Podcast - January 24, 2024
????️ New on Barenaked Money: “Seeing Through the Hype: The Truth About ‘Bank on Yourself'” ????️♂️
Is your financial strategy based on solid ground or just slick marketing? This episode takes you on a deep dive into the world of “Bank on Yourself” and infinite banking. Join our hosts as they dissect the glossy claims and unveil the realities hidden beneath. They’re not just talking about life insurance; they’re tackling the lack of transparency in the insurance sector, urging you to look before you leap into such financial decisions. It’s a candid, eye-opening discussion that empowers you to make informed choices, free from industry jargon and emotional traps. Listen now for insights that could redefine your investment approach! ???????? #BarenakedWisdom #FinancialClarity #PodcastDeepDive
The transcript is automatically generated
Episode Summary:
In this episode of the Barenaked Money Podcast, the hosts discuss the concept of “Bank on Yourself” or infinite banking. They analyze the marketing claims made by proponents of this strategy and provide their own insights. They highlight the lack of transparency in the insurance industry and caution against blindly trusting these types of investment ideas. They emphasize the importance of understanding one’s goals and considering all aspects before making any financial decisions. The hosts also clarify that they are not against life insurance but believe it should be used properly and not misused for predatory purposes.
Announcer (00:00):
You are about to get lucky with the Barenaked Money Podcast, the show that gives you the naked truth about personal finance. With your hosts, Josh Sheluk and Colin White Portfolio managers with Verecan Capital Management Inc.
Josh Sheluk (00:14):
Welcome to Bear Naked Money. Colin and Josh here as always, and I have a fantastic investment idea to pitch your way today, Colin.
Colin White (00:26):
All right, so for the tiktoks in the crowd, this is going to be a real live reacts because they’ve conspired to come up with something that is apparently so outrageous and something I’m completely unaware of to throw at me. I can’t wait. Josh, this is better than Christmas morning. What do you have?
Josh Sheluk (00:43):
So what we’re talking about today is something that is called the Bank on Yourself investment idea, I’ll call it, or infinite banking also referred to. So both very marketable terms. I’m going to give you a look under the hood as to what’s here, Colin, but I’m going to give it to you with the marketing slant that I’ve been reading on the internet and I’m going to get your input on it.
Colin White (01:09):
Thank you on yourself, infinite banking. I am excited. Where do I sign up?
Josh Sheluk (01:15):
Okay, so I did some sleuthing on the internet just to see what this is all about because I hadn’t heard about it either until one of our colleagues mentioned it to me as something that’s gaining a little bit of traction and gaining a little bit of popularity. And what I found it just, well, let’s see what you have to say about it. So I’m going to read you some actual clips, some actual marketing headlines from one of these Bank on yourself places, institutions. So let me start here. Colin Bank on yourself gives individuals and families a way to bypass the often turbulent volatility of the stock market to grow wealth safely and predictably using the compounding power of supercharged dividend paying whole life insurance policies.
Colin White (02:02):
I was thinking that this was going to end up being an insurance thing. I’m surprised you got through that quickly. They don’t typically use the insurance thing that quickly, but okay, I know the road we’re going down now. How about me?
Josh Sheluk (02:17):
So let me ask, why did you think we were going down the insurance path?
Colin White (02:23):
It’s a concept that’s been used in the insurance industry since I’ve been involved back in the nineties. Fundamentally, insurance has got an advantage is they’ve got the widows and ORs lobby, which has managed to keep life insurance death benefits to families tax free. And that’s a powerful thing. And the swell people in the insurance industry now said, okay, well we have this rule that makes us tax free. What else can we do with that? And they have an amazing ability to come up with products and ways of making working with that advantage. So yes, this actually, the terminology may be somewhat different, but the concept of buying a whole life insurance policy and using it to fund all of your dreams is not new. This is a concept pitch from the nineties when I was very first trained in the insurance industry. So yeah. Okay. I know the road we’re going down now, so please, please. I’d like to hear the latest marketing.
Josh Sheluk (03:25):
Yeah, yeah. Well, you got it and I’m glad you asked. What else this can do for you, Colin Bank on yourself is a strategy that is being used by hundreds of thousands of folks across North America to guarantee the growth of their retirement savings and emergency funds to provide needed cash for business expansion, college expenses, and more.
