Who: Roccy DeFrancesco, JD, CWPP™, CAPP™,
Founder of The Wealth Preservation Institute
What: What’s Wrong with Missed Fortune 101 and
Learning Equity Harvesting the “Correct” Way
When: July 11, 2007 3:00 pm EST.
Register: send email to email@example.com with WEBINAR in the subject line
What’s Wrong with the “New” Missed Fortune 101?
(aka, The Last Chance Millionaire)
by Roccy DeFrancesco, JD, CWPP™, CAPP™
As many of you have been reading over the past few months in my newsletters, I am not a big fan of the book, Missed Fortune 101, written by Doug Andrew.
The premise of the book, Missed Fortune 101, is to show readers how to remove equity from a home so the borrowed funds can be repositioned into cash value life insurance (also known as Equity Harvesting). The theory being that trapped equity in a home is bad and that funding cash value life insurance with borrowed funds is a good way to build a “retirement nest egg.”
The “old” version of Missed Fortune 101 has many flaws in it.
Some of them are as follows:
1) The math in the book is very fuzzy and manipulated. The book shows readers how to borrow funds from their home and reposition those funds into a side account that magically grows tax-free, mutual fund expense-free, and money-management-free. There is no such investment.
2) The examples in the book use a 33% income tax bracket.
While we would like all of our clients to be in this tax bracket, the reality is that most clients are in a 25% or less income tax bracket. Obviously, the higher the tax bracket, the better tax-favorable plans work.
3) Clients are told to write off the interest on home equity
debt. This is the most blatant problem with the book. Title 26, Section 264(a)3 states explicitly that, if you remove equity from your home and reposition the borrowed funds into cash value life insurance with the contemplation of borrowing from it, the interest is NOT deductible.
There are many other flaws in the book which I do not have time to go over in this newsletter, but my point is that advisors who follow the teachings of Missed Fortune 101 are setting themselves up to be sued for bad advice.
Ironically, hundreds of life insurance agents have paid upwards of $5,000 to be trained in the teachings of Missed Fortune 101. Money well spent? I’ll let you decide that for yourself.
The New Missed Fortune 101/The Last Chance Millionaire
I’m guessing that because of all the criticisms about Missed
Fortune 101 and because a book published in 2005 simply needed some updating, Mr. Andrews has come out with his new book, The Last Chance Millionaire.
While I had hoped this new book would be different from the old in that it would use real world math and deal with the realities of Section 264(a)3; it’s not different and does not deal with 264(a)3.
The following is a little book report on the “new” Missed
1) The book is a more complicated rehashing of the same material from the last Missed Fortune 101. There is very little in the book that I would consider new (except for some of the marketing of his T.E.A.M. member services (which does not help the average advisors who is not on the T.E.A.M.)).
2) The math is still not real world. The side fund examples of
how money grows in the real world are not correct or even near correct in my opinion. In other words, it’s slanted to make the concepts discussed look better then they really are.
3) For the life insurance agents who read my newsletters, Mr. Andrews made the cardinal sin of calling an indexed equity life insurance policy an “investment.” That’s a real compliance headache and not something I recommend you say to your clients.
4) One fairly comical screw up in the book is that he used an
F&G indexed life insurance illustration to show how wonderful cash value life insurance can be as a wealth-building tool, and the illustrated cap on the product is 17% of what the S&P 500 returns annually. Recently, F&G lowered their cap to 15%. Therefore, the book has life insurance illustrations which are not available today because the product as
illustrated doesn’t have the same cap.
5) Finally, Mr. Andrew just can’t bring himself to be
intellectually honest with his readers when it comes to dealing with 264(a)3. Hidden in the back of his new book in Appendix A, he does allude to 264(a)2 and how that can be a problem when trying to write off the interest when removing equity from a home to reposition it in cash value life insurance.
