Our 52nd episode of Child Safety Source focuses on Berton Brown, a licensed Investment Advisor Representative and Portfolio Manager with PRIMORIS Wealth Advisors. In each episode of this series, Life Saver Pool Fence’s president, Eric Lupton, interviews experts who dedicate their lives to helping keep our children safe. In the case of Berton Brown, he’s sharing some general tips and tricks to help set children on the right financial path.
Getting to Know Berton Brown
In today’s interview, Berton will be talking with Eric about some basic financial information that should interest parents of young children. Please note, this conversation shouldn’t be considered as specific advice. Obviously, each family is different, so advice should be taken on a case-by-case basis. However, Berton wanted to discuss some topics that a family with an infant might want to consider.
Learn more from Berton in our full video interview:
PRIMORIS Wealth Advisors
As you learned from his conversation with Eric, Berton Brown is passionate about starting children off on the right financial path. As mentioned in the video, Berton has written articles that have been featured in Barron’s as well as other publications.
His company, PRIMORIS Wealth Advisors LLC, is dedicated to providing sound investment management and strategic wealth planning for individuals, families, and small businesses. You can learn all about PRIMORIS Wealth Advisors LLC at its official website.
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Below is a direct transcript of the Child Safety Source interview with Berton Brown from December 10th, 2018:
Eric Lupton: And like that, we are live on the Internet. It’s magical.
Berton Brown: Mmm.
Eric: How you doing?
Berton: I’m excited.
Eric: Are you excited?
Berton: I’m excited.
Eric: Why are you excited?
Berton: Uh, because I haven’t been on the Internet in a while.
Eric: I mean…
Berton: Not, no in the way I wanna be.
Eric: Right. I mean, your face hasn’t been on the internet. Uh, I guess everybody’s on the internet all the time right?
Berton: Mhmm.
Eric: It’s hard to avoid being on the Internet, I think. Um, we met in high school, right?
Berton: O, yeah.
Eric: Is that accurate?
Berton: Mhmm…
Eric: It wasn’t middle school, right? It was high school.
Berton: No, it was high school.
Eric: {inaudible 00:41} high school.
Berton: Yeah.
Eric: And you were, you’re ahead of me?
Berton: Uh, Yeah.
Eric: I was 2000.
Berton: Yeah, a couple of years…two years.
Eric: A couple years…’98?
Berton: Mmm.
Eric: Yeah. I remember we used to joke that you, uh, you time travelled. You know, you would, uh, you’d get there somehow like after the bell, but not be late. It was a, it was a neat trick for {inaudible 01:01} time travelling. We all had very long black trench coats, so it was a thing.
Berton: Yeah.
Eric: Yeah. Uh, but now you do…uh, what do you do? Tell me.
Berton: I do investments and insurance.
Eric: Mmm…So for people, companies?
Berton: For individuals, for families, for small businesses. Um, yeah.
Eric: Well again, so I was, I’m supposed to read this. I have to let you know that the content discussed is for educational and general information purposes only and they are not intended to provide specific advice or recommendations for any individual. No information constitutes financial advice and should not take the place of consulting with a tax, legal or other financial advisor. So now you won’t get sued, hopefully, or fired or…
Berton: Hopefully not.
Eric: Right. ‘Cause you’re not, you’re not allowed to give any specific recommendations, right?
Berton: Right. I can’t recommend what one, what for one person may not work for somebody else.
Eric: Right.
Berton: So I can’t give a blanket statement that this plan will be perfect for everybody because it frankly is not. That’s why you would need to consult with somebody that you trust, somebody that is able to take a good look at what your situation is and what might work for you as compared to what might work for everybody; which is just not possible in today’s day and age when it comes to investments and finance and even insurance for that matter.
Eric: It’s like a doctor giving a blanket suggestion on what medication you should take without knowing like who you are. You know, I, I couldn’t be like, “Hey, I’m Dr. so and so. Everyone should take Xyz”, you know, without knowing who you are.
