September 2016
Vol 4 | Issue 26

Q&A with Marc Schechter

Senior Managing Director of Schechter Wealth

Principal Series:

Family Office Insight s sit down with Marc Schechter of Schechter Wealth to discuss the intricate world of life insurance and how family offices can take advantage of different strategic planning techniques.

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Who is Schechter Wealth and what do you do?

Schechter Wealth is a boutique, third generation wealth advisory firm with fifty teammates. For over 75 years, our multi-disciplined team of investment professionals, attorneys, accountants and life insurance professionals has been quietly advising wealthy families on financial matters including institutional quality investment advisory services, advanced life insurance planning, income and estate taxes, business succession and charitable planning. Schechter was recently named to The Financial Times’ “Top 300 RIA Firms” in the country.

Why would ultra-high-net-worth families be interested in life insurance?

Our clients are some of the wealthiest families in the country. Assuming they have liquidity to cover estate taxes, they absolutely don’t NEED life insurance. In fact there is not much they NEED (financially) at all. After learning how our firm designs insurance contracts, our clients WANT to direct pieces of their overall allocation into both our liquid and illiquid life insurance based investment strategies.

After completing their due diligence, our clients and their professional advisors realize that our firm has structured many opportunistic, contractual, non-correlated investments that outperform the market. Many of our clients enhance the investment by incorporating advanced planning strategies to provide meaningful wealth transfer opportunities.

Does life insurance have other benefits for high-net-worth investors?

In addition to the traditional use of life insurance to provide liquidity at death, many wealthy families look to life insurance to capitalize on a tax benefit in IRS Code Section 7702 which states the growth of equity (cash value) inside a policy is not taxable. Life Insurance taxation mirrors real estate taxation. A real estate investor is not taxed on their growth until they sell their building, and if they die with their building they never pay income tax on any of the growth due to “stepped up basis”. The same holds true with equity inside a life insurance policy. Families that bear heavy tax burdens can benefit the most from the tax efficiency the life insurance chassis provides. Our clients recognize this as a tremendous way to generate “tax alpha.”

What underlying assets can I invest in within a life insurance policys?

Investment options include Hedge Funds, Mutual Funds, Index Funds, Collared Indices, Private Equity Funds, Debt/Credit Strategies, and many more. Some of these are offered in the traditional insurance product world and others require the use of Private Placement Life Insurance which is only available to Qualified Purchasers.

What do you say to the naysayers who say “Insurance is expensive and a bad investment”?

I typically tell people that there are a ton of poorly designed insurance structures and policies acquired through insurance advisors who don’t know any better. There’s also a ton of bad real estate deals out there structured by developers who don’t know what they are doing. You can’t say all real estate is good or all real estate is bad and the same is true in the life insurance space. There are opportunities for those who are open minded enough to do their due diligence. The more financially savvy they and their advisors are, the more likely it is they will quickly “get it” and capitalize on the opportunities our analysts identify.

Can you tell me more about the investment option using “collared indices”?

In these contracts, the cash grows by the performance of the S&P Index over a 12 month segment. There’s a cap and a floor, like a structured note with complete principal protection. The cost of implementing these market collars through an insurance policy is significantly less expensive than what the banks charge for structured notes. Our programs will generate 4.5% to 6.5% returns Life Insurance a Commodity Markets?. Our short term programs are liquid and profitable immediately and are tax deferred. Our longer term programs will take time to amortize the early charges and that patience is rewarded with the ability to access the returns tax free in the future.

Is Life Insurance a Commodity Market?

People often think life insurance products are commodities and every company issues the same product. This is far from true as every company issues multiple policies with numerous cost structures and contract terms. Through careful analysis of policy contract language and features, it is possible to find “anomalies” that exist in certain contracts. By finding these contract anomalies, we can deliver unique and valuable economics to families. It’s pretty remarkable how many policies purchased years ago can be enhanced through either a smarter funding strategy within the same policy or utilizing different terms of the contract or, if they are still in the same health they were when the policy was purchased, they could benefit today by moving into some of these contractual anomalies I just mentioned.

Marc Schechter

Marc Schechter is an entrepreneur who has started, built and grown numerous businesses.  Over the past 15 years In his role as Senior Managing Director of Schechter Wealth, Marc, along with his partner Jason, has been responsible for the vision and growth of the organization.  Marc spends most of his time advising high net worth clients around the country on financial matters.  He is also actively building the firm’s strategic partnerships with other organizations (RIA’s, banks, accounting firms, law firms and life insurance firms) seeking to bring Schechter Wealth’s expertise to their client base.

Marc has spoken to numerous groups of industry professionals around to the country. He has been actively involved with many professional organizations throughout his career, including the Financial and Estate Planning Council, NAIFA (National Association of Insurance and Financial Advisors), and AALU (Association for Advanced Life Underwriting. Marc served on the Partners Financial Advisory Board, an NFP-owned company, as well as the Sun Life and John Hancock Advisory Boards. Marc currently serves on Pacific Life Insurance Company’s Advisory Board.

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