264(a)2 states that the interest on home equity debt is not
deductible if the borrowed funds are repositioned in a “single premium” annuity or life insurance contract. Mr. Andrew, in a dismissive manner, tells the reader that it is unclear how 264 “relates to universal life insurance versus a single premium policy” and that readers should fund the
policy over 5-7 years to avoid the problems of 264(a)2. Interestingly, Mr. Andrew then counsels the reader to pay the cash value life insurance premiums only 40% from borrowed funds and 60% from other funds.
That’s the first time I’ve read that comment in his book, and I didn’t see it anywhere else in the book. I wonder if that was a “CYA” comment attempting to use one of the other exceptions to 264(a).
Most disturbing is that Mr. Andrew omitted comments on 264(a)3 which is much more problematic than 264(a)2.
Why didn’t Mr. Andrew deal with 264(a)3 in his book? He’s
obviously a smart guy who was able to read and comment on 264(a)2. Why not 264(a)3? My guess is that if he put 264(a)3 in the book, it would be so clear that the interest on the first $100,000 of home equity debt is NOT deductible that readers would not call the author or local T.E.A.M. members
for help. If that happens, the book is not nearly as marketable; and, the ability to charge insurance advisors $4,000-$5,000 to learn the teaching of the book goes down dramatically.
The bottom line is that the new Missed Fortune 101 is just like the old one in my opinion. There is fuzzy math to reach certain predetermined conclusions and it does not deal with the realities of 264(a)3.
Hope is Not Lost
As much as I like tell readers of my newsletters what’s wrong
with products or books in the marketplace and even though I think the Missed Fortune Series as well as Marian Snow’s book Stop Sitting on Your Assets are not books I recommend reading; the concept of borrowing money from a home and repositioning the money into cash value life insurance is a good concept. You do not have to manipulate the numbers with fuzzy math to make the concept work as a terrific wealth-building tool.
Because the concept of Equity Harvesting can be so beneficial and because of my disdain for the books in the marketplace which do not explain the concept with real world math, I decided to write my own book on the subject in my own unique style (like it or not).
The new book is called The Home Equity Management Guidebook, and it is a very real-world look at the
concept of Equity Harvesting. You can come away from this newsletter thinking that I’m bashing Missed Fortune 101 to promote my own book, and that is not the case. I’ve been on record for well over a year telling advisors the problems with Mr. Andrew’s book.
It was only recently that I decided to write my own book on the subject to set the record straight and give advisors a book they could hand to clients without fear that doing so could ultimately cause a lawsuit.
The new book will be done this week, proofed over the next few weeks, and then will go to print within the month. If you would like to read the table of contents, please click here. The book is going to retail between $35-$40. I will allow those people who receive my newsletters to pre-order at a discount in the next few weeks.
If you would like to pre-order the book, please e-mail firstname.lastname@example.org. To review the base and tenative Table of Contents, please click here.
(TaxMama Note: When Roccy announced this to his members, he got well over 100 orders the first day. The book is hot. So is the topic. People are paying $5,000 a person to attend seminars to learn how to do this wrongly! ARGH!)
If you would like to attend a webinar on what’s wrong with
Missed Fortune 101 and how to correctly use Equity Harvesting to help your clients build wealth in a tax- favorable manner, please send an email to email@example.com with WEBINAR in the subject lineto sign up. The webinar will be held on July 11th at 3:00 pm EST.
Another Free Webinar
Premium Financed Life Insurance
I will be putting on a series of FREE webinars with the WPI’s
premium financed expert Bruce Haydu (who also helped me with this newsletter). The first webinar will be Thursday the 28th at 3:00 pm est.
The first 25 advisors who want to sign up will be allowed to attend. Then we will put on one webinar a week following the 28th until everyone who wants to attend a webinar can attend one. To sign up for a FREE Webinar on Premium Financed Life, please e-mail firstname.lastname@example.org (make sure you include your name and contact information when you sign up).
Circular 230 disclaimer: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be
used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.
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- The Home Equity Management Guidebook :: See the tenative Table of Contents