Berton: Right
Eric: {inaudible 02:30} Um, and plus, you were talking about too…the, the, these kinds of laws prevent, you know, um, you know, fraud from you, like owning up the stock and telling all, you know, everybody, you know, to, to buy it and you know, doing like a pump and dump thing.
Berton: Mhmm.
Eric: Yeah. So it’s good stuff. So, um, obviously the idea is child safety.
Berton: Mhmm.
Eric: And the reason that we wanted to talk to you is, you know, what, you know, starting with when a kid is born, right? What kind of financial things should a family with an infant be thinking about long-term?
Berton: Uh, well there’s a number of things that need to be considered. First of all, how is, how is the child going to be cared for? Um, how, you know, from your own income, how you’re going to take care of your child. Do you want to start to put uh, money aside for them for their future? Uh, if, uh, do you consider that maybe you would need to get some life insurance on yourself if for some reason something happens to you along the way, who is going to take care of the child? How is the child going to take care of, you know, themselves? And those types of things are the first things to kind of consider. Uh, when you, when you first have a child, you, you know, first of all you’re ecstatic and excited, probably sleep-deprived.
Eric: Sure.
Berton: But at the same time you already want to think about how you want to make the future as good as possible for this little person that just came into your life.
Eric: So, you know, right off the bat, is there anything, um…obviously most people think of college right off the bat, right?
Berton: Mhmm.
Eric: Is it still a smart move for people to, to set aside money for college? Is there a good way to do that?
Berton: Well, there’s many reasons why you would want to start doing something like that. It just totally depends on, like I said, your situation. Are you saving money for your own retirement first and foremost?
Eric: Okay.
Berton: Because unless your retirement plan consists of living on your son or daughter’s couch, you might want to save for your own retirement before…
Eric: It’s not a bad plan.
Berton: … you start saving for your son or daughter’s college.
Eric: Okay.
Berton: So that’s usually my recommendation. First of all is, what’s going on with you? Are you going to be able to support yourself in the future? Not necessarily working with what your son or daughter is going to need for college.
Eric: And I, I bet that’s pretty common. I bet their instinct for a lot of people to put, you know, save for Johnny’s college ahead of you know, their own retirement plan, right? I mean that is a paternal instinct. You wanna, uh, give to your kid first and…
Berton: Right…
Eric: Um, but you think that, that may be kind of backwards?
Berton: I think it’s definitely backwards. I mean, they even tell you when you’re on an airplane and you might want to put your mask on yourself first.
Eric: Right.
Berton: Otherwise, you’re not going to be in a position to really even help them.
Eric: Sure.
Berton: You know, you can always get into a point to where if you even choose not to save for your son or daughter’s college, but you choose to save more for your own retirement, you can step in later if you are ahead of the game or at where you need to be for your retirement and pull money from certain retirement assets to be able to help them, should you so choose to. And if they get into a bind or whatever. And plus, you know, you don’t know if your child is going to go to college.
Eric: Sure.
Berton: So that’s always an issue. Um, there’s certain plans that you can put in place for college. You may not or may be able to change it from one son or daughter or the other. If one goes to college and one does not. And then you get up, you know, there’s, there’s lots of ins and outs of tax benefits associated with it. So that’s why you need to consult with an advisor and possibly your accountant as well to figure out what makes the most sense as far as putting the money aside for even for your retirement and for, uh, earmarked money for college, specifically.
Eric: Yeah, I know. Um, you know, my parents set up the prepaid flow to college thing way back in the day for me. I never used it, you know, I’m not sure what happened to it. Hopefully, they cashed out at some point if that’s even possible. Um, but you know, I wonder too, you know, we’re talking you know, people having kids right now, eighteen years from now, are you seeing less people, um, setting aside money for college with the idea that maybe college won’t be as important in the next 20 years?
Berton: Well, I’m seeing more people definitely focus more on their own retirement to be able to put money aside for themselves and that way they’ll be on more stable ground to be able to help their own children with whatever decisions that are made for them.
