo higher that night in New York when it opened up. So it didn’t take a rocket scientist to figure out that if the closing price in Japan, this is many years ago, things change. But years ago, this was a great trade for a lot of companies that traded on multiple exchanges. So I was giving you example. And here I’m not making a bet that Sony is gonna go up in value forever. I’m not making a bet that Sony is a great company. I’m not doing anything, I’m just doing what was called a structural arbitrage, where we own the stock and we knew that if we were able to buy it cheaper, we can hedge out the currency risk. And we can literally make money without taking real risk. It was more of a trading and efficiency risk that we were extracting. That’s a great example of what I mean by that.
Jeremy Weisz 49:31
What are some other examples of alternative investments?
Jason Mandel 49:34
So another strategy that’s a proven strategy is mergers and arbitrage so when a company is being acquired, some alternative managers will buy the stock being acquired and short the acquire that strategy is proven to be very effective over time and diversified. I’m a big believer in this asset-backed lending. So I’ll give you an example of a project I’m working on right now. It’s called caretrust.life and Care Trust is a platform which allows people to borrow money against their life insurance. Normally, when you want to borrow money out of life insurance, you’re borrowing against the cash surrender value. This is a different idea that no one really has done before, to my knowledge, where we are lending against the actual benefit amount, which is very unique. Now the market for this are people that are older, where the investors who are putting up the money recognize that at some point in the future, these people will not be here, the policy will pay out to their family, and the families will be able to pay back the loan. Now, sometimes it’s a shorter term loan. But this is the type of innovation now if I told you that the same policy was worth, Warren Buffett is a big buyer of unwanted life insurance, he owns a company called Living Benefits. And there’s hundreds of buyers around the world who will buy a policy from someone with a life expectancy of let’s say, less than 15 years on average. So these are senior citizens. And these are people that no longer want, or need, or can afford to keep their life insurance in place. And historically, insurance companies made money because of the lapse rate phenomenon, that people ran out of money. And they said I can’t afford it anymore. They paid in for 40 years, sucks to be them, they lose the policy, and the insurance company makes tons of money because they collected all those years of premiums, and they owe nothing when that person dies quite unfair. One of the benefits of this life settlement market that Buffett was involved in, in many other people and I was involved in as well, is to offer an alternative to lapsing your policy, that you could actually sell your policy, if you’re going to get rid of it, and lose it, sell it and get a present value on the future cash flow. And that was a very exciting opportunity to offer people, because now instead of having 40 years of wasted premiums, you could actually get money if you can’t afford the policy. And if your kids don’t need it, and your heirs don’t need it, maybe it makes sense to sell it and use the proceeds to fund your own retirement. And as we all know well, baby boomers are retiring, now underfunded, they may have life insurance, hopefully. And at some point, whether it’s a question of them living on the street, or selling their insurance, they should sell their insurance and let their kids figure it out the way my dad made me figure it out, everybody can work it out, hopefully. Now, what we’re coming to the table with Caretrust is the next iteration of what I think is in the consumers best interest. Because what happens is if you sell your life insurance policy, the buyers get an appraisal. It’s almost like an appraisal on a house except this appraisal is on your longevity. So an investor can make a determination and say how much can I offer for this million-dollar policy? Well, if this is the healthiest 70-year-old, they easily can live to 100. I’m so lucky. I just we celebrated my grandfather’s by the grandpa’s 100th birthday. It’s amazing. It’s possible. So the investors are happy to tell the people selling their policy, hey, I did the analysis, you’re super healthy look and look at this appraisal and their appraisal companies like any appraiser, they come out sometimes longer than you might have less money. And it because they get less money because the present value they look, we got to pay premiums for 30 years. We can’t give you that much. Right. And when you hear that you’re much more happy to hear that news than you are about being depressed that you’re not getting much for your property. Right 1911 Grisby verse Russell’s Supreme Court ruling, Oliver Wendell Holmes said Life insurance is property. And guess what? This property you could be ripped off if you tried to sell it. So what have I done with Care Trust, I’ve created a more fair platform. This is a platform which allows people instead of selling their property and depriving their children of the benefit that they probably wanted their kids or their heirs to get. Now they need money, they can’t afford the premiums, they can come to us, and we can pay the premiums into their policy. And we will use the policy itself as the collateral for the loan. It’s very ingenious. And if they want to take some money out, we can offer that as well that they can use to live a better retirement. Now, why is this make sense? Because nobody really gets ripped off. Imagine you sold your policy when you’re 80 years old. Because you’re told you’re going to live to 100 and you sell it for 10 cents on the dollar or 20 cents on the face value. Well, you got money but wait a sec, you have to pay taxes, it might be ordinary income taxable possibly depends on how its structured. You might have a way of tax mitigating it. But some people pay taxes. So what did you net very little? Well guess what if you only needed to access a little bit of money, and you borrowed against it, first off, it’s not a taxable event. It’s a loan. So you’re taking all that money in from the loan, even if you’re getting less than what the life settlement value was on an after tax basis. It might be very comparable. And then you’re able to leave your heirs the death benefit, which is ideal so your family can have something because that’s probably one of the reason since you bought the insurance in the first place, you can use its original utility. So that’s a fun area that’s a non. So if you’re an investor in that strategy, you have nothing to do with the stock market going up. The question is, no one ever die. And if no one ever dies, then you’re going to lose money in that strategy. If they cure death, you’re in trouble, that strategy fails, I think we won’t all care if they cure death, who knows what the world would be. But all I know is you have bigger things to think about than you losing some money in an investment.
