Our team leverages our insurance and actuarial expertise to provide you with custom solutions that minimize client tax-liabilities and increase their after-tax returns
Tax Deferral Solutions
Clients earning high incomes often face extremely high marginal tax-rates. In states with high state income taxes this means that as much as 50% of their income each year can be lost to taxes in the form of ordinary income taxation.
Furthermore, high income earning clients that are near retirement typically shift their portfolio allocation to a larger bond allocation as a means to protect against volatility in the equity markets and sequence of return risk. However, by shifting their portfolio towards a higher bond allocation they are subjecting a larger part of their portfolio gains to large ordinary income taxation. As a result, they lose a large amount of their portfolio gains to high taxation.
If these clients could defer income until retirement when they are in a lower tax bracket (especially if they move to a state with a lower state tax-rate) their after-tax returns would be significantly higher than if they were to invest in bonds directly and pay a high tax-rate on the gains in the portfolio. Unfortunately high net-worth clients have typically already maxed out their contributions to a tax-deferral retirement plan like an IRA, solo 401k, or SEP IRA. Therefore they have limited access to tax-deferral options.
No-commission annuities offer such high net-worth clients the ability to defer an unlimited amount of income until clients retire and are in a potentially lower tax-bracket. This allows them to obtain significantly higher after-tax returns than investing in bonds directly.
Bond Portfolio Optimization
In order to reduce interest rate risk, financial advisors often allocate a large portion of the client’s bond portfolio to investment grade short-term bonds. The downside with this approach is that short-term bonds have extremely low yields—and are still subject to interest rate risk (albeit not as much as long-term bonds).
This is a difficult position for a financial advisor to be in. By choosing to allocate a client’s portfolio to short-term bonds for the sake of protection, the advisor is explicitly asking the client to give up higher yields for the sake of principal protection. Furthermore, if interest rates go up, the client’s bond portfolio will still absorb an immediate loss which needs to be explained to the client who thought they were accepting a lower yield for principal protection but ended up not being fully protected.
No-commission annuities afford clients the ability to get the majority of the higher yield from longer term investment grade bonds while being protected from interest rate risk. These investment grade bonds have the same credit quality as their shorter term counterparts. However, by investing in these bonds through an annuity, the client is protected from interest rate risk as the insurance company takes all of the interest rate risk.
In exchange for taking all of the interest rate risk, the insurance company gets a part of the higher yield of these long-term bonds while giving most of the yield back to the client. By utilizing these no-commission annuities in place of short-term bonds or long-term bonds, RIAs can provide their clients with either higher after-tax yields or reduced volatility. In some cases, RIAs can provide clients with both.
Estate Planning/Wealth Transfer
As wealthy clients get older, their financial goals transition from providing for their own retirement to passing on their wealth to the next generation. One of the greatest ways to pass on wealth tax-free is through the use of permanent life insurance.
Unfortunately because of the poor nature in which these products are sold by high-commissioned agents, clients often get the worse end of the deal by investing in them.
At Colva we utilize our actuarial expertise in having priced and designed these products to help your clients structure the investment in a way that minimizes premiums and maximizes their returns. Our solutions can help clients achieve an average after tax-return of 10%+ without taking market or interest rate risk.
Selling a Client’s Life Insurance Policy for Cash
Helping seniors liquidate an investment in a life insurance policy. Many advisors think that the only way for a senior to exit a life insurance policy is for them to cancel the policy and take the cash surrender value. Most advisors don’t realize that some of these policies could be sold on the life settlement market for 3-4 times the cash surrender value.
We help RIAs sell these policies in the life settlement market without paying the typical life settlement broker commission of 15%-30% of the offer price. Often times we can transact these cases at 5% or less of the total offer price.
This leaves more of the proceeds for the policyowner.
Investing in Life Settlements
Uncorrelated returns in an institutional asset class of 10% to 14%. In an economic environment of increasing volatility in the equity markets and low yields in the bond-market, RIAs and their clients are increasingly looking for institutional level alternative investments that are not correlated to market or interest rate risk.
We educate RIAs about the benefits of investing in a diversified life settlement fund whose performance is based on properly structuring mortality and insurance risk—which is our specialty—and which is independent of the ups and downs of the equity or bond markets.