Eric: Little more dynamic…
Berton: Yeah. You have much more free decision-making when you’re in a much better situation as opposed to a wall. Now we have this money set aside for this college, but we didn’t anticipate that we needed this for something else or you know, oh, they got a full ride to college and so we need to buy her a car. Um, let’s take it from this account, but no, we’re going to get penalized for it. So, it, there’s a lot of things that need to be considered along the way here. Um, the other thing too is, what is college going to be like 18, 20 years from now?
Eric: Right.
Berton: I mean; you can get…
Eric: Imagining all online, YouTube…
Berton: You can pretty, get a pretty good education on YouTube right now.
Eric: Sure.
Berton: And you know, some people think of a college as a four-year party or five-year…
Eric: Right.
Berton:…for some people.
Eric: Yeah, sure were lucky.
Berton: Um, yeah so, yeah, so it’s, just totally dependent on what the path is for your son and daughter and it’s very, very difficult to determine that when they’re in diapers or when they’re, you know, just starting to walk around and they’re starting to learn to swim in the pool.
Eric: Are those prepaid plans a good idea still?
Berton: Uh, they can be.
Eric: Yeah.
Berton: The Florida Prepaid is a good plan.
Eric: Ah, how does it work exactly?
Berton: It basically, eh, you’re paying for your uh, son or daughter’s college now.
Eric: Okay.
Berton: So you’re paying without the inflation.
Eric: So you’re, you’re locking in a rate.
Berton: You’re locking in a rate.
Eric: …Assuming it’s going to be more expensive 20 years from now.
Berton: You can pay for one, two, three, four years of it. Ah, so it’s going to cover roughly tuition and you can also do one for room and board. And you can, like I said, you can structure it based on however much you can afford to at the time. You can start with a one-year and then if you get, you know raise at work or something, you can up it to a two-year and then you can increase the amount of money that you’re putting aside towards, towards it for that. Those, there are drawbacks about it too though, is like you said you had money set aside for Florida prepaid and then what happened? You never used it.
Eric: Never used it or used it yeah.
Berton: So, at best they got their money back, which if you had invested in anything that had a positive return for 18 years…
Eric: Right…
Berton: You’d probably be sitting on two to three times as much money.
Eric: Sure.
Berton: So, that was a situation that was, a decision that was made that in hindsight, it could’ve been made differently. Uh, also, what about if you go into an out of state college uh, then the benefits aren’t as strong. So that’s something to consider as well. So, um, the, the college costs right now, uh, they’ve spiraled 31% in the last five years. And so student debt is more than consumer debt.
Eric: Up or down?
Berton: Uh, they’ve spiraled up-the amount of debt that the students take, taken on.
Eric: Okay.
Berton: It’s over a trillion, $300 million right now. Um, the average student graduates from a state school with roughly $29,741 in debt. Uh, the average student graduates from a private school with $41,861 in debt, usually. So, that’s why it makes sense to come up with some sort of a plan right now to do something for their, either for their college or for you to be able to help and support them when they come out of it. Uh, so that they’re not saddled with this kind of debt. Because also, in today’s laws, they’re not discharged by a bankruptcy ruling. So, you can’t even file bankruptcy and get rid of it.
Eric: That’s amazing to me.
Berton: Mhmm…
Eric: …that, uh, you know, if, if anybody, who should be able to get out of a, a bad decision they made-it should be at an 18-year-old, you know, who thought they were making the right decision and going to, you know, going to school.
Berton: Mhmm…
Eric: And, you know, the fact that they can’t get rid of that debt no matter what they do…bankruptcy, you know, I dunno, that, that, that amazes me. You know…
Berton: Mhmm…
Eric: Um, it is what it is. But…
Berton: Yeah.
Eric: So in broad terms, you know, um, if the prepaid college route may not be the best option, you know, what do you suggest people do?
Berton: Well, I can’t make a recommendation.
Eric: Sure.
Berton: Because everybody’s situation is different. But you know, there’s definitely different vehicles to be using. You know, there are 529 plans. There’s uh, Roth IRAs, traditional IRAs. Uh, like I said…
Eric: Uh, what’s a 529 plan?
Berton: 529 plan is uh, specific money that you have set aside as earmarked specifically for college for a person you name as a beneficiary.
Eric: Okay.