Jeremy Weisz 55:28
It seems like Jason, there’s two paths, right? Because you said, the Caretrust piece, you’ve almost this is after they’ve bought the policy. And they are basically helping getting the money out and financing and essentially, and the other example, where you said, you can actually save and actually have the bank finance it from the start, those people are doing it from the start. And this example is almost like they started it after it’s been started. So there’s kind of two different avenues. But it’s a very similar concept is that…
Jason Mandel 56:13
I’d also argue that financing a life insurance policy, when you’re insurable and young enough to buy insurance, and you can buy insurance these days up till about age 80. With ease, there are companies that will sell you insurance used to be 90, actually. But it’s gone down after COVID. But what we’re talking about here is when you have the capacity to buy insurance, and there’s a need for the insurance, right, the need for the insurance is to pay a future estate tax, or income replacement. So if you’re making a certain income, and you’re 35 years old, the insurance company knows that if you died tomorrow, your family would miss out on could be 30-40 years of income, they’ll replace that with life insurance if something happened to you. So you’re absolutely right. When we look at insurance, we have to look at it from all stages of life. As a matter of fact, I have grandparents that are sick coming to me and say I’d like to buy some more insurance, but they’re unfortunately too old or over 80. It’s hard to get them insurance. And I remind them that they could purchase insurance on the lives of their children and grandchildren, you say why would I ever want to do that? Because you’re in way locking in a legacy for your great-grandchildren, and your great, great-grandchildren through the usage of insurance, and people utilize it. So you’re absolutely right. It’s about different conversations at different stages of life. I have a client right now, very wealthy, has a lot of insurance. But he recognizes that his children don’t have insurance. So we’re actually in the process of helping him structure a policy on his children’s lives, their middle-aged adult sons. And the purpose is he’s going to lock in a legacy for his grandchildren, because he doesn’t want his grandchildren to get money when he’s not here necessarily be too young. But he loves the idea that when hopefully his children live a long life. And when his children are no longer here, those grandkids may be in their 40s or 50s, God willing or 60s, God will or even older, who knows with medicine and technology, but he wants to know that at that point in their lives, his grandchildren will have another source of income from these insurance policies to guarantee a legacy, God forbid the investments that he’s leaving for his children to manage don’t work out the grandkids will be protected. Because you notice there’s many generations where the first generation makes it the second generation, maybe develops it third generation at that point, doesn’t have the same hunger that the first and second generations may have had. And then many times by the fourth or fifth generation, the wealth is lost. And we like to eliminate that as a possibility through the use of structures like this, that can enhance and guarantee legacy.
Jeremy Weisz 58:49
So we talked about alternative investments. And you mentioned before, when you were talking to the ultra-wealthy, they’re not actually thinking of that, but they’re thinking of saving on taxes and depreciation. So I don’t know if that relates to the white paper, if you want to talk about that.
