Most investors pay way too much in taxes. Connecting with the right advisor can save them hundreds of thousands of dollars — or more.
Dana Cornell, Founder and CEO of Cornell Capital Partners, joins Michael to discuss how his career evolved from a major wirehouse to a bespoke advisory firm helping clients to mitigate taxes and enhance wealth.
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Episode Highlights
- Dana’s career trajectory, and the realizations he had while working for a major brokerage firm.
- Why most investors pay way too much in taxes.
- A better way to think about the opportunity cost associated with tax bills.
- Dana’s process for determining if a potential client is a good fit, and onboarding to his firm.
- Opportunities that exist in the alternatives asset class for high earners.
Today’s Guest: Dana Cornell, Cornell Capital Holdings
- Cornell Capital Holdings – Official Website
- Cornell Capital Holdings on LinkedIn
- Dana Cornell on LinkedIn
About The Uncommon Advisor Podcast
The Uncommon Advisor podcast features insights from advisors who are embracing a modern and holistic approach to wealth management. Learn how the most creative minds in the industry are innovating their practices to deliver superior client results, generate new business, and maximize retention.
Transcript
Michael: Hi I’m Michael Johnston. Joining me today is Dana Cornell. Dana is the founder and CEO of Cornell Capital Holdings. He’s got more than two decades of experience in the financial industry. Dana, thanks for being with me today.
Dana: Well, thanks for having me, Michael, I appreciate it. Happy to be here.
Michael: So I’m excited to have this conversation. Let’s let’s dive right in here. I think you and I have a similar worldview or some a lot of things in common. One thing we believe that most people pay way too much in taxes. So I think we agree on that. But I’m always curious why do you think that is? Is it people are scared by it. They’re overwhelmed by it. They just don’t realize.
Dana: All of the above, depending on the situation, you know, quick backstory on that. You know, I came from the traditional financial planning model. Major Wirehouse all that good stuff was positioned due to my success in planning, working with the ultra wealthy. And that really opened my eyes to, you know, who does and who doesn’t pay tax and who utilizes the tax code to their benefit, which sent me down this rabbit hole, you know. So the short answer, I think most people, you know, there’s so many good advisors out there, but it’s very hard to go through the weeds to to keep up with the changes in tax code and understand all the loopholes that are built into the government wants you to use to incentivize what they want you to position money to. So, yeah, to circle back to my first answer, all the above, man, it’s. Yeah, it’s a complicated situation.
Michael: Yeah. It is, it is complicated. You know, I think a lot of people are intimidated by the tax code and how long it is and frustrated. I kind of look at it, you know, like 5% of the tax code is kind of telling you how you have to pay taxes. And then the other 95% of it is telling you how you can avoid paying taxes. And that’s good and bad, right? Because it means that there’s a ton of opportunities out there, but it means that there’s, you know, a ton to sort through, depending on kind of which methodology you use. The tax code is, you know, 7000 or 70,000 pages. If you want to include all the ancillary things there. So there’s kind of a lot, a lot to sort through.
Dana: There is there absolutely is. And that’s why you need a specialist to help you do that. Until I really refined my practice, I was like the masses. We gave general advice. But you didn’t go. Yeah.
Michael: Yeah. And so I want to dive into that a little bit. I think that, you know, for, for the better over the last 20 years, there’s been a lot of innovation in the financial advisory industry. And that’s kind of automated some things. And it’s allowed a lot of advisors to kind of provide a more holistic approach to wealth management. You’re not just doing asset allocation, but you’re, for example, doing tax strategy and tax planning. So can you talk a little bit about how you kind of mentioned that, that your practice evolved and how you decided that this is where I can offer a ton of value to my clients is by not just doing the basic asset allocation, but, you know, what matters is what you keep. Right. And taxes are a big a big drag on that. So kind of talk through your evolution from, like you said, one of the big wirehouses to going out on your own and deciding that this is an opportunity to to to be more holistic, to do something uncommon and add value for clients.
