Read The Transcript Below:

Steven (00:49):

Hello everyone, and welcome to the next episode of the Retirement Tax Services podcast, Financial Professionals edition. I am your host, Steven Jarvis, CPA, and I’m joined today by a financial advisor, John Ensley, of JEnsley Financial. And I’m excited for today’s conversation because I feel like it’s a topic that kind of either gets just lumped into one of two categories, and there isn’t a lot of discussion in the middle of where the actual value is. And that’s what we’re hoping to cover. So John, welcome to the show.

 

John (01:19):

Thanks, Steven. I’m super excited to be here. Really looking forward to the conversation.

 

Steven (01:24):

Yeah, definitely. And as we are getting ready for the show, I really appreciated your approach and your perspective on what we’re gonna talk about today, which is life insurance. And this tends to be one of those topics where, especially in the financial planning industry, tends to be very kind of divisive from what people like to put out online, which we all know the internet can’t possibly lie ever. And so everything online is true, but so you kind of have a group of advisors that it feels like life insurance is the answer to everything, and no matter what the situation is, all right, you need whole life, or you need whatever universal index policy or whatever it might be. I’m clearly not an expert in this stuff. And then you have the other polar opposite, which is, life insurance is a scam and no one should ever do anything besides term insurance. And so there’s this kind of, this huge area in the middle where it turns out there is the potential for a lot of value, but the conversation just never happened. So excited that you’d come join me today and share your perspective on how you’re working with clients and how you’re finding value in that middle ground.

 

John (02:24):

Absolutely. Yeah. It’s you know, it really was a shock to me. I started my planning practice in 2012, and I didn’t have a lot of background in financial services at the time. So when I came into this, my practice from the get-go was very, I’ll call it life insurance centric, kind of a safety first planning approach. We like the guarantees. We like being able to build up pools of cash value, things like that in the life insurance products. So, I assumed coming in back then that there would be this synergy between the guys that are really into investments or, you know, and the advisors that are doing other things. And it was a shock to me. You know, I started going to networking events when I was trying to get things going and so forth. And, it came as a shock to me early on that, oh, there’s really not a synergy, even though I think there really should be.

 

Steven (03:12):

Yeah. It’s interesting. And, part of the reason we’re talking about this on a tax podcast is that I have definitely felt a little slighted before when I go to a conference and there’s some catchy headline about, or some catchy like session title that’s about, oh, you know, there’s this great new tax free income stream, or however they word it. But halfway through the presentation it’s like, oh, no, you’re just talking about life insurance. Again, you’re just trying to trick me. And I just personally, I feel like if you can’t tell me what you’re doing up front, maybe you need to rethink this. But the other place I see an overlap. You mentioned where you think there should be a synergy and you just didn’t really see it. That happens between tax professionals and financial advisors as well at times. And, where I see this most often, and I’d love to hear your perspective on this from the insurance side, is that financial advisors just assume that their clients are going to other professionals and asking for the exact same thing.

 

(04:06):

And, really the example that’s coming to mind for this, we’ll use an easy example, we’ll use Roth that financial advisors love to talk to their clients about Roth conversions, about contributing to Roth because it’s potentially better for long-term tax planning. And then they get mad when a CPA is upset that the advisor just blew up the current year refund. And the part of the reason they’re upset is because the client came to the CPA and said, I want the biggest refund right now as possible. And so the CPA’s just trying to do what the client asks. So does any of that resonate with you as far as how you’ve seen that overlap on the insurance side?

 

John (04:40):

Yeah, absolutely. And something I’ve talked about quite a bit is that the importance of that team, the CPA, the accountant, the financial advisor attorneys there is really important to have that team and have the right people on that team. And I think one element of that team when it comes to financial advisors is that not all financial advisors specialize in the same things. So you might have a couple of people on that team in some of those areas. And I don’t know, that may be true of CPAs as well. They specialize in some areas and not others. And so, there might be a couple of professionals that are on that team as consultants at some level. And I think that that well-rounded picture is important because this happens, right? Like you mentioned that you can blow up this year’s refund by the funneling over to the Roth. And, in that Roth conversation should also come a cash value life insurance conversation because there are some similarities, but it has to integrate on the accounting side with the tax situation. And I think it’s a delicate dance between all those, but it sure would go a lot better for the client since they’re the kind of the important person in the mix here. If they all work together a little better.