Berton: So it would be your son or daughter. Um, one of the advantages is is that you can make a change from one to another if one decides not to go to school. Uh, so…
Eric: If you have multiple kids…
Berton: If you have multiple children and you can do that. Uh, you don’t get a tax deduction for putting money into it. Uh, but the money that you do take out will be, um, not taxable if it’s used for college expenses. Um, so that’s how primarily how a 529 plan works. There’s disadvantages too. It’s just that, uh, some 529 plans don’t have the greatest investment options. Some of them are higher fees. If they’re sold by a particular financial advisor or broker that is earning a commission off of it, chances are the amount of money is going to be drastically reduced from at, at college age, uh, because of the commissions that’s associated with it. And also, um, I went back and talked about the investments is, what if it’s not the greatest investment that you could have chosen for them because you are pigeonholed into using specific funds that are based on what particular plan that you go into.
Eric: So, so when you pick a 529 plan, your limited from, you can’t just put in it any stock or fund, whatever?
Berton: Right.
Eric: It’s limited to a certain…
Berton: Right.
Eric: …category of things.
Berton: Right. You can’t just buy a specific stock or specific mutual fund that goes, that you can choose. You have to pick from, uh, you know, from a menu, whatever the 529 plan allows. And so, if you don’t like the menu, you’re stuck with it.
Eric: Gotcha.
Berton: Um, there’s also, like I said, you could put money into a Roth IRA, traditional IRA if you’re able to do that. That would be considered a retirement income for you. Uh, in addition, in addition to that, there are rules right now that say that if you are taking money out of an IRA for college expenses, that is not considered a penalty.
Eric: Okay.
Berton: You would still be income depending on which vehicle that you’re using and that may affect financial aid. And financial aid is the whole other uh, part of why you would need to really kind of consider what kind of investment strategy or what kind of vehicle that you’re going to use. I look at it as, there’s three different points that are, that you need to focus on as you’re starting. Starting out is phase one. Really, am I gonna put money aside? How am I going to do it? Uh, and then when you get to phase two is about where, uh, the son or daughter goes into high school, they’re sophomores, they’re juniors, they’re really focusing on which school am I gonna to go to? Which one makes the most sense? Which one’s the most expensive? Which one’s the least expensive? Can I qualify for financial aid? Uh, so that’s the phase where this is the time where all of the decisions need to be made for the next four years. And, uh, phase three is when you actually start to pull money out to fund the college and the choices that have been made. Hopefully, there’s not too many changes that need to be made as far as, you know, different schools. Hopefully the, the child can graduate in four years, not five, because that would make things much more expensive. So there’s…
Eric: Twenty, twenty percent more expensive?
Berton: Uh, uh, uh, at least. And so that is, those are the three phases that how you go about it. And you need different types of guidance going along into it. Uh, you know, phase one, you can speak with the, your advisor and figure out what makes the most sense. But if you actually make less than $250,000 a year as a family, you might be able to qualify for some type of financial aid depending on what school you go to. It might make more sense to even look at private colleges. If you can get a better, um, if you can get a better package, it might actually cost less than if you go to one of the big public schools. So those are all things to be considering during the second phase. Um, let me go back too, and talk about the vehicles again because you can save in your child’s name or you can save in your own name and that will drastically affect your financial aid proceedings. If you’re making more than $250,000 a year, uh, then you can pretty much put financial aid off of the table and you can do other things such as saving in the child name, get tax deductions, things along those lines to be able to uh, get money out of your name and do that. But that would be a very bad decision to make if you do want to qualify for financial aid going forward. So, that’s why it really pays to take a look and talk to an advisor that knows how your investments are structured will affect uh, what your financial aid guidelines and what, how it will work for you when you get there.
Eric: I mean for me it seems, you know, because it’s hard, like you said, to know, you know, when a kid’s in diapers, what they’re going to end up doing in 20 years from now, whether they’re going to go to college, whether college is going to exist in the real world you know…
Berton: Mhmm.
Eric: …or it’s going to be you know, some kind of virtual reality thing we all go to.
Berton: Right.