Colin White (03:47):
I wouldn’t say it was the best way to do it. So I guess they’re not lying.
Josh Sheluk (03:52):
Do you have a problem with the term that they are guaranteeing the growth of their retirement savings and emergency funds?
Colin White (04:00):
Well see, the way they get away to using that is that in Canada, this is talking, its America, but in Canada, there hasn’t been a situation where a Canadian insurance company has not paid on a death benefit policy. So there’s a very solid system behind making sure that happens because the first time that happens is the beginning, the end of that industry. So there are a lot of guarantees in the insurance world. Now, what exactly is guaranteed? And when they use the word guaranteed, what do you think you’re hearing? There’s a lot of room there. There’s a lot of room for interpretation and bad expectations. So I think that you’re not going to put your money with the Canadian Insurance Company and have it all go away. Now. You can’t put your money with the Canadian Insurance Company had to be worth way less than you thought when you put it there. So I think that the word guarantee may be indicating to you that it’s a guaranteed rate of return or guaranteed positive outcome. It’s not a guaranteed positive outcome.
Josh Sheluk (05:06):
And that’s when it says guaranteed the growth. That to me is almost guaranteeing some rate of return. They don’t say it explicitly, but what are people going to read into it, right?
Colin White (05:19):
Well, they’re guaranteeing the growth, but the growth may be needed to pay the fees on the insurance policy. So you’re not going to see it. The money did grow, you just don’t get the has. It’s being used to pay for your insurance.
Josh Sheluk (05:29):
Yeah. Now this one is great. I can’t even really read it. I’m laughing too hard. Where they had been seduced into banking on the government, wall Street and financial institutions to cover their backs, bank on yourself. Revolutionaries are now banking on themselves, their own efforts, resources and their own good sense to keep their families safe and financially secure. There are no longer pawns being manipulated by faceless fat cats with self-serving agendas.
Colin White (06:02):
All right. After this, I got to go look up who exactly is to the nerves to go talk like that. You understand that the insurance companies are Wall Street Fat Cats.
Josh Sheluk (06:13):
Thank you. Thank you. Of course they are.
Colin White (06:17):
We’ve gotten beyond mutual insurance. Back in the day, if you were part of the mutual insurance company that it was a cooperative, in theory, you’re all in the same boat. It wasn’t all the same boat, but you could say, but now they’re all, I think there may be one mutual company left. All the rest of them trade stock on the Wall Street. On the Wall
Josh Sheluk (06:37):
Street,
Colin White (06:38):
Right? So they’re in the same game. You’re investing in a product that has the same requirements for disclosures. It’s the same accountability has shareholders as executives working on compensation plans. It’s got, yeah, it’s they’re wearing a different suit maybe, and they’re at a different address, but they’re the fat of the cats.
Josh Sheluk (06:59):
Yeah. Just somewhat of a rhetorical question for you, Colin, but you can actually answer it. Do you think these companies, these insurance companies, they want to make money.
Colin White (07:12):
I think their shareholders want to make money. I think executive compensation is based on the firm making money. I think that the whole game is set up for them to make money. So yeah, this isn’t a volunteer thing. They’re not a, not-for-profit saying, Hey, come work with us. We’re not for-profit and we’re going to make your world better. No, that’s not the pitch.
Josh Sheluk (07:35):
And so just to be clear, you think that these whole life policies that they’re offering to, we’ll call them investors or customers or clients, they are profitable products for them.
Colin White (07:46):
It would be out there if they want. And if it is a non-profitable product, what’ll happen is that they’ll close it and reopen another one that is going to be profitable for them. But listen, I don’t want this to be construed as a complete blackballing of whole life insurance. I’m not a huge fan. I will say that a lot. But there are situations where it can make a lot of sense. But it starts with, Hey, what do you want to have happen when you die? That’s where the conversation starts. And from there, there are different insurance plans to walk into somebody and say, Hey, give up your bank account. Take out a whole life insurance policy. You’ve got to get on a lot of buses and you’ve got to build a water of bridges and literature that comment to make any kind of sense. And even that, no, it doesn’t make any sense. Just no.