Jason Mandel 59:10
Yeah, we just commissioned a white paper to talk about opportunities in aviation. Aviation is unique in the sense that there is an ability right now as a piece of property. Unlike many other forms of property, there’s a program to give you accelerated depreciation on aircraft. It exists in yachts, for charter, it exists in construction equipment, certain other areas. But aviation is probably the easiest area and what I like about it as property, it’s the kind of property unlike a building, it’s the kind of property that you could actually pick up and you can move if there’s opportunities that exist in the world. And you are looking to charter out and lease out your plane or charter hours on your plane and there’s not an opportunity United States, you can move it to other jurisdictions. So we are conducting a lot of work for our clients now in aviation, I’ll give you a sample transaction, we have a client buying a Gulfstream for $10 million. The $10 million plane could of course, be financed those financings, you normally can put down with aviation about 20%. So on a $10 million plane, you’re investing 2 million in cash, and then you’re financing 8 million. Well, what’s amazing about the current tax law, under the Jobs Act of 2017, is you can actually depreciate 80% of the purchase price, regardless of whether you financed it or not. So in that example, $10 million Gulfstream, you can get an $8 million depreciation right away. So imagine if you’re an investor, you’ve got lots of gains, and you made $8 million on your investments, if you bought this plane invested in the plane, put it out for charter, so you’re making money on your money, because it’s being charted out, the NBA stars and other Hollywood types that want to charter planes. When you do that, you’re making money on your cash, but you’re immediately getting an $8 million deduction. So think about that guy in New York City paying massive taxes or LA, this is a very compelling way of generating significant returns cash on cash, but also giving yourselves and opportunity to get that accelerated depreciation. And that’s something most advisors have no idea how to benefit from. And there’s a lot of nuance to it, Jeremy, you can get a lot of trouble. I know people that have taken an active deduction for businesses that they start with depreciation, well, if you’re not working at that business for 500 hours a year, and we outline what that means, and what you need to do to fit the criteria to take an active deduction, if you’re running an active business, you can do that. You got to really be running the business. So you’ve got to start the company, you’ve got to buy the plane, you’ve got to hire the charter companies, you’ve got to hire the pilots, you’ve got to pay the pilots, you’ve got to go to industry events, you’ve got to really run a business. But if you do that, you might have an active deduction against W2 or 1099 income. Most people can’t meet that criteria. It’s a passive investment, and they offset their cap gains. But it’s an area that I really think that very few people understand. And they really should take the time to understand. Because when you’re putting money to work, if you have that type of incredible return, if you have taxable income, and you can mitigate it, it does really make it very, very exciting for people to participate in investments, like aviation, where you get this accelerated depreciation, I mean, you’re not going to have the 80%, next year, it drops to 60. And then it goes to 40. And then 20. But you know, I do think that over the course of time, there’s always opportunities for depreciation, some of the wealthiest families that I know, purchase aircraft and either lease them out, and they do the passive depreciation, but it’s a very interesting strategy that we make available to all of our clients who are interested in.
Jeremy Weisz 1:03:17
Let’s take, and you have a number of people in real estate itself, because someone sells a building, or they sell some of their portfolio. What should they be doing with that money? Because I know that, it sometimes may be hard for someone to find another property they can roll it into right away. So what do you recommend in that case? I mean, it doesn’t have to be a property could be I guess, anything that’s now you come into money, and it’s taxable now?
Jason Mandel 1:03:48
Yeah, well, we have a lot of clients that have real estate, they’ve owned the real estate for a long time. And they have done all the steps they could take, they’ve depreciated the property, they’ve used cost segregation, they’ve done everything you can imagine to minimize their taxes. But now the rent rolls coming in, and they’re paying taxes. So one of the things that we talk about is the ability for these people to finance the building to refinance a mortgage, take out some of the equity that they’ve developed in the property. And then of course, what do they do with that we want to show them strategies that don’t create more taxable income for themselves. So sometimes, we might show them assets that would have accelerated depreciation that would be able to give them benefits. That is a great way for a real estate person to benefit from the fact that now they can have a mortgage again, because they’ve been able to pay down a property, use the money they pull out to make investments that don’t create more taxable