Eric: Uh, seems like, um, for me, if I was doing it, that I would want to just try and set up a plan where I’m just saving period.
Berton: Mhmm…
Eric: Um, and I’m trying to, you know, have as much for me as humanly possible, uh, in 20 years so that, you know, whatever the kid does choose, I’m in a place where I can assist them…
Berton: Right.
Eric: Whether it’s, you know, paying for college or you know…
Berton: Right.
Eric: Whatever the case may be, and I would be less inclined to set up a specific, this is a “for college fund” or I’m pigeonholed into that.
Berton: Mhmm…
Eric: …that one thing. You know, that seems riskier than, you know, just trying to generate as much, you know, capital down the road.
Berton: Right.
Eric: …as I could. Um, do you see people going that way?
Berton: Uh, I do. That is definitely one strategy of going about it. Uh, usually though, if you have maxed out your retirement contributions and you have still additional savings money that you want to put into something, that’s when it would make sense to consider other avenues. Uh, we can circle back too and talk about life insurance as well.
Eric: Okay.
Berton: When your child is first born, uh, you do need to consider some sort of life insurance on yourself so that you can make sure that your child is properly cared for, properly taken care of. Uh, if the breadwinner of the family were to pass away suddenly because anything can happen to anybody at any particular time. Um, you know, at, at every given day somebody will not make it home tonight…
Eric: Sure.
Berton: …from their work or wherever they were going and uh, that could leave families devastated. Um, and so considering an additional life insurance or adding a little bit additional life insurance to already a portfolio would help if something like that were to occur. And also, you can use permanent life insurance as well as a supplemental income uh, for retirement; and you could possibly use for college purposes as well. But that needs to be structured definitely with the hands of a professional ah, that understands the ins and outs of it, knows how to maximize the value of it because you can pay an arm and a leg for insurance and not end up anywhere 15 years from now and go, what happened? Uh, if you are, if you haven’t structured the plan, right, maybe uh, the person that you were talking to is more interested in maximizing their commission and less interested in maximizing uh, your earnings, then you might have a problem. So, sometimes it makes more sense, it usually makes more sense to go with somebody that is, has your best interests, wants to work it as part of a portfolio of your plan. And you know, that might not be the person that just sold you your auto policy or uh, you know, the guy on the, at the side of the road that has the big company and the big advertising from the uh, webs from on the television. It pays much better to work with somebody that is going to make sure that you’re going to use that type of vehicle and like life insurance, it’s going to use to maximize the earnings. Or if you’re just going to take a term policy, understand that that’s not going to be something that you can use for college unless you die, which is not really the goal.
Eric: Right. So how, what things should somebody look for if they’re trying to, you know, find someone to help navigate them and get their investment squared away and set up their, their life insurance, you know. What kinds of things should somebody look for in a person?
Berton: Mhmm…well, you’d have to find somebody like myself who’s a fiduciary, uh, first and foremost.
Eric: What does that mean?
Berton: Fiduciary means that I’m required to put uh, the client’s interests in front of my own. Uh, so I’m not focusing on trying to figure out, like I said, how to maximize commissions. I’m trying to figure out how to solve a problem.
Eric: How is that determined? How is that regulated?
Berton: Uh, it’s regulated from two different organizations-from Finra, from the SCC. Um, my company Primoris Wealth Advisors, we’re a registered investment advisory firm. We’re registered with the state of Florida. We’re growing to the point where we’re going to have to get registered with the SCC and we are just, that’s just our laws that what we’re required to do. So if we have, we, we don’t keep an inventory of products, we don’t keep a, you know, a certain number of shares of a mutual fund or a bond or something, and then somebody comes in and we just try to figure out how we can work that particular bond or mutual fund into their portfolio so that we can get a bonus or something like that. We’re strictly going, we go to the market for what we think will work the best for the person ‘s situation. Uh, and or in this case of what product would work the best. It’s not something that we’re focusing on for uh, maximizing anything on our end. It has to be what’s in their best interests. And, that’s how I would suggest that people go to seek out professionals-professionals that are primarily looking to help their, ah, help them much more than to help out the, you know, my company for instance.
