Lucrative Life Insurance Strategies (And 10 Years In The NFL), With Jeff Faine

There may be no tougher job in the NFL than playing center on the offensive line of the Cleveland Browns.

Jeff Faine, founder of Enhanced Funding Solutions, joins Andy Hagans to discuss how his approach to playing football has informed his passion for helping investors and others.

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Episode Highlights

  • Background on Jeff’s NFL career, including some surprising facets of playing the center position on an NFL offensive line.
  • The story of how Jeff’s interest in finance and investing began during his career as a pro athlete.
  • An overview of premium financed life insurance (PFLI) strategies, and how these strategies can help HNWIs grow their wealth while enjoying significant tax benefits.
  • Some potential pitfalls for HNWIs who plan to use PFLI strategies, and how to avoid these pitfalls.
  • The history of the Faine House, and why it holds so much meaning for Jeff.

Episode Resources

Today’s Guest: Jeff Faine, Enhanced Funding Solutions

About The Alternative Investment Podcast

The Alternative Investment Podcast is a leading voice in the alternatives industry, covering private equity, venture capital, and real estate. Host Andy Hagans interviews asset managers, family offices, and industry thought leaders, as they discuss the most effective strategies to grow generational wealth.

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Show Transcript

Andy: Welcome to the show. I’m Andy Hagans, and today we’re talking about how to block and tackle, figuratively speaking, with your retirement planning. But also literally speaking, because today I’m talking with Jeff Faine, who is a 10-year NFL player, as well as a successful business and social entrepreneur. Jeff, welcome to the show, first of all.

Jeff: Thanks for having me, Andy.

Andy: And we have to start with football, right, because you played at Notre Dame, and, I mean, I, obviously, I went to Notre Dame. Jimmy, my business partner, he’s Notre Dame super fan. So I have to ask about, you know, your football career. We gotta start there. So, your 10-year NFL career, though, it began when the Browns selected you in the first round, which was the 21st overall selection, in the 2003 NFL draft, is that right?

Jeff: That’s correct. Yeah, that was a really amazing experience to get selected in the first round, especially as a center, you know, and so, something, you know, dreams-coming-true type scenario. It was a great experience.

Andy: Yeah, and it’s interesting, because I wanna talk about football. I’m a huge Browns fan. You know, I grew up in Ohio. My dad was a big Browns fan. So, obviously, we’re gonna talk about football, but it also leads into what else we’re gonna talk about today, which is a really interesting investment strategy, retirement planning strategy, that I think a lot of our audience is gonna be interested in. But the story begins in the NFL. So, just to bring our listeners up to speed, if you weren’t a big Browns fan, following your couple, three seasons, I believe, in Cleveland, then you were traded to the New Orleans Saints. You were a Pro Bowl alternate in 2007, according to my notes, and then you played for Tampa Bay, and you finished your career with the Cincinnati Bengals, so… Wow, you played 125 games, and you started in all but one of those games. That’s a pretty amazing stat, Jeff.

Jeff: Yeah, no, it was a good run. I enjoyed it. My time in Cleveland, getting drafted there, is special. It’s a football city. It’s amazing, the passion that they have, especially with the record that they’ve had over the years. You gotta be passionate, you know.

Andy: Totally.

Jeff: And then getting traded down in New Orleans, one of my favorite cities in the world. It was a great time to be there. It was after the terrible storm, Katrina. And so, we kinda saw the city come back to life right in front of our eyes, while we’re playing and being a part of that process, and I got to go back to my hometown team, I’m originally from Florida, to play for Tampa, signed my big free agent deal to play there, and got a cup of coffee on the way out in Cincinnati. It was a good run. I had the, you know, blessing to be able to play in London twice, and do some really special things, and be a part of a lot of special locker rooms. And so, I loved the experience.

Andy: Yeah. And at one point, you were the highest-paid center in the NFL. I think we’re allowed to talk about money and income. You know, it’s, all this information’s public with athletes, right? For better or for worse, it’s all… And up there with the left tackle… You know, it’s center, left tackle, these are two of the higher-paid positions, because they’re really important positions. But really, almost anyone in the NFL, by definition, high-net-worth individual, or high-income individual. When you played in the NFL, you were surrounded by other highly-paid athletes, right? Other high-net-worth individuals. So, where did you learn about finance and investing? You know, did you begin that process as an NFL player, or were you already, you know, fairly familiar with finance and investing, you know, from studying in college, or where did you kinda get an interest in finance?

Jeff: A lot of it really came, in my experience, kind of, you know, “In the streets of”, you know, after getting drafted. You know, it wasn’t because, you know, of anything at Notre Dame, and ultimately, I was a liberal arts major. Didn’t really know that eventually I wanted to get into business. But just happenstance, I met a guy named Bobby George in Cleveland, Ohio, ended up being my first business partner, and still a business partner today. And it was exposure to him and what he was doing, and really, the kind of phase that he was in his life. We were about the same age. He just graduated from college, and it was just a perfect match, where, you know, I got super lucky to align with someone that, you know, really placed my interest in front of his, where that, it just isn’t the case a lot of times with a lot of athletes, and a lot of the guys that kind of, involved in their circle and things of that nature.