income, maybe create a PPLI policy, maybe do something like aviation or get a yacht for charter in the Mediterranean or do a bunch of different ideas that we present. And I think it’s important for those people to look at. But this actually is applicable even for people that have enjoyed a huge run-up in real estate valuations. You say that, I had a client recently said, oh, Jason, I have $3 million in investments. But I had $8 million in real estate. I said, oh, tell me about your properties. commercial buildings. What do you have triple net leases? No, no, my house, I lived in a big house. It’s gone up so much. I bought it for a million or $2,000,000 20 years ago. And now my neighbors are getting 8 million bucks for the house in this fancy gated community here in South Florida, where I live. And I say, wait a sec, that’s not really on your ballot, you shouldn’t consider that an asset. If tomorrow the real estate market crash, that money’s gone. What do you mean, it can be gone? Yeah, as fast as went up, it can go down. That’s the nature of money. And they said, wait a sec, I said, well, we really want, you can actually get a home equity line of credit, you could pull some of that equity out, if you know you’re pulling it out and putting it into something that’s conservative with the ability to pay back that line, if you ever wanted to, well, this is a way of you benefiting from this rise and increased value of real estate. And the person thought it was ingenious, it’s not that smart. But it’s a way of locking in the gains, the paper gains that they’ve enjoyed in the real estate run up. And if they think it’s gonna go down next year, and they want to pull some of that equity out, I wouldn’t tell them to go gamble in Vegas with the money because that’s dumb. But if you’re telling me you’re gonna go into a principal protected product, like life insurance, and you have the upside of the stock market, no downside and indexed universal life, or you’re telling me you’re interested in aviation, where you get this massive depreciation upfront, and the likelihood of generating a non-correlated return on your money that’s invested. These are all interesting things to me that it can make sense, if you wanted to pull out some of the equity that you have. That’s very controversial. If you say that to a financial planner, they’d hit me in the face and say, you can’t do that, that’s just horrible, bad advice. Not for everybody. But for many of my clients, they have a substantial amount of money. And a lot of their money is in this, they may own five homes around the country. And these five homes have gone up in value. They’re not in a position where these homes are in jeopardy if they had to sell one they could or two, they needed to. But reality is these are incredibly wealthy people. So what I’m projecting and what I’m saying and proposing makes a lot of sense for them. If it’s one person, I could understand someone saying, well, yeah, this is just your home. But for many people the home used to represent all they had, right, they build up and work so hard. 30 years go by they pay down the mortgage, and now they’re sitting there and they sell it, they buy a little place in Florida. And that’s how they live their lives. Guess what, that doesn’t seem to work anymore, because everybody’s been accessing their home equity all these years. So a lot of people retiring don’t have as much equity as they thought they’d have. So now we may have to pivot and do things that are a little bit more creative. And what I mean by that is maybe we need to look at some of this inflated valuation in real estate and access it. And be careful what you do with that Home Equity Line of Credit proceeds, you’ve got to be really sensitive not to lose it, can’t be put into the stock market. It can be lost markets evolve.
Jeremy Weisz 1:05:10
Jason one piece of that, looking at the spread, so like if they can get extra, if they’re paying X percent on that home equity, basically finding something they’re gonna make more money in the meantime and pay that off.
Jason Mandel 1:08:16
Absolutely. I mean, I’m on a regular basis, I’m chasing interest rates all over the world for my clients. I mean, I have clients now we were financing life insurance policy premiums on 100 $200 million policy, we were paying two and a half percent interest 3% interest. Now it’s seven and a half percent interest at banks. Well, I’m not happy about that my clients aren’t happy about that we’re in those deals, mostly to capture the spread between the performance of the indexes over time, and the borrow costs. And it doesn’t work. Well, many of my clients are comfortable when we go to Zurich, and we borrow money on in the Swiss franc, which is a much lower interest rate. And if they’re not worried about the currency risk, and they actually liked the idea of putting a few dollars outside of US dollars as a currency hedge, by taking the loan and Swiss francs, they’re in a great position to be able to accomplish a lower interest rate loan and benefit. So, I think the idea of being proactive when it comes to rates is a very smart thing to do. We do that for our clients every day.
Jeremy Weisz 1:09:18
I want to talk about mistakes, you see a lot of sophisticated and even non-sophisticated people as far as structures go for their business. I’m wondering what mistakes do people make when creating or not creating structure?