Dana: Absolutely. So, you know, I started, as you mentioned, I started knocking on doors for a company called Edward Jones in the beginning grew up quite a large practice at one of the major wirehouse firms, and it branched from traditional asset allocation advice, as you said, to more holistic financial planning. But it was still generalized holistic planning, right? Giving people a plan, a direction, a thesis. But to really drill down into any one of those areas, you needed to still go out and partner with a specialist. And that’s where I thought I added value before was going and digging and finding that right specialist in that particular area. You know, I came to a point, two little kids showed up in my world trying to buy some of my own time back, but it really set me down this path to take a step back and analyze where did I add the most value, and where did the needle move the quickest and the fastest for my clients. And it was really two places. It was adding consistency to your return, multiple streams of income. And it was just what you said, Michael. It’s if you can minimize what you pay out in tax and that dramatically affects your bottom line of your net worth.
Dana: Half the battle is already won right, right. So keep that in your pocket and then extrapolate that with consistency of return and good investments. You’re going to be light years ahead at the end of the day. So that’s where I laser focused my you know what I would call a boutique financial planning practice. And those two areas of specialty right.
Michael: Yeah I think this sounds weird to most people, but taxes are our biggest expense in life, right? It’s not. It’s not groceries or your mortgage or your car. It’s if you look at it and it doesn’t kind of you don’t write a check, or most people don’t write a check or they don’t, you know, hand over cash. It’s kind of deducted automatically from the paycheck. So you don’t think about it, but it is your biggest expense in life. So to the extent that you can kind of, especially if you take a long terme terme view and minimize your lifetime tax bill it can have it can have a major impact. And, and that, you know, think about what that means. It means, you know, you’re not Scrooge McDuck just diving into a bigger pile of gold coins every night, right? It means retiring a few years earlier, or it means having a more ideal retirement that that that you’d really prefer and being happy in that retirement. So when you think about it in those terms, I think that kind of snaps into place for people. You know, there’s a direct correlation between paying too much in taxes and retiring three years later, five years later, ten years later, 100%.
Dana: And, you know, I think the biggest, biggest hindrance is people are they’ve been trained and taught that tax planning must be tax avoidance. For I’m going to get in trouble. I’m going to get audited. That’s the question we get every time. Right. And the reality is it’s just it’s just utilizing the code and investing in the right areas. The government wants incentivized in the right way. You know. So yeah.
Michael: That’s absolutely right. I think that’s such a such a great point, so often overlooked. I mean, exactly what you just said. These are incentives. You are you are doing what the government wants you to do. They created these incentives because they want you to do this type of behavior. They want you to create, invest in creating housing. They want you to set aside money for retirement. They want you to set aside money for your for your kids college education. They want you to do all of these things. So it’s kind of the opposite of what most people think. They think, oh, I’m going to, you know, I’m going to get in trouble for doing this. No, you’re doing, you’re doing, you know, look at the word. It’s incentive. Right.
Dana: That’s right, that’s right. I’ll give you a great example. The call I was just on two, two newer clients to me came to me in a panic because they sold their business last year. They’re both facing about a $2 million. They have to write a $2 million check each. You know, so I searched, and it’s last year, most. There’s not many things we can do to go back in time and collect some tax. But thanks to some changes the government put into the CARES act, there are a few different things you can do. And that ended up saving about 45% of their wow check that they’re about to write. So they each put 500 grand in their pocket just by. By being a little bit proactive in what they’re doing and knowing the right people and looking in the right places. So it’s powerful stuff.
Michael: That’s great. So I want to you know, obviously each of your clients is going to be unique and you’re not going to disclose a ton of information, obviously. But I’d like to ask you if you can talk us through your typical process, like at a high level. So not getting into specifics, but say someone comes to you and they say, you know, hey, I heard you on a podcast or I heard you talk. I don’t really know a ton about this, but I feel like I’m probably paying too much in taxes. And I think you can probably help me. What’s your what’s your process like?
Dana: Yeah. Great question. So as you can imagine, when word gets out that you can save that kind of money in tax, right. Everybody’s scared of it and doesn’t know how to do it. But when they find someone that can, people are very interested. So we’re selective with who we work with by design. So to answer your question, someone reaches out, we have a strategy call. Make sure that they’re a good fit, that they qualify, that they have enough of a tax bill, that they really need our services. From there, we move to the planning stage and a planning engagement, and I work on a fee for service. So it’s a flat fee for the plan. And much different than how I used to bill on a percentage of assets in the past.