And so, it worked out really, really well from that stance, that that’s what kinda put me into it. And I used to go to his office, and used to be in the office, and just was soaking it all in, and just learning and learning and learning. And as I got into this, you know, as a client, I purchased a life insurance policy. It happened to be premium-financed. I was 26 years old at the time. And so, that experience as a client, you know, really kind of led me into the business that we’re doing today. But it was the exposure there that really kind of piqued my interest, and allowed me to just, to learn and be a part of that. You know, frankly one of the huge benefits of being drafted early and, you know, really having some great income as a professional athlete, was I had a lot of time on my hand in the off-season to be able to do a lot of things that I just I didn’t, I wasn’t, you know, I wasn’t part of a, you know, dealing with a day job, that I can allow for me to be able to do other things and learn other options, and figure out different ways to do things. And so, I definitely took advantage of that opportunity, and kind of really pushed that forward.

Andy: In your experience, do a lot of, you know, pro athletes, pro football players, are they thinking ahead? Because it sounds to me like even in your 20s, you were already kinda thinking ahead, like, “I’m not gonna be a pro football player forever, and I don’t wanna necessarily retire at age 34 or 35 when, you know…” And so, were you already, you were already kind of thinking ahead. Is that rare in the NFL, you think, where athletes are thinking about their next career?

Jeff: Yeah, it is a little rare. You’re so focused. You have to be so focused on your career. And really, a lot of stuff takes back seat, including your family, including your friends. Like, everything, frankly, you know, your world, everybody that’s in your world kind of revolves around you, for better or worse. And, you know, I give a lot of kudos and thankfulness for my wife. And at the time, we weren’t married, but we were dating, and we were dating for a very long time, but for her to be able to essentially have the patience with me, you know, because when you’re playing, when you have a game, there’s, you know, there is no question of whether or not, “What are you doing this weekend?” No. Like, you’re going to the game, and you’re being a part of that, and I’m speaking more of your family and friends.

And so, that is something that, you know, you have to be able to understand is, primary deal. But really, where this focus on a transition, or life after football, or other things beyond football, started very early for me, and it started before I started playing football, frankly, it’s, I was always a great athlete growing up, playing other sports, playing basketball, playing soccer, playing baseball, you know, really playing everything. I didn’t play football until high school. And a couple different reasons. Mainly because I was too big… Like, there’s weight limits when you’re, you know, kind of little league football, in our area here in Florida at least.

And so, but very early on, my parents just drove into my head that there was, like, playing professional athletics is not an option. Like, you need to be focused on your academics, you need to be focused on your grades, and, you know, you need to be focused on where you’re gonna be able to drive a career. My dad was a naval officer for 22 years. My mom was a school teacher. And that just wasn’t in the cards to think about, hey, this is an option to be a professional athlete. And so, even when I got, started getting recognition, went to Notre Dame, started getting recognition there, even when… You know, we were so naive about the whole process, because we just didn’t buy into it. We didn’t buy into the hype. We didn’t buy into the fact that, like, we felt like it was gonna happen. And so, when it actually did…

Andy: What was in your plan A, Jeff? It was kind of, you know, for a lot of people, we plan plan A, and then plan B might be this other business stuff. For you, it was actually maybe the other way around, where you…

Jeff: Exactly. Exactly. And so, it never…that never went away. So, even when I was in the pros, it was still, like, all right, I’m focused, and I’m giving everything I got to the sport, and I’m doing all the things I need to do to prepare, but it was still, all right, what is next, and what else can I be doing? And so, it made the transition for me much easier than it is for a lot of guys. Like, that’s the, I think, the biggest takeaway would be, is that the transition from playing a sport that you loved your entire life, or for a good part of your life, to now it’s over, and now what? It was never, I never had to ask myself, “Now what?” It was… I had been working on that in parallel lines while I was playing.

Andy: Totally. Okay. And we’re gonna talk about the “now what,” but I have one more football question. I did play offensive line. I only played football one year. This was, like, in sixth grade. So my understanding of the position is very low-level. It’s not non-existent, though. But at the highest level, I guess, what’s the hardest part of playing center, specifically? Because it always, you know, I always thought about playing center. It’s, like, a lot of pressure, right? I always felt like, you know, at guard, you can kind of hide. Like, I’m in between the tackle and the center. You know, I know that’s not really true. But when you’re the center, you obviously, you have to snap. You have, you know, long snaps. I presume that there’s a little bit of leadership involved in, you know, are you the quarterback of the offensive line? What are some aspects of the position, or maybe the hardest aspect of the position, that a casual fan wouldn’t know about?