 

Steven (05:52):

Yeah. So John, you mentioned the cash value policy in there. Now, I’ll be completely transparent ’cause, that’s what I try to be all the time. I probably have more advisors in my inner circle who are more on the side of let’s do term insurance and move on. And so talk to me about what it is you are looking for in a client situation where you say, okay, we need to take this a step further and we need to consider how life insurance could be integrated into this plan.

 

John (06:16):

Absolutely. So cash value life insurance in particular, we’re looking for those situations. And I tend to focus on the small business owner, the entrepreneur people like that where access to that cash is an important feature, ’cause in a lot of cases, it’s difficult to access cash in other types of areas. And so we use cash value life insurance because we’re creating this pool of cash that can be tapped into a, as a source of self financing or business financing, equipment leasing. There’s all kinds of examples where the cash values built up in these policies can be used to help finance business operations. And it opens up the door to a whole laundry list of potential tax advantages to the business owner using it that way. But it’s doing double duty because it’s also functioning as a long-term piece of the retirement puzzle.

 

(07:11):

It’s also creating a situation where those funds can be accessed down the road potentially tax free. And if there’s the similarities to some of the other things that we were talking about. And so I just think it has to be a piece of the puzzle. It shouldn’t be all or nothing like you opened with, right? It’s not everything should go into cash value life insurance and shun everything else. It’s just, if you’re looking at this overall puzzle when you’re planning it and all of these factors are coming together, it’s just hard to argue that it shouldn’t have a place in that puzzle.

 

Steven (07:45):

Yeah. I’m always an advocate for intentional and proactive planning that we don’t wanna make decisions just based on defaults. We don’t want to just let things happen to us. And so we certainly need to know what options are available to be able to intentionally consider them. I think one of the places that life insurance gets a bad rap, I already mentioned it, that you definitely have these, we’ll generously call them marketers out there who will try to disguise the fact that at the end of the day, this is an insurance product, which again, and maybe that’s just me personally, that’s a bit of a turnoff to me if that you have to get halfway through the presentation before you tell me what it is. And then the way I hear it get described so often it makes it seem like, hey, this is this just utopia of a product that can’t possibly have any downside or ever go wrong. And it’s only up, so why wouldn’t everyone do it all the time. So talk to me about how you message this to clients or prospects. How do you think about this? How do you balance the discussion so that it’s clear what the advantages are, where its piece in this picture goes, but also making sure that you’re being really clear about what the trade offs are of picking this as opposed to another product or service?

 

John (08:53):

Well, and I think that is part of being a professional, is educating your client base, people you work with in a very clear, transparent, accurate way. So, I completely agree with you. I hate the beat around the bush approach where you’re 20 minutes in before you even figure out what they’re talking about. And so not a fan of that approach either. And, I think it’s just, if in my practice, I’m just very clear and transparent. I, you know, I said it right here with you a few minutes ago. I’m an insurance centric practice, right? I focus on insurance products, cash value, life insurance, annuities, things like that. And I can tell you why, right? The things that I’ve mentioned already. So, and that’s just how I tend to approach it. I’m very straightforward. Here’s the pros, here’s the cons, here’s how it compares to the other things you could do. And I think the important thing is every individual client has a situation that some combination of these tools is works best for. And in some cases it’s maybe a little bit of cash value, life insurance and other tools. In other cases, maybe it’s a lot and then some other tools. But every individual circumstance is gonna be unique and we have to approach every client as a unique customer.