Dana: We can talk about that for an hour in itself. But from there we go into the analysis. Right? So it’s not just conceptually. Hey, here are some things you can do. We’re actually analyzing your last two years tax returns and your projections for this year, because the devil’s in the details, right? It’s how you’re how you’re coding your income. What types of of gains or losses do you already have to offset or combine. And then we boil that down to a handful of strategies that are the most impactful and show you by illustration of what it actually means in dollars and cents. Then we help you implement that going forward. If you choose to move forward. Right. We’re holding your hand through all the process. Client still has full control. And of course overall say it’s their money, it’s their taxes. And they file the return. We don’t file returns. I like to work with their CPA. It’s a natural checks and balances for them. But that’s how it starts. From true analysis of their situation to identifying strategy to helping them implement, you know, and walking them through it start to finish.
Michael: Yeah, I do actually want to dive into you mentioned we could maybe we want to spend an hour talking about it. But I’m fascinated about the fee structure. So so talk about that a little bit more. You mentioned you’ve transitioned from a kind of the traditional percent of fees to charging as a fee for service here. What’s what’s the rationale for doing that? I’m guessing that you think that you can align incentives in some way better with your with your clients, but kind of talk through that rationale because that’s a little bit unique from other folks out there. Yeah.
Dana: You know, and this is not to say that that the model of fee for service charge you 1% to manage your assets is bad. Hum. I always had an inherent internal conflict. You know, when markets are down, sure, the adviser is making less, but they’re still making money, right? When you really look at investor returns. It’s still the S&P 500 now is eclipsed an average return of 10% over the last 20 years. Your average investor is still around 4.5%. And the average fee is a little over 1%. So let’s just say you kept up with, you know what, people terme the market, right? The S&P 500 and you made 10%. You’re paying one. That’s not just 1%. That’s 10% of your earnings. Much different when you look at it as the true impact to your to your net bottom line. And if that’s what I preach and I believe in that is protecting your bottom line and helping you keep as much as you can. How can I in good conscience bill you in that way when I have no control over the outcome? Sure. So I’ve just reverse engineered that because I am a certified financial planner and CMA, I can I can charge in that way a fee for service for the planning itself. And they can implement that with our help. They can implement it on their own if they’d like. They have the choice. But it’s enough to pay my bills and keep the lights on here and allow me to work with the right clients that I want to work with. But it builds consistency and camaraderie, and the referrals I get from that more than offset anything I may get by charging a, you know, a percentage of their assets. So for better or worse, that’s that’s how we do it here.
Michael: Well, that’s that’s refreshing. I appreciate that kind of analysis and that that thoughtfulness behind it. Yeah. So you talked a little bit about making sure that someone is a is a right fit. And you’ve noted before there’s kind of a handful of groups that that you tend to work with business owners, consultants, physicians, C-suite executives, you know, what’s it, what’s it about this group, you know, besides, they tend to make more money that that allows you to give you some more tools in the toolkit to help them out with their tax mitigation strategies.
Dana: Yeah. So relative to that group, if you have to profile certain professions or certain, you know, groups of people, obviously they tend to make more money, right? So they have a bigger tax liability to offset, especially if you’re a consultant or business owner, because you have a business entity, then that opens up my toolbox to be able to use more tools at my disposal to help you offset that tax liability. Right. Quite honestly, you can take all that away as long as you have a need and you’re a good person to work with. And most importantly, you’re open minded because you’re going to see strategies from us that your CPA will likely tell you. At first glance. You shouldn’t do that. That’s too risky because or your financial advisor because that’s what I used to say when I didn’t know what I was saying and didn’t have the education I do now. Right. So that’s not a knock on any other advisor. It’s just you don’t know what you don’t know, you know? Yeah.