Jeff: Yeah. So, you hit on a bunch of ’em. The cool thing about playing offensive line is you’re a team, like within a team. You’re all working together, and really, to play offensive line… I got a book coming out, and one of…it really generate…it’s really centered around being an offensive lineman, and taking that perspective into the business world, and into the nonprofit world. And it’s really… The book’s called “Working For Others.” And that’s what you’re doing as an offensive.

Andy: Wow, I love that. I love that.

Jeff: I mean, it’s what it’s all about. And it’s such a cool… Like, I talk about, if there was more offensive linemen in the world, like… And I’m not saying, you know, everybody needs to be…but I’m saying that personality, the way that you think, it’d just be a much better place. So, some of that, like, to the casual viewers that might be watching football, some of the more difficult things, you know a lot of them. It’s more mental than anything. You are the quarterback, in most cases, of the offensive line. You’re making all the calls. A lot of times, for a lot of the teams I’ve played for, I was making all the calls for the running backs and the tight ends, getting everybody on the same page.

And then you’re basically in a street fight every single play, with the guy in front of you that’s trying to just rip through you to get to the quarterback or get to the running back. You know, those are all things that are, it’s pretty challenging. You know, being that quarterback of the line, and knowing, you know, basically everybody’s job, being able to tell everybody what to do, if you kind of think of it in that lens, when I played for the Bengals, to end my career, I signed with them 10 days before the season started. I thought I was done. And, you know, ultimately, I was starting to transition to be able to move on from football. But I signed with them. Their center went down in preseason. And so I signed with them. And I literally had to learn a playbook in 10 days. And not only learn a playbook, but learn, like, how to make calls for the offensive line that they had been together the entire off-season. I had to learn their language. And I know it might sound like it’s not that big of a deal, but when you’re, you get a play in the huddle and you get down on the line, you got about 10 seconds to make calls and get everybody on the same page. And you’re…

Andy: No, it sounds like a big deal to me. I mean, it kind of reminds me of everybody has a plan until you get hit in the face, right? So, you’re trying to be cerebral, and, you know have that…

Jeff: And you still gotta have this physical battle with this guy in front of you, that’s, by the way, gets paid to do that, too. Like, it’s not like you’re playing against a chump across the line, you know, and so… That was a challenging year. It was great, though. I tell people often, that year, it was me making sure that it was out of my system. You know, I ended up getting a call from the Giants, and I turned it down. I walked away, you know, basically on my own terms, to be able to retire. But it made sure it was out of my system. And I still miss the game. I’m passionate about the game. I love it. I still love it, still miss it. But that year made me be able to accept the fact that it was time to move on.

Andy: That’s awesome. Sorry, what was the name of the book again? I love that concept.

Jeff: “Working For Others.”

Andy: Working for a, you know, that kind of is a great segue into what we’re talking about next with this life insurance stuff. One of the big themes at WealthChannel that Jimmy and I talk about a lot is building generational wealth, in the sense of, you know, being independently wealthy or building independent wealth or financial independence. That’s a goal of many, right? But the next level of wealth development is generational wealth, where it becomes, I’m not just trying to grow my wealth to live a nice lifestyle. Although that’s fine. No judgment on that. But it’s, the mindset shifts, you know, especially with ultra-high-net-worth or with family offices, where you start thinking of yourself more of a steward, right? Because it is, at a certain point, you know, unless you’re out buying, you know, crazy sports cars every two weeks or whatever, you know, at the ultra-high-net-worth or family office level, you’ve grown your wealth to a point where it’s going outlast you, and you become more of a steward, and it’s a little bit of a different mindset.

And another part of the mindset that I think shifts is you have to focus more on triple net returns, right, which is not just, you know, if you’re in that beginning stage of your career, you’re maxing out your 401(k), it’s all pretty simple, right. I can put all this money in a target retirement date fund, I max out my 401(k), make my house payment, and I don’t have to pay taxes on anything in the 401(k). That’s great. Once you’re a high-net-worth investor, everything changes, where the tax ramifications of everything become a huge piece of the picture. Where, you know, an investment that looks good on paper, pre-tax, might end up being average, or below average or negative after tax. And so, turning now to your company and Enhanced Funding Solutions, this is a concept you learned about while you played in the NFL, and it sounds like it worked for you, and it also sounds like it’s a very tax-advantaged product. So, why don’t we start there. For those of us who aren’t familiar with PFLI, or really how it works, could you just give us a walk-through of this strategy?

Jeff: Sure. So, premium finance life insurance, as I mentioned, I purchased my policy at 26. So, I really experienced this through the lens of the client first. We bring a lot of that experience in what we do. And so, just like anything else in the world, and really in the financial world specifically, it can be done right and it could be done wrong. You know, you can be, you know, kinda play within the buoys, or you can get super aggressive, and, you know, and in those situations, when structured improperly, you know, you can get hurt, and clients can get hurt, and, you know, things can go sideways. And really, what life insurance is really intended to be is the…it’s really intended to be that dependable asset that you can rely on when other assets are having volatility. That’s really, you know, if structured properly, that’s how it should be viewed.