Josh Sheluk (08:34):
So here’s another phrase for you. Paragraph. Oh, come on, you’re killing me. I’m going to go all day. So we buckle up. Your money isn’t even in the market. Your money, dividend paying whole life insurance policy, its growth and safety are guaranteed by some of the oldest and financially strongest companies in the world. Life insurance companies
Colin White (08:57):
Who won’t tell you how they calculate it,
Josh Sheluk (09:01):
Won’t tell you how. They calculate what
Colin White (09:03):
The dividend. The dividend. So there’s a black box, and it’s funny, I got into this, I went to a presentation one time, another guy that asked questions. So I got into it with one of the accountants for one of the firms, and we sat down and had a conversation about how they determine the dividend rate. Because when you enter into a power policy, any kind of participating policy, there’s a dividend rate that gets declared every year by the insurance company based on a pool of assets that they see that they can attach this dividend to. And when they say the,
Josh Sheluk (09:33):
And just sorry to interrupt, where does that pool of assets get invested by the insurance company?
Colin White (09:37):
Yes. Yep, it does.
Josh Sheluk (09:39):
And where does it get invested? Yep,
Colin White (09:42):
It does. Yeah,
(09:45):
Welcome to the opacity of the product. So there, there’s different pools that they can use, right? But it’s not going into, it’s most likely being used for their own purposes to fund more products or what have you, most likely. But it really depends. There’s different classes or products to into, but the interesting thing is that if you have a publicly traded company and they declare a dividend, you can go online, it’s completely transparent. You see the payout ratio, you can see what you can infer, what assumptions are made. You can determine what a reasonable dividend rate is currently and what would one be going forward, whether they’re being optimistic, pessimistic, or what you’re getting in order to figure that out. For a parent policy that is not disclosed anywhere. You have to get into the notes of the annual general report of the insurance companies and try to sift through all of the various notes to the financial statements to figure out how well funded the various pools are for these policies.
(10:39):
So the lack of transparency is what really makes my sexual in that. I said, come on guys, if you’re going to inhabit a dividend out there and not be transparent about how it’s calculated, how it’s declared, what kind of payout ratio you’re talking about, exactly what asset classes he’s invested in. If you’re not going to give that kind of visibility, that for me is just a huge red flag because it’s another version of close your eyes and open your mouth and I’m going to give you a dividend. Do I get to look at it? No, no, no. You don’t get to see it. I was going to stick it in your mouth. And if you don’t like the taste of it, well, that’s just too bad. And so the lack of transparency or understanding, so therefore, the lack of ability to make an informed decision on how reasonableness to expect this current dividend to continue or how this product is going to behave. It is to me, again, a big red flag. If I’m looking for an investment opportunity for a client, I like transparency. I like to be able to understand as much as is understandable with something. If somebody tells me, just trust me, I’m pretty sure that game is going to be stored in their favor or not.
Josh Sheluk (11:46):
So next one here, because the money in your policy grows at a compound rate, it has an exponential growth curve. It is guaranteed to grow by a larger dollar amount each year. And remember, you’ll never have a down year.
Colin White (12:03):
All money when invested grows on a compounded rate if it’s growing A GIC grows on a compounded rate compound interest is a thing. You don’t buy something of simple interest for five years. The compounding thing is not unique. Most things compound, never have a down year. Again, the investment side of it, you may never have down year. You may have a net down year if the expenses in your plan exceed the income. So you may have a down year, the investment may not have a down year, but you may have a down year because there’s another side to it, there’s an expense side to it as well. And you only get to keep the difference if the expenses are higher than the investment income. You didn’t make any money.
Josh Sheluk (12:49):
And that’s interestingly, or maybe not so much, never mentioned throughout these marketing pitches from what I’ve seen. But yeah, you have a life insurance policy and to have that life insurance policy is part of this whole life policy. You have a premium requirement and the policy is only going to exist as long as you’re paying that premium. And this is not, again, it could be a good way to save, to have a life insurance policy, a policy available to you, but it’s not the cheapest way to do it.