Jason Mandel 1:09:36
Yeah, I mean, variety of answers. I’d say one immediate answer comes to mind is a client of mine who just had a major defection of his core management team, and many of his key executives, and I had been warning him for a very long time that he had to share the wealth. He had an amazing year last year, and frankly, he probably pocketed 80% of the profits and share relatively a small amount with the management team. Those types of economic relationships could work, you may get lucky and find very devoted employees. But frankly, over the course of time and in certain industries doesn’t work. So the idea they had the mistake was not incentivized. Now, I understand someone’s saying, I don’t make every employee a partner, I get that, of course. But I think you can make every employee a partner in the group profit-sharing plan, we take a certain amount of money that goes into this plan, I think you can make every partner every employee that you value, a partner in a retirement or tax-free income plan for employees, where the company owns it, and the company over time releases the benefit to the employee. So if you align your interests with the employees interests, and say, look, I’ll fund this plan. It’s part of your comp, but this is part of the comp for you working with me for 20 years, are you prepared to work for 20 years? And if the answer is, yes, great, hold them to it. But if they say no, I only want to commit to you for five years? Well, I think we can construct a plan where maybe it’s much less than benefit, but you give them a chance to create this tax-free income. Now, if the person chooses to leave prior to vesting in this plan, well, it’s a small consolation, but the employer would keep their plan because they’re giving up their plan. It’s their plan if they stay long enough. So it does act as golden handcuffs, it does minimize the chance of mass defections. And when someone is offered an extra $25,000 or $50,000 salary, but they stand to lose 250,000 a year tax-free in retirement, I’m sorry, a lot of people are going to give up that short-term money, which is taxable, and stick in the business for a long, long time to get that retirement back package. So I really believe they’re going to stick with it with your company, if you can incentivize them properly. And that’s the type of work that we do. And that’s the type of mistake that I see all the time, is greed. And I sometimes have to sit down with my clients and say, you got to share the wealth. And if you don’t share the wealth, you’re not gonna potentially lock in that success. You want to sell the business in 10 years and benefit from this enterprise value. The only way that we can help you sell this business, and we do that as well for clients. The only way that we can help you structure yourself, position yourself for sale is to prove to the buyer that this business runs without you, that this business without you will probably be even more successful, because you’re going to free up everyone’s creativity, because you, you sucked a lot of the air out of the room. Right? That makes people excited when they buy a business. Oh, you think we’re gonna expand margins? Yeah. And we’re not dealing with our favorite mutual client, right, who’s got a big personality. So that’s the kind of opportunity that I see. I see mistakes all the time, is this lack of ability, I also see mistakes when it comes to people that, frankly, don’t have enough insurance to deal with an estate tax. That’s the biggest mistake we see for individual business owners. You take a farmer and you sit down and you say to the farmer, you have 1000 acres of land, you farm, are you rich, I promise you not one farmer will say I’m rich, even if they make good money, because of the mentality. Now the problem is when the farmer dies, the IRS swoops in there. And they sit there and say, okay, let’s see the plan, let me see the estate tax, and they’re going to come up with their appraiser. And they’re going to tell the farmer what 1000 acres of land is worth. It’s not going to be your appraisal, it’s the IRS is appraisal, then they’re going to hit you up. And they’re going to say your family now owes the IRS in effect, if it’s not structured properly, a huge amount of money. Now a farmers money is tied up in the land. So they don’t really say well, I don’t I can’t pay you, I don’t know how I’m gonna pay you. IRS doesn’t care. They’re going to ask you to sell your farm, literally sell the farm. So you’d say you’re going to have to get rid of them. Now, it’s a no-brainer to go to an insurance company. And just for me to tell that story and say, look, at some point, the IRS is going to want a big check. Either the family is going to have this farm cut in half, or we’re going to need to buy life insurance. I’m going to need to finance it with a bank. And whatever the spread is above the amount we borrowed is going to go to pay that IRS bill so the family can continue to farm that land. And by the way, the same thing stands for any business doesn’t have to be a farm. IRS comes in and says oh, you have a nice business here. You father’s died. Sorry to hear that. But what’s your estate plan, the business was owned by your dad. What happens now? Well, there’s an estate tax due? And that’s the kind of mistakes that we have people that can easily solve for this. If they really care about a legacy they want to leave their families then they need to plan and these are not tough things to do, you just have to do it. And I get people not wanting to spend the money. And that’s why we finance. And the other big mistake is paying too much in taxes. And frankly, you’re not compounding fast enough. And if you can structure your assets legally, again, I’m not talking about evading taxes is a very important part Jeremy, that’s very important to me. People who say this to me, well, isn’t that evading taxes? Absolutely not. It’s insane to think that you’re going to get away with evading taxes. Look at anybody that you know, you read about people on reality TV, anywhere, people go to jail all day long for evading taxes, you’d have to be a moron, to evade taxes. And I believe Biden’s hiring thousands of more IRS agents who are going after people, so you’d be an idiot. But I also think you’re an idiot not to explore any legal opportunities to mitigate your taxes. It’s in the tax code. I don’t believe in