Unfortunately, when you get super aggressive, that’s not necessarily always the case. But the great thing about premium financed life insurance is, and just conceptually, just high-level, you’re utilizing a lender’s dollar, and you’re enhancing your contribution, your dollars, to a very tax-efficient asset, that can grow tax-free, that you can access capital out of it tax-free if structured properly, and then that ultimately transitions to the next generation tax-free, again, if structured properly. And so, that…I often tell clients that we work with, and advisors that we work with, that you’re really, you know, for the most part, a lot of our clients are securing this for tax code. That’s, it, you know, oftentimes it’s not even necessarily initially for the death benefit. It’s for tax code. It’s like, “How do we maximize the value of our dollars by really enhancing it by a lenders dollars, to be able to fund this tax-efficient vehicle?”

Andy: Understood. So, you know, I guess, a couple questions about it. Are you typically investing a lump sum, or are you committing to pay, like, an annual premium over time?

Jeff: Great question. And while we’re talking about premium financing, and we do, we have other ways to be able to utilize a life insurance policy, with other different financing methods. But specifically with premium financing, it’s not a one-size-fits-all. So, clients could do a lump sum. Clients could contribute over time. You know, there’s a bunch of different ways to be able to approach it. What is most used, and how it’s most executed, is some type of continuous contribution into the program for some duration, you know, 5, 7, 10 years, 15 years. And typically, that is, it’s over time. But you can certainly structure it where it’s just a nice lump sum deal, where you’ve made a contribution in a lump-sum fashion, but you have lender premium that’s coming into the life insurance policy over time to maximize the use of the death benefit capacity.

So, majority of these policies, if not all ’em, lion’s share of ’em, your maximum funding them, and, you know, typically, what that means is there’s a code, and we can get, you know, slightly a little technical here for a moment, but there’s a code, 7702, an IRS code, and ultimately what that is is a description and definition of what is life insurance. And there’s a formula. It’s called a MEC test calculation. It’s based over a seven-pay, seven years of premium contribution, on what the maximum amount that you can put into that life insurance policy for that prescribed death benefit and for it still to be considered life insurance. A dollar over that, and you lose all the tax benefits that really kinda come along with life insurance, and, you know, if you access the money, it becomes taxable, things of that nature, if it becomes what’s called a MEC, a modified endowment contract.

Andy: Understood. So, we’re no strangers to, you know, utilizing the tax code, you know, legally, because, again, you know, once you are a high-net-worth individual, certainly once you’re, like, a family office, you essentially, you have to, you know, all of your investments, your total portfolio, you know, the tax picture is such a big part of that picture. So, you know, a lot of these products, like, you know, we’ve talked a lot about Qualified Opportunity Funds on the show, and Opportunity Zone-type investments, or 1031 exchanges, and DSTs. A lot of these types of products only really become relevant at the higher income level, because you’re paying the higher tax rate to begin with, so it’s more relevant in that way. And then also, sometimes these sorts of products have minimum investment levels, you know, where typical, you know, a lot of these types of funds for accredited investors will have a minimum investment of $100,000 or $250,000. So, is there a particular, you know, scale or size at which it’s worth doing, if you can, you know, contribute X dollars over time? Below that level, you know, it doesn’t really have economy of scale, or, you know, it doesn’t make sense?

Jeff: Yeah, sure. So, it all depends on what the primary desired focus is. If it’s structured for just a pure accumulation vehicle, you know, I call it, describe it like a flying tin can. Like, you wanna put as much gasoline in this as possible, you know, put as much fuel in as possible, right? But you’re really not concerned about the death benefit. It’s really more about how do we make this grow as much as we can. Really, the entry there, at an absolute minimum, is about a $35,000 per year. And a commitment, at a minimum, of seven years. That’s the bare minimum. From a qualification standpoint, not even before we get to, like, dollar amount to be able to participate with, but just from a qualification standpoint, again, using that, just accumulation focus, bare minimum, bare minimum is a million dollars of net worth or $250,000 of adjusted gross income. That’s a bare minimum qualification.

Now, that is a certain platform, with a certain structure, that has a lot of guardrails around it, that, you know, they’re not gonna get hurt. Traditional premium financing really should be reserved for folks with $10 million net worth and above. Where other collateral beyond the life insurance policy is gonna be required to be placed, put up, as a risk. And typically, with those programs, you’re looking at, you know, anywhere from $50,000 to $100,000 of client contribution, and that’s gonna be levered up, you know, 3, or, excuse me, 5 to 7X at a minimum, to be able to get the type of benefit that you’d like to be able to see out of utilizing premium financing.

