There has been some misinformation distributed via Google posts about the powerful and time tested financial strategy called Become The Banker that we’d like to address with this blog.  One of the untruths being circulated is that they are not inviting you to a “bring your own beverage” party.  This individual does not have your best interest at heart when he claims to be “warning you away from a get-rich scheme called ‘Be Your Own Banker.’”  The real truth is that this is inaccurate information about the Become the Banker program.  It is never promoted as a get-rich scheme.  As a matter of fact, we advise consumers that this is not a “sprint,” but rather a “marathon” that will more than likely out perform any other investment.

The same individual is trying to make you feel that he is protecting you by not naming a website that is promoting this concept because he doesn’t “want anyone to get sucked into what,” he claims, “is essentially one step from being a scam.”  The Become the Banker strategy is a far cry from being a scam.  Obviously, the individual that things that is not too well versed in economics or the financial industry.  If this was a scam, traditional banks such as Bank of America, Wells Fargo, CitiBank, Chase, etc., would not own any Become the Banker style policies.  Every bank, in their financial statements, have a line item “BOLI.”  This stands for “Bank Owned Life Insurance.”  According to a recent book titled The Pirates of Manhattan, written by James Dike, a well known investment and financial planning advisory firm with a degree in economics, demonstrates on page 153 every banks’ financial statement.  Bank of American owns $4.5 Billion in cash value life insurance.  Wells Fargo owns $3.7 Billion in cash value life insurance.  CitiBank owns $3.3 Billion in cash value life insurance.  Chase owns $7.9 Billion in cash value life insurance – just to name a few.  Banks consider this type of life insurance strategy to be the foundation of their “tier 1” capital which is the bloodline of any bank.  All major companies like Xerox, GE, HP, Apple, etc., in their financial statements have a line item “COLI” – “Company Owned Life Insurance.”  They pour billions of dollars into these policies for the same reasons banks do.  If it was a scam, do you think banks and large companies would be doing it?  And if it is advantageous for banks and a blue chip companies, could it not be advantageous to an average consumer?

This individual states that “once you drill down past the initial layers of ambiguity, the basic concept seems simple enough.  You buy a large whole-life insurance policy.  After you pay into it for several years, it will accumulate a cash value.  Then, anytime you make a major purchase like a new car, you can borrow against your insurance policy instead of going to a bank.”  This statement is partially true since the Become the Banker strategy is a basic and simple concept.  Where he is wrong is that you DON’T buy a large whole life policy and you DON’T have to pay into it for several years to borrow against it.  Instead, you have access to 95% of your money day one.  But, the principle of Become the Banker is to buy the LEAST amount of life insurance death benefit for the LARGEST premium allowed by law.  A proper policy design will allow consumers to borrow 95% of their cash value day one!

That particular blog also states that “According to the ‘Become the Banker’ people selling this concept, you are the big winner here because you’re paying interest to yourself, not the bank.”  This is the ONLY thing that is accurate about this post.  Consumers are indeed the big winners because when they borrow against their Become The Banker life insurance policy instead of a traditional bank, they pay themselves the same payment including the same interest that a bank would have charged them.  The excess interest, after paying the policy loan interest rate, will be recaptured by the consumer and not lost to the bank.  If he wrote this negative post, why would he say the consumer is the winner?

Again, the author of this blog was inaccurate when he states “the BYOB sales people are incredible marketers.  This must be where political campaign managers ply their trade in between elections.  They blast our financial system, banks and bankers, mutual fund managers, and financial advisors.  They profess to care about the customers they call ‘clients.’”  This statement could not be more inaccurate.  The Become the Banker advisors are very transparent.  It’s not about blasting our financial system, banks, and/or the stock market.  They are making the consumers aware that the average family will loose 34.5% of every dollar earned to finance charges to banks and other financial institutions.  They will also lose 36% of every dollar earned to taxes.  And we all know that they stock market is unpredictable and could have them loose the remainder of their dollars.

This individual attempts to explain what he refers to as the “Problems with Becoming Your Own Banker”.  First he states “the half-truths and misstatements from these sellers are enough to elevate the blood pressure of any fee-only financial planner.  They use terms like ‘depositing cash into a life insurance policy’ and ‘having control of your own banking system.’”  This could be a more truthful statement if it would read that any fee-only financial planner that advises their clients to only use the stock market option would be more than enough to elevate a consumer’s blood pressure.  I really don’t know where this person is getting their information.  Because making premium payments into a life insurance policy is building their cash value tax-deferred.  By having the proper Become the Banker policy designed consumers will certainly control their own banking system.

He also states that “amid all this unbelievable double-talk, they forget to mention one little detail.  All that money that you ‘invest’ in your whole life insurance policy is paid in the form of premiums.  You aren’t paying it to yourself.  You’re paying it to a large life insurance company – which, by the way, are an integral part of the financial system they blast.”  I believe that consumers are well aware that part of the premiums paid on a life insurance policy goes to pay the insurance company for the death benefit they provide the consumers.  This is why having a professional Become the Banker advisor design a policy is essential, so the death benefit is minimized; and cash value is maximized – which is what consumers want.