tax shelters. That’s a big difference between me and other people. I don’t believe in some lawyer creating a tax opinion, oh, I’ve analyzed the tax code. And in my opinion, because I’m god, and I deem the world is going to tell you how things are gonna go. And I’m smarter than every IRS agent. And I’m telling you, this is compliant. Well, guess what? When the IRS sees that opinion, they may tear it apart. And they may disagree. So I don’t trust any lawyer’s opinion. Even if they write it up, they say, you could sue me if I’m wrong. I don’t want to go, where am I gonna get the money to sue you if the IRS is chasing me? Right? Doesn’t make any sense. So what you want to do is you honestly simply want to look at tax code, you want to analyze this white paper was written on aviation, because nobody believed me that you got an 80% accelerated depreciation, it’s in the tax code. I’m not making this up. Not looking to have headache in my life. So if you look at the code, and you know, for example, that for hundreds of years, life insurance, cash value, is protected from taxation. This is not Jason Mandel saying it. This is reality and the tax code, you have hundreds of thousands of people in this country employed by the insurance industry. Why? Because it’s a preferred asset. Because if you buy this asset, you get tax benefits, the death benefit is tax-free to your heirs. cash value grows tax-free, you can borrow from insurance contracts tax-free, if structured properly. That’s in the code. It’s not me interpreting the code. So those are the major mistakes, I see people trying to be too smart, too cute, you’re gonna get in trouble. Just live by the code, you’ll do great. There’s so many things to do that are fully in the code. There’s no reason to go outside of the code.
Jeremy Weisz 1:17:54
Thanks for sharing that. Jason, I love your passion for this. Going back to two things. You mentioned the group profit sharing. And you mentioned for a company and also retirement, funding retirement. I know that you’re not a fan of 401k. Right. So I’m gonna make the assumption that you’re not setting up a 401k for that retirement. How would that work?
Jason Mandel 1:18:20
Let me say simply, for the record, I hate 401 K’s I do, I hate them. They stink. They’re stupid. And they’re dumb. They don’t work. They don’t work because most 401k allocations are to equities and bonds. And over the course of time, if you time your retirement poorly, and it’s out of your control, when you want to retire and you have suffered a big drawdown that screws up all your plans, your ability to pull out three or 4% a year of that 401 k and then pay taxes on it, which we don’t know what the hell the tax rates gonna be. It’s moronic. It is a massive waste of time. Now, if your employer matches you with a 401k, I get it. It’s free money. I’m not going to fight you take the free money from your employer and put money in a 401k and hopefully one day you can self-manage it. There’s a lot of companies that let you administer your own retirement accounts. Just Google self-administer retirement account, you can see lots of companies pop up. And hopefully one day you’ll do that. So you don’t have to be as allocated to equities, if you don’t want to be. Now, what do I suggest in lieu of that? Because it’s not just about talking against something. It’s what’s the suggestion? The suggestion is stop getting turned off when you hear the word insurance. Okay, insurance means so many things. It can mean car insurance, it can mean house insurance, renter’s insurance. I’m now talking about using life insurance not just for the death benefit. That’s great. Yes, you’re hit by the bus the next day your family is protected. It’s a millions of dollars you would never have had I get it, it’s so important. And I’m not saying these insurance brokers that scare the hell out of you, and make you buy a term policy because your family’s gonna be destitute tomorrow. I think they’re right that you should have some access to it. But I have to tell you something right now, you can use insurance to accomplish many other goals, the goals you’re gonna accomplish, insurance grows tax-free. So if you want to, as an employer, you can be proactive and help your employees, you could create a plan. And if you want to be nice, you could contribute a little bit to that plan. And if you don’t want to be nice, tell the employee at least educate them, teach them what you know, teach them what I share with you as the employer, they’re depending on you. So teach them and say by the way, instead of going into a 401k, this is another choice, this product allows you to pull money out later tax-free, this product could be financed, would you like to work together, we can build a plan as a company, and we could maybe finance a retirement plan for you. And by the way, if you’re going to put money in as the employer, maybe you cut a deal with them say, look, I’m going to do this for you. But what are you going to do for me? Are you willing to commit five years of your life to this business, I need you, I’m investing in you. And for you to go join a competitor or start your own company to compete against me the next day is not in my interest. So if I do something for you, will you commit to me five years or 10 years, or 20 years, and if they choose to violate that agreement, I would say you may not have them best in that plan, and you keep that benefit. I’m not saying it’s going to be any better. But guess what, if somebody was going to have 300 grand a year in tax-free income in a couple of years, and that money goes to you and your family, that’s not a bad idea, they lose that plan if they leave. So that’s an idea that I would imagine that helps people, it helps business owners, it helps employees. And I really believe that for retirement, you’ve got to look at where you’re paying taxes. So I think it’s great that you’re putting in pre-tax money and you’re saving a little bit. But if you finance with a bank, chances are any interest you may want to pay as a tax deduction. So I’m going to give you your tax deduction. If you finance one of these plans, if you want to restructure properly, it should be a deduction. So now if that’s your argument, why need deductions, I need deductions, here they are, and I guaranteed you hundreds of thousands of dollars a year tax-free in retirement, it’s a win-win for everybody.