 

Steven (10:07):

So John, one of the ways I look at this for professionals in general is for you to know who your ideal client is, you have to know who’s not the right fit for you. And the better and more quickly you can screen out the people who are not the right fit for you or the right fit for what you’re offering, the faster you’re gonna get to the people who are gonna be the right fit. So when you are looking at potential potential clients or potential use cases for your insurance centric approach, I mean, gimme some examples of just situations that are just not gonna be a fit. Like these people need to be considering other options.

 

John (10:40):

Absolutely. So I think there’s a number of situations. So, we’re looking for a situations where there’s adequate cash flow to fund these various tools. That’s true of almost anything. But we’re also, health comes into play with life insurance, right? So we’re looking for certain health factors that may disqualify someone. But for me, what I look for more than anything is kind of a frame of mind a thought process where someone is open to considering these, I guess you could call ’em out of the box ideas, to integrate into some of the more conventional things that they’re already doing. That to me is a more of an indicator that we can then have more conversation. I think it’s super important to acknowledge that there’s no cookie cutter solution. It’s a customized solution for everyone that I meet with. And so I’m really looking for those folks that have that mentality of being able to consider outside the box ideas and look at it.

 

Steven (11:38):

Well, John, what if they don’t have that?

 

John (11:38):

I tell ’em right up front that, you know, look, I’m probably not a good fit for you.

 

Steven (11:44):

Yeah. And John, one of the reasons I was excited to bring you on the podcast is that you were really upfront about that to begin with that you’re not out there trying to convince everyone that you have the right answer for everyone. That’s a turnoff for me, no matter what service we’re talking about, whether we’re talking about people who don’t do any insurance or do all insurance. If you come to me and you have this aura of what I do is the right answer for everyone, I can’t have a serious conversation with you ’cause that’s not true. That’s not true for me either. Like, I am not the answer for everyone. And so I love it when people can acknowledge that and then get laser focused on, here is who I work most effectively with.

 

Commercial (12:19):

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John (13:22):

Well, I think too often as a professional, we get caught up in the process of what we’re doing and lose focus on the individual that we’re working with and really getting to know what they need and want and what’s in their best interest. And then focusing on solutions that get us there, rather than the thing that we just do a lot of. And so we just want to keep pushing that out.

 

Steven (13:47):

Yeah, that’s a great point. Actually at the RTS Tax Planning Summit next month, one of our presenters, her whole presentation is about asking the right questions to make sure you really understand the client’s goals. And I think that’s really what you’re speaking to is this isn’t about, let me give you my laundry list of potential products and solutions, and then let’s see if one of them fits you. It’s understanding what their situation is, what their goals are, what fits for them. And then really using our kind of list of potential tools then as a problem solving mechanism to say, can we align these in a way that we can meet your goals and not try to force you into whatever cookie cutter like that somebody else might want to put ’em through.

 

John (14:32):

Exactly. And, I can actually give you a great example of that from a story of a client. And so this was a gentleman that owned a chain of fast food franchises. And he wanted to, when I met him, he was frustrated because he had money. He was putting away money for retirement, he was doing a good job, the right things. He had money in some places, but he had a bad experience with a bank to get some financing. He was trying to open a new location. And by the end of the conversation, it became obvious that he really needed access to the money that he had, and he didn’t feel like he had access. So we were able to put a solution together using cash value life insurance, where he used some of the funds out of these other areas, funded a life insurance policy, which if they’re designed properly, they’ll accumulate cash very quickly.

 

(15:24):

And almost immediately within say a week of the policy being issued, he was able to borrow a large lump sum from that policy and use that as a, he borrowed it personally and then loaned it to his business. His business, then used the money to open the new location, got the building, did the build out, right. All the stuff that goes into that. And and then collectively his whole business repaid him for that business use from the policy loan. And of course he took a portion of that and paid the policy loan off. And in that entire process I think I should really note too, we worked very closely with his CPA.

 

Steven (16:01):

That was gonna be one of my questions.