So, two different arenas, though. You know, one is an accumulation focus, where we’ll actually employ that strategy with professionals, that are high earners, that may not have been doing it long enough to stack the chips to be able to get that $10 million in net worth yet, but they’re making, you know, they’re making $300,000, $400,000, $500,000 $600,000 a year, and putting away good money, and like the idea of being able to get an asset like this in their portfolio. And then on the other end of that spectrum, where you’re doing some serious estate planning, you’re utilizing the asset to be able to offset some tax liability, or to create some liquidity to be able to suit some other needs in the time when, you know, there’s a passing of generation one going into generation two.

Andy: Understood. So, it sounds like, essentially, you know, like many kinds of alternative investments, the, you know, that initial barrier to entry is high-net-worth, accredited investor, that type of net worth. And then there’s this whole other product segment or strategy that’s more appropriate for very-high-net-worth, I would say. And I’m guessing, you know, family offices, ultra-wealthy folks are, you know, familiar with these, using these. I guess, is there a way to… You know, life insurance and these types of strategies, to me, they’re always a little different, because, like, with real estate, you can always look at IRR, or, you know, with other types of investments, you know, annual returns over time. Is it apples to apples when you compare the returns, the growth inside this product? Are you able to even compare it apples to apples with other types of investments, like a stock and bond portfolio, or is it different? I guess what I’m asking is, you know, what are the returns, you know, if you invest, let’s say, a half million bucks over seven years into one of these, what can you expect in terms of growth?

Jeff: Yeah, that’s a great question. And oftentimes, you can certainly point to what the growth, what a rate of return would look like, on the growth within that policy. But I think that where that is certainly important, and typically, just to answer the question, it’s typically high single digits to low double digits, it’s, like, the way I socialize it with a lot of folks, a lot of high-net-worth folks, is, like, hey, just look at this as a very high-yielding bond. If we structure this properly, that’s how you should look at it as part of your portfolio, and allow that to complement some other things that you’re doing. But where I think that, oftentimes, it’s missed on, when you’re looking at pure, just the growth rate that’s occurring within the accumulation of the policy, it’s really the decumulation of it. So, when you’re accessing income out of it in the future, that I think is really a huge, tremendous asset, to a reason of doing this. You know, so, a reason to be able to look at this as an asset, I should say.

And what I mean by that is, if you’re doing it and structuring it properly, you can utilize something that’s called a participating policy loan. And what that is, is when you’re accessing value from the life insurance policy, utilizing this loan, you’re not taking a withdrawal from the… So, you’re not removing that value from the policy. So, you’re still able to get the growth. So, think of it like a taxable investment account, that you have an asset-backed line of credit tied to. When you get a return in that investment account, that investment account, the full value of the investment account is gonna see that growth in that return. It’s not necessarily gonna be the net between the asset-backed line of credit and what the remaining value of that investment account is. Very similar to what happens in a life insurance policy, using a policy loan, when you take that policy loan, and you access the policy for income using that policy loan, you’re not removing that value as a withdrawal, so when the policy has performance, the full value of that policy is performing and compounding over time.

Andy: I see. It’s continuing to compound, so, and it essentially…

Jeff: You’re gonna be able to get much more out of that type of asset.

Andy: Yeah. It’s gonna grow off of its sticker value, or whatever. Not what you’ve…

Jeff: And so, in comparison, if you’re looking at a traditional asset, a traditional investment account, or a retirement plan, qualified asset, when you take a withdrawal from that asset, it’s gone. It’s lost. Like, it’s not there anymore.

Andy: It’s no longer compounding at that point…

Jeff: Yeah. And so, when you have performance, it’s really performing on what’s remaining. That is a hidden…that’s a really hidden… Or, not say hidden, overlooked benefit of utilizing life insurance policy as a retirement vehicle, is because of that feature. And plus, it’s coming out tax-free. So, growing tax-free, it’s coming out tax-free, as long as you’re structuring it in that way, and you’re still getting the benefit of that value that you’re taking, getting access to, and the growth of the policy moving forward. It’s a tremendous way to be able to access the money.

Andy: Understood. Well, you know, you’re very transparent, I guess, the way we even started talking about this product, where you mentioned, you know, there’s a lot of ways to go wrong with it. I appreciate it. It’s usually, you know, that’s not how a sales pitch starts, you know. That’s more like you’re just telling us, hey, here’s the real deal with this product segment. So, if I’m a high-net-worth investor, and I’m interested in this, you know, what are some of the more common pitfalls that I should look out for, or potential mistakes that are, you know, that you see over and over, that I should be avoiding?

Jeff: Sure. You know, Andy, I like to sleep at night. And so I’m always very transparent about what, you know, what we got going on here. So, when clients are getting involved with us and working with our firm, we like for them to…and I use this phrase all the time. I like them to know where the edge of the pool is. And so, if you can’t, for some reason, you get a cramp or you can’t swim, or whatever it is, you can get to the edge very quickly. And so, they need to know what their exposure is. How things can go wrong is, a lot of premium financed policies, and a lot of firms out there in the past, over the last, call it, before the past 18 months, let’s say, interest rates were extremely low. So cost of capital was extremely low. And so all of a sudden, you know, things, when you put it on an illustration, look extremely, I mean, look amazing, when you’re looking at it at a low interest rate environment, with the market still performing extremely well. And so you’re getting your cost of capital in very low, and your policy’s performing very well.