The untruths continue as he attempts to explain his position.  “Let’s look at some actual numbers,” he says.  “You way $12,500 a year in premiums for a $125,000 whole life insurance policy.  In four years, after paying in a total of $50,000, you would have $46,110 in your account.  Yes, this is less than you put in, as the fees and premiums add up to be more than the growth rate.  You can borrow up to 90% of the net value, or $41,500.”  I don’t know where these numbers came from, but they are totally antiquated and not properly designed.  Let me give you an example:  A client pays $10,000 in annual premiums.  His immediate cash value is $8400.00. He can borrow from himself, day one, 97% of $8400, which is $8148 tax-free.  Is this liquid?  With the proper policy design, people can stop making premium payments in a few years.  In this example, 7 years.  The consumer pays a total of $70,000 over 7 years and by age 65 he would have $138,000 of cash.  Not to mention, a sizable death benefit of over $300,000.

This individual goes on to say “you will pay the company 5% for borrowing your own money.  Supposedly, the interest is paid to yourself and adds to the cash value of the policy.  But a deeper look shows that the interest you pay yourself must be over and above the interest paid to the company, which is just another name for “premium.”  The insurance company charges you interest regardless of the “interest” you pay yourself.”  This is very inaccurate.  First, you DON’T borrow your own money.  You borrow the life insurance company’s money from their general account, not from your policy.  This has been part of life insurance companies’ investment strategies – to give consumers policy loans.  They will charge you an interest rate on their loan, but the consumer is MAKING interest in their TOTAL CASH VALUE.  Because he never took out the money from his policy.  And, if the consumer wants to pay additional interest over and above the company’s required policy loan interest he will, indeed, recover those moneys back into his policy’s cash value, making the cash value grow even more.

Again, he is wrong when he continues stating “what happens if you don’t pay back the loan?  The interest keeps compounding, adding to the amount of the loan and eating up the cash value of the policy.  This could eventually leave you facing some nasty tax consequences, potentially including having to pay income taxes on phantom income.”  A good financial planner will always advise the client to pay their policy loan back while they are using it to finance purchases throughout their lifetimes.  And, when they reach retirement age, their advice should be to take policy loans each year to keep the money tax free and never pay them back because, upon death, his death benefit will pay the loans without any consequences.  And the remainder of the death benefit will go to his/her loved ones.

After all of that, he wants to advise his readers of “a better way to ‘Be Your Own Banker’” by advising his readers “instead of paying that $12,500 a year in premiums, you could put it into a deductible 401(k) plan and invest the funds in a diversified portfolio.  You’d even be better off to put it into a taxable account.  Then if you needed a new car or water heater, you’d have cash and wouldn’t have to borrow from yourself or anyone else.”  This is very inept advice.  Stating that he should fund a 401(k) for a purchase.  What is wrong with this?  First of all, since the stock market is gambling, you could loose money.  Secondly, when you borrow money from a 401(k) you have to pay the money back ON THEIR terms:  length of time, loan, payment, and interest.  And if you don’t pay it back, you have to count the loan as ordinary income and will have to pay taxes and penalties.  How could this be better than the Become the Banker strategy where first, you don’t borrow from yourself, you borrow from the life insurance company.  Second, you make your own terms, not the company.  Third, you set your own interest rate.  Fourth, it will be tax free and you can pay it back on your OWN terms.

Finally, this individual states that “after spending hours of researching ‘being your own banker,’ my staff and I understand what BYOB really means.  It stands for “Bring Your Own Bottle” – of pain reliever.  You’ll need it for the headache of trying to understand that this is a slick advertising scheme.  It makes no sense for anyone except those selling the life insurance policy.”  Obviously, the author and his staff did not spend too many hours researching Become the Banker.  If consumers follow his advice, they’ll need to bring their own bottle of their choice.  Because when the market drops or crashes, like in 2001 and 2008 for example, consumers lost over 37% of their retirement accounts.  We’ve met quite a few of them with tears in their eyes and very angry because when they lost money, their financial advisors who sold them this ill-advised investment, still made money.  Is that fair for consumers?

It is clear that this individual is promoting wall street because when he sells you on eof his brokerage products that are invested in the stock market and the market were to decline and your account would drop 30% – 50%, this individual will still get paid and profit from your losses.  If you’re motivated to follow this type of individual and his thinking, ask him the following 3 questions:

  1. Can I lose my money with you?
  2. Can you guarantee me a rate of return?
  3. Ask him to put his answers in writing for you and sign them.

I will bet you $100 to $1 that he won’t do either.  While at Become the Banker, we will because we can guarantee you a rate of return and we can guarantee that you will not lose your money.  So, there you have it.  Will you believe the untruths or will you believe the guarantee?  The choice is yours.