Jeremy Weisz 1:19:36
Jason, I want to talk through a few examples. But before I do if someone’s listening, like this sounds great. I’m not a billionaire, I don’t have $100 million. And they’re like, this sounds interesting. And they’re interested in learning more about working with you. They may be thinking I can’t afford Jason and his company and what they do.
Jason Mandel 1:22:49
That’s a mistake. So, definitely. So the insurance solutions that we offer have no minimum net worth requirement. We have clients that, I have clients who I have employee like you to help and it’s a $500 premium. So it could be almost anybody for the insurance solutions. Some of the investment products, we work with investment advisors, registered investment advisors, they have their own minimums for a client account, it might be quarter million dollars in retirement savings that needs to be invested. But for the insurance-related structures for getting the upside of the stock market, no downside in that index, universal life, there’s no minimums. For our fees, we’re very flexible and how we get paid. Sometimes we charge clients by the hour for consulting assignment, we have clients that need us to analyze investments for them or look at business opportunities, we do that we have clients that pay us for segregated services we offer. And then we have clients that need us for their insurance structures. And we are paid by the insurance companies, not by the client. And sometimes when we are generating a fee, we have ways of mitigating that fee that the client would have to the insurance company would pay it sometimes in the client’s interest to do that. It allows the cash surrender value and contracts to be enhanced. So we have a very transparent conversation. That’s the title of that book, DEMAND Transparency, I give too much transparency, and I tell the client exactly how I get paid. And if they are comfortable with that great I don’t want anyone to pay me something they’re not comfortable with. Sometimes I’m paid by the insurance company sometimes I’m paid by other ways, but we are always open to structuring it that it’s in the client’s best interest. I really believe relationship doesn’t work unless both people benefit. So to make money in one year and then have a relationship not work out it’s not in my interest.
Jeremy Weisz 1:24:38
Yeah, thanks for sharing that and we’ll go through and if you want to get in contact with Jason has company themandelfamilyoffice.com or you can check out skygemsolutions.com.
Jason Mandel 1:24:51
Or they get call my cell phone and text me. I’m literally going to give you my cell phone number. This is not a joke. This is my personal, I’m gonna do it 917 area code, my New York City days 917-603-2365, that is my cell phone 917-603-2365 I will personally respond to your text or your voicemail, and I will call you back. That’s how much I care about answering people’s inquiries, I really believe they should have the direct access to me. And if I’m too busy, I’ll have one of my employees call you back, but somebody will call you back.
Jeremy Weisz 1:25:31
Don’t get a bunch of spam from sim calls. So a couple examples, right. Some real-world examples, you had a retired manufacturer. And this person, I think, had a team of people working with them.
Jason Mandel 1:25:52
Correct. This person had a team of people, but the team felt that they were not appropriate for something like private placement life. And therefore they did not present this as an idea for them. And it was a shame, it was an absolute shame. Because this client more than benefited. And it took, frankly, a tremendous amount of time and effort for me to talk to each of these individual advisors separately, I had to convince them one by one that this was in the client’s interests. And it was a shame because I think they were just protecting their turf. And over time, we were able to help the client and the client now is ecstatic with the solution. But it was very challenging, and the client loves his advisers and didn’t want to go against them. So a lot of the times my job is my work is really spent educating advisors, I don’t talk to that many end users I like to, but a lot of times, it’s lawyers who call me accountants call me registered investment advisors call me they want to know more. And then I work with them, and they bring their client to the table for us to assist.
Jeremy Weisz 1:26:50
Why was the person thrilled? What was the benefit to them?