Michael: I’m glad you brought that up. I’ve always, you know, I’ve had that conversation a lot with my with my, with various accountants. And they say, oh no, you like, you can’t do this or you shouldn’t do this. And I say, well, like I know that I like. And I had a conversation with an accountant about doing a backdoor Roth like fairly plain vanilla traditional. And he said, well, there’s been some conversation about about closing this loophole and getting getting away from this. And he was kind of saying you shouldn’t do it. And I was saying, well, then we should, like, do it while we can, right? Yeah. But there’s this, like, there’s this extreme risk aversion. Sometimes I think that there’s kind of some bad incentives there in the industry. Sometimes they just want to get the return filed right and get it in and avoid the complexity sometimes. And so so how do you navigate that? How do you help clients kind of, you know, push back while being, being respectful and, and help them kind of see the light or.
Dana: You know, I think it comes from a level of sincerity with, you know, I’ve seen I’ve worked closely with CPAs for 20 years. Right. So that business model really puts them in a position not all the time, of course, but, you know, if you’re a CPA working hard to do the right thing for your clients just to file their returns, the amount of information you have to take in, disseminate file correctly and get it done by a deadline. And then you burn out, right? I mean, there’s only so much people can do in a day. So for that professional who cares so much about their client to then have the free time to go, be proactive and study and and get comfortable with this stuff. It’s just very hard for them to do it. So I approach it as and this is very true. They are the tax expert. I have certain strategies that I know have been tried and true tested audit protection, the the law firms and things like that that set these up, give you audit guarantees. If, if you ever are audited and there’s an issue they cover it. But I’m an extension of them to help them do a better job. And that’s how I position it. So I always work with your advisor, whether it’s financial advisor, CPA, estate attorney, you name it, I’ll lay out the strategy. I’ll lay out the core thesis and the details, and then we’ll try and tear it apart until they’re comfortable enough with it that they’re willing to sign that return with their name on it. Yeah. And that usually turns into a referral relationship between myself and that CPA, you know. It takes some time. Takes some time.
Michael: So I want to circle back here when we were talking about the benefits of being a business owner. And that kind of opens up some, some parts of the tax code. I totally agree with that. I think the tax code, it’s really written for two groups of people. It’s written for for business owners, and it’s written for people who invest in alternative assets. I think if you’re a W-2 earner and you’re just going to invest in stocks and bonds, like there’s a playlist of things you can do, a playbook of things you can do, like you should max out your IRA and your 4k and 5 to 9 and do all that plain vanilla, but it’s pretty like plain vanilla, right? The real opportunities come when you own a business or you’re investing in alternatives. So I want to go to that second piece of it. I know we’ve talked you kind of have a two pronged approach. One is is tax mitigation. We’ve been talking a lot about that and then wealth enhancement. And I think that kind of ties into the opportunities that exist in what I’m calling alternatives as an asset class. So can you can you talk a little bit about how you approach that asset class and how you see opportunities there?
Dana: Yeah, absolutely. So I embraced alternative investments and alternatives to me. Is everything outside of traditional publicly traded stocks and bonds. So private equity buying into small businesses, small business drives the economy. In this country there are a multitude of tax advantages aside from the investment returns. You know, for great example, we run a private equity fund. It buys into minority ownership in a debt position of 100 different companies, diversified by industry size, asset class. Geography. Ten years plus track record. These are proven companies that have made their widget for a lot of years and just don’t have a succession plan or a second generation to take over. And by continuing that economic activity, by continuing that business, the government gives you. Very beneficial tax benefits by purchasing that business or a portion of it, or however you do it. That for us flows through the fund. So that’s private equity or small business ownership in multiple different ways to do that. Private real estate. The government doesn’t want to house all these people. So they incentivize private investors to invest in the real estate market. We can ride along with very proven operators, guys that have done this for years know all the tricks of the trade, know where you’re going to lose money, know how to protect your capital, and we go right along with them as if we’re doing all the work, but we’re limited in our liability. And that’s a syndication that just think of 20 of us go in and pool our money and invest in a project like this. And there’s private debt investments as well. But it’s it goes back to what, what you had mentioned, kind of what we talked about before, you know, business owners have different opportunities because they’re spurring economic activity. You’re you’re doing that by investment as well. And private real estate has the same thing because the government wants you to help them house people that need housing. So you combine all those things, you get above average investment returns and then you get tax benefits on top of that, and you’re diversifying your income streams along the way. So it all kind of melds together to one very cohesive, very efficient overall financial plan.