 

John (16:02):

To make sure all of that is structured and documented correctly so that we don’t get in any problems that way. And I insist on that if in these situations, right. Accountant has to be involved ’cause I’m certainly not a tax professional. I don’t give tax advice. Right? So in that situation though, we set up a chain of events that created a number of levels of tax advantages for him in terms of, you know, the repayment coming from the business back to him had some tax advantages to the business, right. Like their business expenses it resulted in income or cash coming to him from the business that was not subject to self-employment tax. Right. So there were a number of levels of tax advantages for this person. That particular solution worked perfectly for him, and we’re continuing to build the cash in those policies towards retirement plan. So it perfectly integrated with the other things he was doing, but met his need for cashflow management right now today.

 

Steven (17:05):

Yeah. I definitely appreciate that you brought up the involvement of the CPA in that process. That’s not an area that I specialize in, but it really doesn’t matter what area of tax we’re talking about. I appreciate that you recognize there are tax implications because too often I see where there is a very nicely designed plan or strategy that maybe initially gets executed correctly, but if it doesn’t get reported to the IRS correctly, I’m sorry, but you haven’t actually fulfilled the tax planning strategy that you put in place that we have to see it through the end. And sometimes seeing it through the end can take years. This isn’t just a couple of forms and we’re done. Like, this is something we have to track and monitor and report and make sure that every, there’s a transaction, we’re getting it reported correctly, and that everyone goes in knowing that this isn’t a one and done, we’re committing to this process over a period of time.

 

John (17:58):

Absolutely. Periodic reviews are critical to these types of cases. With the financial planner, the CPA attorney, if there’s one involved in something like that, you know, again, I agree, it can’t be one and done. It’s an ongoing dynamic pro. It changes all the time too.

 

Steven (18:16):

Yeah. John, again, this isn’t an area that I spend a lot of time in, but as I’ve been more involved in the financial planning industry, I almost get this like the little guilty pleasure of watching financial advisors fight about fee structures because it was just so foreign to me coming from the CPA world, again, in the CPA world, pretty much everyone bills based on chargeable hours, and no one really fights with other people about how they charge. And, so, I get to just kind of spectate on this conversation that financial advisors have around whether AUM or flat fee or whatever might be better, but amongst those financial advisors, there’s almost a universal disdain for commissions, even though commissions are pretty ubiquitous throughout the world. So, I’m just genuinely curious, how do you approach that conversation with your clients as far as how you get compensated on life insurance?

 

John (19:04):

I just lay out the numbers. I mean, it’s pretty clear whether you pay somebody a flat fee or you pay a percentage of assets under management. Or there’s a commission involved. It really is pretty comparable. If you lay it all out. So it, you know, to, I’d never understood the argument. It’s another thing that surprised me when I got into this industry 11 years ago, that there is this debate. Because it’s yeah. I just don’t really understand. You’re paying a professional to do a job and, I completely understand that client’s best interest should always be top of mind. I mean, that’s just decent human being 101. And, I get, there needs to be some rules ’cause not everyone is a decent human being. But to me it just never made a lot of sense. And if you just lay the numbers out, it’s a fee. It’s going to somebody for a service they’re providing, and it’s all pretty comparable.

 

Steven (19:57):

Yeah. I love the emphasis on transparency. That’s really what it comes down to. That people are making informed decisions, that they understand what the incentives involved are. It turns out any professional, any business owner has incentives that are profit and revenue driven. That’s part of what keeps us in business. If we’re not making money, we will quickly go outta business. So, I appreciate you sharing your thoughts on that. John, can you talk about what you’ve kind of learned? You mentioned you’ve got into this about 11 years ago. What have you learned over that time or how has your mindset changed over time about how these products work for your clients?

 

John (20:30):

Well, if anything, it’s just reinforced it. You know, the story I shared a moment ago, that’s a true story, right? We’re not gonna share the names or anything, but it’s a true story. And I have a number of those types of situations. So, if anything, it’s really reinforced. And I should also point out, I actually got into this industry as a result of using some of these tools myself as a client and decided that I got very passionate about wanting to share these concepts with other people ’cause it’s just not widely understood or discussed. So that’s what brought me in to begin with, was my own initial experiences. So after 11 years now, I have many clients and many examples of how successful these approaches can be using cash value, life insurance and annuities in some cases.