Well, that works, and it looks beautiful. And what has been sometimes done in the past by some firms is something that’s called free insurance. Well, it’s kind of like a, referred to, I should say, as free insurance, where you’re not only financing the premium, but you’re financing the interest expense related to it, and so nothing’s coming out of pocket. And so you’re just capitalizing everything. And that works. That works if interest rates are low. When interest rates go up by 5% in the past year, all of a sudden, that’s a different trajectory, you know, and things are, all of a sudden not looking great, and things are starting to get upside down, and things are starting to get a little turbulent. And so, we prescribe, you know, the philosophy of always committing skin to the game, putting equity in, you know, and really, you know, looking to mitigate as much risk as possible. Where you can go wrong in really ratcheting up that risk, and not putting equity in, not putting skin in the game, and putting a lot more risk than what a lot of clients really know they’re putting at risk.

Andy: I mean, that, to me, sounds like sound advice regardless of the asset, which is, you know, beware excessive leverage, for sure. And, you know, any time…even forget investing. I mean, heck, life, when people don’t have skin in the game, incentives get skewed, and things go haywire, right? So…

Jeff: And that’s, unfortunately, the life insurance industry, specifically the premium finance sector of it, is no different than any other sector, or another industry, is, folks took advantage, and took advantage of the situation, and projected some things that frankly were just unrealistic. And now that we’re having a little turbulence, you know, there are some things, there’s some folks that are getting hurt. And that’s the, you know, the wary side of premium financed life insurance, and some of the things that can go wrong.

Andy: So, Jeff, I know that, you know, you have some clients who are pro athletes, but, you know, we were talking earlier and you said most of your client base is actually not pro athletes, you know, a lot of higher-income professionals, folks of that nature. You know, do you see…is this, you know, premium financed life insurance, is this the segment that you’re most excited about, that you see has the most growth in the future? Are there any other areas within life insurance or within your wheelhouse that, you know, you’re keeping an eye on, or that you think, especially from that tax-advantaged perspective, that HNWIs should be looking at?

Jeff: Yeah, absolutely. So, before I go there, I think that… I mentioned that the reason why I got into this business was because of pro athletes and the guys that I was in the locker rooms with over the years, and I think that, you know, ultimately, it’s a great savings plan. It’s almost like a forced savings plan for them. You know, if you can get them into one, athletes got a lot of great things working for them with life insurance. They’re, you know, they’re highly insurable, so they can put, you know, you can get a decent amount of insurance on them. That’s important so that you can force more money into the contract, as we talked about earlier about, you know, the formula that’d be able to arrive to how much you can put into a life insurance policy. But also, too, young, and the insurance cost for them is extremely low. And they got a long runway. So, you know, I think that every professional athlete should have a life insurance policy, you know, regardless of the fact… It has nothing to do about, again, nothing to do about the death benefit. I mean, it’s, the death benefit’s nice. But it’s really securing great tax code. And it’s getting them in an asset that can really protect and kinda keep them in a really great position.

Related to other kind of uses for, you know, life insurance and leverage, you know, so, we’re historically been a premium finance firm. But where we started this past winter, started looking at it… And frankly, it was me looking at the industry, looking at the conditions in the market, concerns over interest rate risk, you know, I felt that clients, regardless of how liquid they were or how much they were worth, you know, gonna, wanna hold some dry powder to be able to be ready to pounce when the things were right. And so I felt like the nonqualified space was gonna be a little bit tougher sledding from a sales perspective, and getting clients into these type of solutions. And so, we looked at different ways to be able to utilize a life insurance policy and leverage. I still, you know, that’s still in our DNA, is to utilize leverage in some way. And so, one of the ways that we’re looking in doing this, and executing at a very high level, in fact, we’re doing more of these now than premium finance policies, is financing tax liability, and utilizing the life insurance policy as asset to secure it. So, some real kinda prime examples of the way that we utilize this is kind of think of qualified plans, IRAs, 401(k)s, cash balance plans, folks that have essentially, I kind of say, “made a deal with the financial devil,” and where they’ve taken the tax-deferred growth and great savings vehicles, but on the way out, they’re terrible, right? And so, as you’re accessing those type of assets…

Andy: The non-Roth. Everything but the Roth. Right?