Michael: Yeah. Great. That was that was a great summary. I’m a huge believer in the power of alternative investments. Focus a lot on the real estate side of things. But there’s some you kind of alluded to. There’s a few benefits. There’s the tax opportunities, there’s the diversification, there’s the enhancement of returns. You know, we could we could talk all day about this, but it’s it’s an exciting asset class that, that not a lot of people access. And again, I think like I said, the tax code is written for, for business owners and investors in alternatives who are essentially business owners, just kind of a more indirect limited position.
Dana: And absolutely, you know, I think one thing I’d add to that, you know, as a passive investor and this is just feedback, I hear, you know, I’ve have certifications and we’ve done this for a long time at my old firm, new firm doing the due diligence. There’s a lot of investment offerings out there across the board. If this isn’t your full time job, finding the the pitfalls and where things can go wrong is very hard to do. So to have a professional as your guide in the middle of that. From the feedback we’ve gotten makes a big difference. To make sure your money is protected as well, to take advantage of all these benefits in the right way.
Michael: All right, I got two more questions for you here, Dana. One, I want you to talk a little bit about estate planning. I know you’re you’re a big believer in this. You mentioned you had blessed with a couple of kids coming into your life. So I’m sure this is something that you’ve practiced what you preach here a little bit. But make the case for anyone who who has not crossed this off their to do list. Why is this so important? Why do they need to get their butt in gear and do it now?
Dana: So, you know, set aside the the tax savings and what legacy you want to leave for second third generations. If you’re fortunate to be in that situation. This is important to me because I’ve been on the other side of it and clients pass away. They’ve delayed, they’ve prolonged even putting the basic estate plan documents in place to make sure when you’re in a tragic situation and you’ve lost a loved one, a parent, something like that, then to figure out all of the moving parts of the finances and the legalities of that and the tax side of that, if there aren’t clear direction and clear wishes that can tear a family apart. And unfortunately, everybody says that wouldn’t be my kids, that wouldn’t be my family. I’ve seen all those people say that, and more often than not, that ends up being that because of you’re frustrated, you’re grieving, so on and so forth. So from the stress and pressure it puts on wherever you’re leaving behind, if you were to be gone from this earth, that to me is reason enough just to, to do something. And then to enhance that, you know, the people that have a huge estate tax bill, which those laws, as you know, may be changing sooner than later could be. Anyway why not be proactive even if you don’t want to leave it to your kids or or something like that? There’s there’s more good you can do with that money than just giving it to the government. And a lot of that can be avoided with some strategic planning as well.
Michael: Totally agree with all that. And it’s really not rocket science. There’s, there’s kind of a proven playbook. It’s it’s a matter of just kind of checking the boxes. You’ll end up signing a whole bunch of documents, but it’s not that expensive. Like you said, it saves a heartache, saves a decent amount in taxes. Sure. Especially if you’re in. A lot of people don’t know this, but there are state by state estate tax thresholds as well. I live in Oregon. We have no sales tax, but we have a very low $1 million lifetime estate tax exemption, which puts a lot of people into that position of after they, they pass away, potentially leaving a lot of money not to their charity of choice, not to their kids, but but to the government. And it’s, you know, it can’t be totally avoided, but it can be mitigated relatively easily. So that’s our PSA for the day. If you haven’t done it yet, get your get your ducks in order. Do your estate planning. You you will not regret it.
Dana: Couldn’t agree more. Yeah, more.
Michael: All right Dana, last question for you. Where can folks go? They want to learn more about you, about the services that you provide.
Dana: Easy one. So my, my, my company email is Dana Dana at Cornell Capital holdings.com I set up retire me Dana at gmail.com. Just because it’s a little bit easier to remember either of those is fine. It gets to the same place. That’s obviously our website, Cornell Capital Holdings, and you can find me on all the social media channels as well. Not too hard to find. So if I can help you please reach out. We’d be happy to have a conversation.
Michael: Yeah. Wonderful. And we’ll make sure all of those social and links and email addresses are in the show notes for this episode. Dana, this has been a great conversation. I want to thank you for coming on. I learned a few new things and really enjoyed this.
Dana: It’s been fun. Always a pleasure. Thanks so much for having me.
