AIRE Advisors Recognition • A Note On Life Insurance • Research Updates
Monthly AIRE Perspectives – October 2022
Dear Friends and Valued Clients,
Please see below for The MAP – Monthly AIRE Perspectives for this month.
AIRE Advisors Recognition!
Unbeknownst to us, we were pleased to have received recognition by SmartAsset as one of the top 5 Financial Advisor firms in Beverly Hills! Although our assets under management listed on the site are substantially understated, we appreciate this independent opinion (we do not know anyone at that organization) and wanted to share the article and review with you. Click here for the article
An Important Note on Life Insurance
We often review life insurance cases that clients bring to us, which have either been presented by or purchased through other companies. First, we want to let you know that we are fully licensed and have expertise in life insurance, and have the ability to shop virtually the entire industry for the proper solutions. Life insurance is the only product for which we are commission-based and not fee-based, and this is only because there is no way to provide this solution in the industry in a fee-based manner. We struggled with the decision of whether to include life insurance as firm, given the potential conflict of interest inherent in a commission model, but ultimately decided that we would prefer to be involved with the advice in this area than to leave it to others. We will discuss these solutions, when appropriate, during our annual reviews with each client, but it is important to note that we generally feel that this solution is sold to investors more often than it probably should be, so here is a quick lesson on our opinion on life insurance.
Although it is often sold as an investment due to the tax benefits associated with it, we generally prefer not to purchase life insurance as an investment. The reason for this is because of the substantial and often hidden costs associated with life insurance as an investment. Broadly speaking, we believe that life insurance can be beneficial primarily in two situations. The first situation is for a term life insurance policy to cover the main bread winner in a family until the youngest child reaches an age where they will be able to work and survive without the income of that parent. In these cases, we might recommend a term life policy that would help replace the lost income in the tragic event of the death of a parent who is the primary or sole source of income for a household if there are not enough assets in savings and investment accounts to cover the lost income.
The second situation in which we might recommend life insurance is as an estate planning tool for those whose goal it is to pass on as much as possible to the next generation upon their death and whose estates will be above gift and estate tax limits. This strategy involves purchasing a life insurance policy in an irrevocable life insurance trust (ILIT), that allows a person or couple to remove a certain amount of assets from their estate. As of right now, each individual has a lifetime gift and estate tax exemption of $12,060,000, which means that they can pass on a total of $12.06 million each ($24.12 million per couple) total during their lifetime and after death to the next generation. Unless tax laws change, this amount is slated to automatically drop to about $6.2 million per person in 2025. For those whose estate is substantially higher than these amounts, one potential strategy might be to purchase a life insurance policy in an ILIT, thereby giving up a much smaller portion of the gift or estate tax, but removing the entire amount of the life insurance face value from their estate. For example, a 45-year old might buy a $5 million whole life policy for a one-time amount of $500,000, giving up $500,000 of their gift and estate limit, but moving $5 million to the next generation after tax. Please note that this is only an example for illustration purposes, and the amounts will be substantially different for different people. This strategy is only useful for specific situations and goals, so it is not for everyone.
Most of the time, other than these two situations, we tend to shy away from life insurance. If you have questions on any of these, please contact us for a more specific discussion.
Our Activity in the Background: Recent News, Events and Research Updates
Although we firmly believe that public markets are efficient, thereby making stock picking and market timing virtually useless, we still spend an enormous amount of time behind the scenes on research. With regards to public markets, we run a comprehensive project each year throughout January and February, reviewing and questioning all of our asset class choices, then comparing our selected choices (mostly low cost ETFs) with the rest of the available choices for those categories. Since we have done this annually for many years, we regularly go into this project believing that we will probably not make any significant changes, surprisingly, we find that we make changes every year to our selections, mainly due to the industry creation of newer, more price competitive solutions or changing market conditions. Our general philosophy with regards to index investing in public markets is to buy the lowest cost solution available, unless there is a compelling reason to pay even slightly more.
When it comes to private markets, however, the market is so much more vast, with an almost infinite amount of categories and choices. Due to the lower liquidity of private investments, these markets tend to be significantly less efficient, but also more expensive. As a result, fund and manager selection are critical. We receive at least 50 new “pitches” from companies all over the country (in fact, throughout the world) on a daily basis to consider various investments of all types. However, our role as your fiduciary is to do our due diligence and research before we even consider an investment. In fact, we almost immediately reject more than 99% of what is shown to us! Throughout the year, however, we meet with new companies and attend conferences in an effort to find potentially noteworthy private investments to consider. Given the amount of research we conduct on your behalf, we felt it might be beneficial to share some of the more pertinent activities, meetings and events in which we have participated throughout the past month (AKA some of the things we do in the background when we are not on the phone with you or transacting in accounts).
In late September, AIRE COO Sharon Nassir and I attended the 37th Private Wealth Management Summit in Beverly Hills. This was a 2 ½ day summit, with talks by thought leaders throughout the industry, including wealth managers, real estate experts and alternative investments managers from cryptocurrencies to private equity and more. We attend these types of meetings regularly in order to continue elevate our education on new developments and to continually expand our knowledge on our existing processes and practices. We were honored to have been invited to speak at the event, where I presented our views on best practices in investing to an audience of investment advisors and asset managers, and Sharon was fortunate to meet the inspirational Magic Johnson, who was the keynote speaker at the event:
Additionally, last week, I attended the 2022 ADISA Annual Conference in Las Vegas. ADISA is the Alternative & Direct Investment Securities Association, which is a national trade association of professionals involved primarily in non-traded alternative investments. At this conference, I met with fund managers and experts in many different fields within the alternatives space, from newer ideas in which we have never invested, such as wine, vacation homes and manufactured housing, to more familiar areas, such as opportunity zones, 1031 exchange funds, private real estate, and private equity funds.
Finally, last Thursday, Sharon and I attended Fidelity Insights in Dana Point, CA. This is an annual convention held by Fidelity Investments for top RIA firms, where we were able to preview some of the upcoming industry technology, trends and more.
Given our schedules, we are very selective in accepting any invitation that takes us out of the office, but these three events were exceptional events that allowed us to explore new opportunities, so we wanted to share a little bit with you about what we are doing in the background on your behalf.
Once again, we would like to thank you for your trust and loyalty, and look forward to speaking with you in the upcoming month.
The commentary and opinions expressed in our articles on this page reflects the personal opinions, viewpoints and analyses of the AIRE Advisors, LLC employees writing the article. The articles on our website should not be regarded as a description of advisory services provided by our firm or performance returns of any AIRE Advisors, LLC’s clients. Any past performance discussed in these articles is no guarantee of future results. The views reflected in the articles are general in nature and made to provide education about the financial industry. These views and opinions are subject to change without notice. Any mention of a particular security, sector, and related performance data is not a recommendation to buy or sell that security or in that sector. Our firm manages client accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the articles. To determine what kind of investments may be appropriate for you, please consult your financial advisor prior to investing. Also, please note that all investing involves risk and the possible loss of principal capital.
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