Colin White (13:21):
Again, this gets back to what do you want your insurance to do? And the difference is that our difference, the way we endorse things is what are your goals? What’s important to you? What kind of an estate do you want to leave? What’s important to you? Is the taxation in your estate a big deal to you? Yes or no? If it is, okay, then let’s have that conversation. We feel that you should start with what’s important to you rather than, Hey, bank on yourself. What this is, is a concept sell. And this is what’s a big part of what’s wrong with the financial industry, and this goes for all stripes. Here’s the best stock for you to put in your TFSA. I’ve got the best investment for your RSP. All of these pitches are concept sell that do not take into account what situation a client is in. And if we’re going to call ourselves advisors, you need to start with what situation are you in? Then work backwards to, okay, here are some things that’ll help accomplish those goals for you. Bang on yourself, catching bullets with your teeth. Are you in your mind?
Josh Sheluk (14:23):
Well, you haven’t heard the punchline yet, Colin, because I got,
Colin White (14:27):
I don’t know if I could take much more.
Josh Sheluk (14:28):
Well, the big question for people listening right now might be, okay, well, where does the banking part come in? Where do I get the money from this? Right? And we haven’t explained that yet. So here’s what they say. Need money now for an emergency? Pick up the phone, call the insurance company handling your policy and tell them what you need. They’ll ask you two questions, how much do you need and where should we send the money? You can 85 to 90% of your policies cash value without completing an application and with no processing fees whatsoever. The bank on yourself concept allows you to use your money without liquidating selling your assets
Colin White (15:05):
And borrow gas assets. So the money that you gave us that we didn’t spend on premiums that’s left over, you can take 85 90% of that money back and Come on,
Josh Sheluk (15:17):
Hold on,
Colin White (15:18):
I want a hundred thousand dollars. Well, you got $2,000. No, but I want a hundred. You said, just call you and tell which I want a hundred thousand.
Josh Sheluk (15:26):
So you forgot the idea. So you forgot to mention, when you borrow the money from yourself, you pay interest to the insurance company. So you’re not getting free money here. It’s not the same as just spending money that’s in your bank account because you’re actually paying interest costs on anything that you quote, borrow from this policy.
Colin White (15:51):
And again, insurance companies have got that con because they’ve done a lot of projections at 0% interest or very low interest rates. So you weren’t able to borrow against these policies or assets within these policies, not an interest rate of one or 2% at that different times of the past, but now the interest rates are real and you’re not looking at seven or 8%. All of sudden the math is different. Boring money at 1% is different than boring money at 7%. Oh wait, this still longer. Makes sense. How do you change direction when you’ve taken out life insurance policy? Well, you canceled the policy and you consider all the money that went into it, some costs, or you see muddling through and you lose a little bit more money every year hoping interest rates go back down. And it makes sense. Again, it doesn’t blow water in any shape or form. I can’t wait for the hateness. This pod, if it goes into the right circles, it’s going to generate a tsunami of hate from people.
Josh Sheluk (16:46):
Well, I’m glad you mentioned that because the reason Catherine, our marketing manager brought this to my attention was because somebody was pitching us on a repeated basis to come on our podcast and talk about the bank yourself, bank on yourself pitch. So this individual may or may not listen to this podcast, probably not. If he did or she did, then they know what we’re like, but they’re going to be enemy number one for us for a while.
Colin White (17:18):
Oh, you know what? Part of me just wants to let that happen? That would’ve been actually even more interesting to have happen if we let them on the podcast, maintain all the publishing rights and have this conversation with them lies.