Jeff: Yeah, but you gotta get… But, in that situation, and we can certainly talk about that, too, is you gotta get to the Roth first. You gotta pay the piper to get to the Roth first, you know, and so, on a conversion. But so, you made that financial deal with the devil, with the financial devil, and you’re having to deal with that tax consequence on the back end. And so, we’ll use the life insurance policy, and we’ll take a distribution out of a qualified plan. So, distribute out of the qualified plan, get it into this life insurance policy, and then all of a sudden, instead of paying the tax out of pocket from the proceeds of the distribution, we’ll finance those tax… and you just got a lot more working for you. And it’s a much more, when you look at it kind of side by side, do I leave the money in the qualified plan or do I do the Roth conversion? You know, what are the things that I need to do to, you know, maximize, you know, the value that you’re gonna retain back, you know, from all that growth over the years, and we’ll show, in some really great, back-tested models, to be able to show, hey, looking at it here, you know, keeping it there, looking at a Roth conversion, or doing, we call it enhanced tax advantages, the program, this is something that’s gonna create a lot more for you. You’re gonna have a couple different benefits.

And it really ties into what I was talking about how you access the money. When you access the money from the qualified plan, you’re taking a withdrawal. You’re taking a distribution. You don’t get growth on that portion moving forward. And you gotta pay tax. On the life insurance side, using that life insurance policy as the vehicle, when you finance that tax liability, you get the money into the life insurance program. When you access that money in the future, it’s growing tax-free, but it’s also coming out tax-free, and you’re taking it as a policy loan, so you’re not gonna lose the value of that growth moving forward. And really, the arbitrage there, the question I get often, too, is that, is it the cost of capital versus the growth in the policy, and that’s where you’re looking at the arbitrage, right, is the cost of capital versus the growth in… There’s that arbitrage, but they’re really, the bigger arbitrage is paying the tax or financing the tax. So, 40% or 8%, or whatever the finance rate is at the time, and that arbitrage, compounded over time, is really what’s creating the advantage for a lot of our clients with this particular program.

And so we’ll use it there, financing tax liability, getting assets out of the qualified plan. We’ll also lump-sum tax liability. So, think of, like, selling an asset, selling a business, selling a piece of real estate. You know, maybe getting out of concentration risk, and selling some securities in, lying elsewhere, you have a gain, and you don’t have enough harvested to be able to offset that gain. We’ll finance the tax liability there, where it really becomes a really strong solution for those types of scenarios. And we’ll also use it on the front end as well. So, kind of like the, we have kind of three pieces of the puzzle there, where, instead of doing, like, a cash balance plan or a defined benefit plan, you know, where business owners are looking for tax deductions on the front end, again, making that deal with the devil, and they’re gonna have to deal with the tax consequence later, we’ll end up utilizing this program to be able to take it in, and take a tax deduction on the front end, but take it out tax-free on the back end, which makes it a really, really strong, compelling vehicle.

Andy: Totally. I gotta tell you, Jeff, my business partner, Jimmy, is gonna love this episode. Tax mitigation strategies, combined with football. It’s like this, it’s probably gonna be his favorite episode of all time. But I know we’re almost out of time. But I love all that tax mitigation stuff. And I know that tax mitigation is not everyone’s favorite topic, but if there’s any audience that loves that kind of talk, it is our audience here at “The Alternative Investment Podcast.” So, thank you for sharing that. But before we’re out of time…

Jeff: Yeah. Let me jump in real quick and say one thing. And just to be clear, so, we’re not, with these platforms… And I just, like, the way that you approach it, I think is appropriate. But we’re not mitigating the tax. So, we’re financing the tax. We’re paying the tax. And so, like, sometimes people might think we’re using some obscure tax code, or some loophole, or some… The cool thing is, government’s gonna love this, because we’re actually paying, the IRS are gonna love this, because we’re paying the tax. We’re just financing it. It’s not coming out of the client’s proceeds. It’s not coming out of the client’s pockets, but it is, you know, we are financing it, and we are paying it. So, it’s not necessarily mitigation. We are paying the taxes. It’s just not coming out of the client’s pocket.

Andy: Personal liability mitigation. Personal tax liability mitigation. I appreciate that. Yeah. And for our IRS listeners, that note is very important. You’re still collecting the same amount. It’s just coming from different places.

Jeff: Yeah. Different source. Yeah.

Andy: Yes, yeah. Well, Jeff, you’re a true Renaissance man, I have to say. Just, even now, hearing that you’re a liberal arts major in college, I’m like, “This guy is a true Renaissance man.” You have a lot of interests and passions. And you’re an entrepreneur, not only former pro football player, business entrepreneur. Also a social entrepreneur. I wanna ask about The Faine House. So, a lot of athletes have charities or foundations. But I think The Faine house is really unique. Could you tell us a little bit about it? How did it start?

Jeff: Sure. I’ll start with saying it’s the most rewarding thing we do. And so, I own businesses in downtown Orlando. I’m in the restaurant, real estate, and bar industry as well. That was my first business that I got into. I opened up a bar in Akron, Ohio, years ago, my third year in the NFL. But the businesses that I own in downtown Orlando… Downtown Orlando has a very serious homeless population, episodic, where, you know, there is major issues where you’re seeing the same folks there year after year after year. And so, initially, what I wanted to do is try and help that population. And unfortunately, or fortunately, you know, my attorney at the time said, you know, how are you gonna identify… You’re gonna spend so much time trying to identify the ones that actually want the help, you’re not gonna be able to get, you know, do the actual help. And that really sunk with me.