 

Steven (21:20):

So then talk to me about how you did learn all of this. I mean, you said that, you know, you had your own personal experience, but there’s a big difference between being on the receiving end of a product or service and then being at a level where you can then offer to other people. So, what was the learning process like, and then what is it like today for you to stay on top of what’s available and what’s changing?

 

John (21:40):

Yeah, absolutely. It’s actually sort of a funny story. I was I had some situations in the 2008 financial crisis. I was involved in a real estate development that went horribly wrong. So kind of in a dark place. And that’s got me to start doing some studying. I call it a journey of self-discovery and just reading a lot and studying everything I could, most of it finance related. And I was on a webinar one night and this advisor was talking about this example with a couple in their home. And he started talking about a life insurance policy. And at the time, I hated the idea of life insurance you know, I had this mentality that why would I want to be worth more dead than alive? That kind of thing.

 

(22:24):

And I think a lot of people have that going on. So it was the first exposure I had that life insurance could be something other than a death benefit that it might have some use. So I got very curious about it and found more information specifically about that. There was a book called Becoming Your Own Banker by Nelson Nash. It was written back in the late eighties that talks about different ways to use cash value life insurance. And so with more study, I eventually found an advisor in my area and talked to them about it and set up policies for myself personally and started funding those. And so, you know, over the years I’d been to many advisors and had never heard anything remotely similar to how these policies were working. So I was ready for a career change and decided to that this is what I would like to do, is help people follow that same path I had.

 

(23:17):

So first thing was I got licensed right for insurance and then started completing agent training programs and then worked under a mentoring program for a few years, et cetera. And then just continued to expand financially. I got my chartered financial consultant designation most recently have passed the series 65 exam. So, you know, I’ve continued to educate myself on the traditional investment side, even though I got my start. And, my practice this day is still very insurance centric. But that was kind of my path to get here.

 

Steven (23:49):

I appreciate you sharing that, John. I think I mentioned it before we hit record, but one of the things we always try to focus on is how people can take these conversations and turn ’em into action ’cause that’s really where the value comes from. So really think about this from a standpoint of advisors who are listening, who want to learn more about how this might fit for their clients. I mean, what do you recommend to advisors as a starting point for exploring how insurance might fit?

 

John (24:14):

So, I mean, I think there’s two paths. One path is to look for a partner, look for someone like me who is specializing on the insurance side of the house that could work with an advisor, right? That synergy. It should be there. It could be good for the client to have both of those experts involved. And then the other path, of course, is to do it yourself, to start getting the education, the licensing, et cetera, to be able to learn these things yourself. You know, I think those are really the two paths. So of course, I’m happy to have a chat with anybody that wanted to reach out to me and talk about those opportunities.

 

Steven (24:50):

JEnsley Financial, is that going to your website? Is that the best way to reach out to you? Or how should people get in contact with you?

 

John (24:56):

So I have a page set up specifically for people to reach me. It’s called Jumponwithjohn.com. And right there you can access my calendar, schedule a 20 minute, you know, it’s called a strategy session, but, you know, 20 minute chat and see what’s what.

 

Steven (25:13):

Perfect. I really appreciate you sharing that. Not so specific to this conversation, but of course my listeners know at this point that I’m always gonna bring up that when we talk about action items, we have to talk about getting tax returns. John, you talked about the importance of reporting this strategy correctly, including the tax impacts of it. The only way you’re gonna know for sure that this has been done correctly is if you’re reviewing the tax returns. You’re seeing this through all the way to the end. So whether you do lots of insurance or no insurance, there’s no excuse not to be getting tax returns, reviewing those for your clients. So John, thanks so much for coming and being on the show today. I really appreciate you sharing your story and your insight and how you’re working with clients on this area.

 

John (25:51):

Steven, I really appreciate being here. It’s been a lot of fun. Thanks.

 

Steven (25:54):

Awesome. And to everyone listening, thanks for being here. And until next time, good luck out there. And remember to tip your server, not the IRS