Josh Sheluk (17:34):
Well, we like to attack ideas. We don’t like to attack individuals. Colin,
Colin White (17:38):
Well, listen, if you’re the one that’s being paid to take the beating, maybe you should just sit there and take the beating. Listen, the person who came with this may be very, they may not just know any, the first victim, the Derby brief saw is the perpetrator. So they’ve been raised in such a way, and they’ve been trained in such a way that they never had anybody run out to the other side of this, they haven’t done as G and I have had to do Josh repeatedly over the last every years is to unwind the very complicated, the chance strategies that don’t work out. And once you’ve gone through unwinding some of these and you start to see how they go wrong, you get a little bit more jaded, maybe a little bit more protectives applying into them on their face. So I didn’t know this was coming, so I’m going to have to reach out to KA about who it was that was pitching into
Josh Sheluk (18:26):
It. And I think we should be very clear. We’re not anti-life insurance. We’re big proponents of life insurance. Huge, huge
Colin White (18:34):
Approach, properly used. It does have an advantage. It has an advantage. You can’t get anywhere else. It’s hundred percent tax free to the beneficiaries and it’s liquid. It’s liquid money that shows out it can do stuff that no other financial instrument can do. Now, the problem is, if that’s the only tool you have, you try to make it other things so that you can make a living at it. So if I have this things really, really good at one thing, it’s like, okay, well, what else could it be good at? And then your mind starts to imagine things and you start to, and pretty soon you get too far off the path, and now you’re doing stuff that’s just plain wrong. But no, huge, huge fans of life insurance. It’s a very powerful tool of properly, unfortunately, it’s something we see misused way too often,
Josh Sheluk (19:19):
And I think that’s the issue here. It’s one of those things that looks to, I think infinite banking is even better because that’s, oh,
Colin White (19:31):
No, no, it’s infinite, right? Up to 85% of the money that’s in the policy. It’s infinite right up to there.
Josh Sheluk (19:36):
Yeah, 85% of the money that you put in after they’ve deducted all the premiums. And I love the way that you put that. You can have all your money back after we’ve deducted all the premiums and we’ve taken interest costs and we give you 85%. It’s a crazy concept. It’s predatory for sure. The way that I’ve laid this out, the way that this is marketed is predatory because it’s not going to work out the way that they’re pitching it, working out, and it makes it seem like the greatest thing on earth, which it’s not. It comes with all kinds of pitfalls and downsides. Yeah,
Colin White (20:17):
No, absolutely. I think predatory is a good way to describe it. People who don’t understand the products, who are going to just take things at face value, those are very things bank on yourself. Oh, you power yourself. Don’t no longer dealing with nameless, faceless bugs on Bay Street.
Josh Sheluk (20:38):
Fat Cats is what we
Colin White (20:39):
Call ’em. Fat cats. Sorry. Fat cats. Sorry, I didn’t mean to go all foggy. It’s a compelling presentation, but it’s just, oh, please don’t. If you or anybody you know is banking on themselves, please call urgently.
Josh Sheluk (20:56):
Any last thoughts before we wrap up?
Colin White (20:59):
No, no. I want to get off this call so I can go find out in concert who was, who’s pitching this, and I don’t know if I know them
Josh Sheluk (21:05):
Well. We won’t hold you up any longer. Thanks.
Colin White (21:07):
Thanks.
Announcer (21:09):
If you’re breaking a sweat trying to figure out what your financial advisor’s talking about, you’re not getting the service you need. You probably hate trying to get an answer from them, but you also think moving your accounts will be a headache and it might be, but working with, don’t rock the boat wealth planning.com or you isn’t exactly stress free, is it? Call us. We will demystify the world for you.
Announcer (21:36):
Verecan Capital Management Inc. Is a registered portfolio manager in all of Canada except Manitoba. So sorry, Manitoba. Nothing in this podcast should be considered as a solicitation or recommendation to buy or sell a particular security statements made by the portfolio. Managers are intended to illustrate their approach and are meant for information and entertainment purposes only. They should not be construed as legal, tax, or accounting advice. This podcast has been prepared for information purposes only. The tax information provided in this podcast is general in nature, and each client should consult with their own tax advisor, accountant, and lawyer before pursuing any strategy described here. As each client’s individual’s, circumstances are unique. We’ve endeavored to ensure the accuracy of the information provided at the time that it was written. However, should the information in this podcast be incorrect or incomplete, or should the law or its interpretation change after the date of this document feedback provided may be incorrect or inappropriate, there should be no expectation that the information will be updated, supplemented, or revised, whether as a result of new information, changing circumstances, future events, or otherwise, you’re not responsible for errors contained in this podcast or to anyone who relies on the information contained in this podcast, please consult your own legal and tax advisor.