And so, I happened to be running in the same circles with a gentleman named Jeff Sharon, who was at the time sitting on the board of Children’s Home Society of Florida. And Children’s Home Society of Florida does adoption services, single mother services, foster services, and so, but it’s everything 18 and under. So, nothing, you know, 18 years and over, that’s where they fall off. And so, he knew of what I was looking to try and do. He educated me on this demographic of kids aging out of foster care. And for the kids that age out of foster care, just even in our small local community here in central Florida and Orlando, tri-county area is 400 a year age out of foster care. Of that 400, two out of three experience extended homelessness in the first two years. So, you’re talking about 18 years, 18-year-olds that were in the foster system, in the United States, in a relatively great community here in Central Florida, homeless between 18 and 20, two out of three of those 400 a year. One out of three are incarcerated, and really, the first number drives the second number. They just start doing what they gotta do to get by.

And so, for me, I identified the fact in communications… Like, me, I can still help that demographic that initially wanted to help. And I can just be proactive with it. So, instead of waiting for them to become homeless, let’s get to them before they’re homeless. And so, we ended up really, raising money on an idea for four years. We launched the program, about twelve and a half years ago now. We have a facility here in Central Florida that houses 10 kids at a time. It’s not necessarily a group home style, where they’re all in one bedroom. They all have their own individual bedroom suites, with their own bathrooms. And we are a coed facility, privately-funded. And we started off as a program of Children’s Home Society, but then divested as our own 501(c)(3).

And so, we’re continuing to evolve the program. And one of the initiatives that we’re doing now is we’ve partnered with one of our largest donors, who is a blue-collar staffing company. And one of the biggest issues right now in our country is skilled labor and the lack thereof. And so, what we’re looking to do is to become an academy in partnership with them. And so, what’s cool is we can train skilled labor, young people, in this skilled labor practice, and then he comes in and can hire them. And so it’s a really nice combination to be able to collaborate really well. And so, continuing to evolve the program, but being a part of the program, as the residents are in there, they have to be continuing some source of education. It doesn’t matter, either. We’re not necessarily saying “go to college.” We’re saying, “Hey, you need to progress. You need to be something to become self-sufficient.” They have to be, have some type of employment. They have to give back themselves, so they have to provide social service. And they have to take part of our life skills programs.

Other than that, they’re adults, and we’re treating them as so. And so, it’s a really cool program. We’re really, like I said, on the front end. It’s the most rewarding thing we’re doing on a daily basis. We see a lot of success out of it. We’re going to, tonight, we actually are going to…one of our residents just graduated, got her AA degree, and so we’re going to her graduation tonight, and we’re extremely proud and excited about that. And so, we’re developing young people with The Faine House. At the end of the day, that’s what it’s all about.

Andy: And that’s been around for 12 years, Jeff?

Jeff: It’s going on, yeah, twelve and a half years. And looking to expand it and grow it. It’s something that we’re really passionate about. We house 10 right now. Part of the evolution of this, also, too, is looking to do little tiny homes on a adjacent property, again, that just, kind of, you come here, and then you go into the next spot, and you’re gonna get the training as part of it. They can go into the skilled labor training if they want. We’re gonna open that to the general community. So, that’s more of a general community thing, the skilled labor deal, but it’s a natural path of what we’re doing there at The Faine House as well.

Andy: I love it, Jeff. I mean, that’s really inspiring. You know, I know those types of organizations, any type of organization, any type of entrepreneurship, it’s not easy, right. So, the fact that that’s been around twelve and a half years, it’s still evolving, it’s still growing, I mean, that’s amazing. You know, I have to congratulate you on that. And as you’ve said, that’s as meaningful as anything else in your life, or as meaningful as anything that you’re doing at your business. I love the concept, “Working For Others.” You know, I love that conceptual bridge between the offensive line, you know, helping folks with these insurance strategies, and with The Faine House, is all really amazing, so thank you for sharing that all with us today. That being said, I know a lot of our listeners will be interested in the financial investment life insurance strategies, so where can our audience of high-net-worth investors and family offices go to learn more about Enhanced Funding Solutions, and all the products that you offer?

Jeff: Sure. So, certainly find me on LinkedIn. My profile’s on there, and we got, certainly, our company’s profiles are on there. But from a website standpoint, you can go to efslife.com. That’s where you’ll be able to find out more information on really more of the tax financing strategies, and then enhancedfunding.com for premium financing.

Andy: Sounds good. And I will make sure to link to those in our show notes as well. Jeff, thanks again for joining the show today.

Jeff: Thanks for having me, Andy.

Andy Hagans
Andy Hagans

Andy is co-founder and co-CEO at WealthChannel.