Jason Mandel 1:26:54
They paid millions of dollars a year in cap gains taxes, and we were able to structure their assets compliantly in a vehicle that is not subject to cap gains taxation. And when they want to access their money, they’re able to borrow money out of the structure. It’s completely compliant. It’s literally a life insurance policy is all we reached, we domiciled his assets inside same money managers, his asset management firm did not change, the client changed. It went from Jason Mandel individual to policy number one to four eight on the life of Jason Mandel, same money manager, same fees, nothing was disrupted, but the client changed.
Jeremy Weisz 1:27:30
There was also a family I believe in Palm Beach. What happened with that?
Jason Mandel 1:27:37
Well, this was a family they had been hedge fund managers. They wanted to work on a situation where they wanted to do some estate planning. They were delayed, eventually, they did the state plan. And it’s interesting because they always envision themselves being healthy. Unfortunately, there was a health change. So we’re lucky we put the plan in place when we did they’re actually currently uninsurable. The plan could not be done today, based on health changes for the family. So I always say to people, even if you think you’ll always be healthy, it’s not a bad idea to do the plan early or use bank financing. So you’re not coming out of pocket of any money. If that’s what you’re waiting for. I’m going to sell my business in five years. I’ll wait till then. Sometimes it makes sense not to wait.
Jeremy Weisz 1:28:19
And then there was also another instance of a think a Buy Sell arrangement.
Jason Mandel 1:28:25
Yeah, yeah, buy sells are critical. We had business partners that were best friends. And I don’t want to give too much detail. But there was a major falling out between the business partners where they stopped speaking, the business would have disintegrated, literally disintegrated if we didn’t have a clause in the partnership that we instituted, where one of them had the right to buy out the other. They placed a formal bid for the other half of the business, they had a retirement plan, they were able to access their equity in the retirement plan to buy out the other partner, the partner had the chance to also make a competing bid. An independent third party that was negotiated before held that up the higher bid won the ownership of the company, the other partner was bought out, they never would have settled on this. They hated each other so much that they both said it to me, they would have walked away from this company if they had to figure it out at that point, there was so much hatred. So you’ve got to put a buy-sell in place while you’re still talking to your partner. I don’t care if it’s your brother, I don’t care if it’s your best friend or it’s your wife. You put that plan in place right now. Because you never know what the future brings. Just envision something you can’t envision that’s what’s going to tear it apart. And I’ve seen it all too many times.
Jeremy Weisz 1:29:40
With that buy sell there was something else in place in addition, the buy sell you said some type of policy for each of them.
Jason Mandel 1:29:49
Yeah, well in addition to the buy-sell and event of a mortality, there was another policy that dealt with any type of disability. And we’ve had clients where there is a material change and health. One partner is no longer coming to work, the other partner is coming in every day and over time, resentment builds, and you don’t want to work for somebody’s family. It’s just not in your interest. So what mechanism do you have? In so many cases, what you see is the business shuts down. The healthy partner goes out and recreates. It steals all the relationships, and the other partners, family gets deprived of everything. Because it’s just not fair to work for an extended maybe for a year or two. But at some point, people stop being generously. So you need to have something that deals with impairment. If you’re unable to work, and you have a disability, there’s got to be a plan in place.
Jeremy Weisz 1:30:33
Jason, I have one last question. And I just want to thank you for sharing your journey, your expertise. It’s fascinating. Last question is mentors, some of your mentors throughout the years in the best advice they’ve given you in your professional life?
Jason Mandel 1:30:55
I would say some of the best mentors have been, I haven’t done a great job as I should have done with mentors. I would say one mentor that I can think of right now is somebody who’s so available every time I have a business issue, they’re able to sit there and talk, they have no vested interest here. They’re not my lawyer, they’re not my account. There’s nothing that they can benefit from. And if you have people like that, that are not being paid by you, even if you say well, my lawyer is such a good guy. Yes, there’s still something there. I love the advice that I get from people that have no skin in the game here and they don’t benefit and the advice has been to have fun. And every day I have fun, if I’m not having fun, I’ll stop working frankly, I’m in that position panky, thankfully, where every day I enjoy helping people and giving back and if you do good deeds in the world and you know this Jeremy because you do this all the time. Good things happen to you. I really believe that and I really think that I help everybody and down the road. It all comes back to me I’ve been blessed. And I think if you just put out good feelings in the world and do good things and help others. Goodness comes back to you. I really believe that.
Jeremy Weisz 1:32:02
Jason, thank you so much everyone, check out skygemsolutions.com themandelfamilyoffice.com And more episodes of the podcast. Thanks, everyone. Thanks, Jason.
Jason Mandel 1:32:13
Take care, be well.