Eric: I mean, I’m sure any person they talk to you would tell them that their, you know, that their interest is ahead of their own, right? I mean if I pick, you know, call anybody off the television, they’re going to say, “Yeah, obviously we have your best interest in mind and we’re going to try and take good care of you.”
Berton: Mhmm…
Eric: Is there any specific things that you look out for? I mean, commissioned or it’s not commissioned, pay structures, you know, things that are red flags where you think this is the wrong kind of advisor?
Berton: Well, specifically, um, they have to be a fiduciary. Uh, if you’re working with somebody that’s a fiduciary, you know that they’re have, they’re required by law to put your best interests in front of theirs.
Eric: Are they not, are not all advisors fiduciaries?
Berton: Not all of them. No. There were some laws that they were trying to change so that if you were being worked on, they were working on your retirement plan, they had to be a fiduciary, but, uh, that, that law was, uh, rolled back. So, that’s not a requirement. Now, there are good commission-based people out there as well.
Eric: Mmm…
Berton: Uh, they may have your best interests at heart, but they’re not required by law to do that.
Eric: Okay.
Berton: And there are good people out there, of course. Not Everybody’s out there to get into your pocket, you know.
Eric: Sure.
Berton: But, um, that’s, that’s the way that the laws are set up right now. And, as far as anything that I’m doing from an investment side, I’m trying to do what is, I believe is right for that person. I would recommend a certain this strategy over this strategy if it worked for you, but it might not work for somebody else. Uh, also, if somebody comes in with a child that’s about to go to college, obviously the strategy would be much different than if somebody was just starting out.
Eric: Is there any kind of process that one does to become a fiduciary? Is there a certification or…?
Berton: Uh, yes. Um, as, as a Registered Investment Advisor, uh, I had to go through a series of tests to get a Series 65 license. I had a Series 66, which had a Series 7. A Series 7 is for brokerage, which would allow me to sell securities. Uh, but I did let that go because I felt that it was much better and easier to just work as strictly as a fiduciary for the investment side. So that’s how I went about and did it.
Eric: Gotcha. And um, obviously, uh, I’m sure that’s, that fiduciary designation is in someone’s, is, is there a way that I can look it up? If somebody told me they’re a fiduciary, could I double check that somewhere?
Berton: Uh, you can go to finra.org and you can check out your broker.
Eric: Okay.
Berton: If they’re working for somebody. Uh, if they’ve had issues with, um, regulation, that’s one way that you can check.
Eric: Okay.
Berton: And you can read complaints uh, about things that have been filed against people, so you can kind of make your own decision as far as, oh well that doesn’t seem to make any sense. Or uh, you know, he actually told me about that and I understand that, you know. Um, I have a clean record on there. I haven’t had a single complaint. Uh, so I know that that’s one place that you can definitely go to look.
Eric: So finra.org is kind of the, the better business bureau of investment brokers?
Berton: Um, kind of like that I guess.
Eric: Okay. So, where people could go and lodge a complaint or let people know that there’s something wrong, I guess?
Berton: Mhmm.
Eric: Okay. Um, so we talked a little bit about life insurance. Uh, do you recommend having it for both parents? For one of the other?
Berton: I do.
Eric: Yeah.
Berton: I believe in, well first of all, if both parents are working, the income is being brought into the family from two different separate sources. However, uh, even if the, um, the wife is at home, that’s the traditional way. I mean, nowadays we even have the husband at home in some families.
Eric: Sure.
Berton: But um, if you have a housewife or househusband, they are also performing duties for the family.
Eric: Sure.
Berton: …that would have to be done if they were not there any longer. So, yes, I believe that that is something that you should have life insurance on both parents assuming that you’re insurable and you’re able to do it. Um, so that if something does happen to the family unit. Also, what if the, husband or wife wants to go back to work down in the road and they aren’t able to get insurance in the future. Um, some companies offer life insurance and it’s guaranteed issue. But if you’re insurable right now, chances are if you work with a good uh, broker or agent, in some cases you will be able to get it done cheaper. If you aren’t insurable and you have a life insurance policy is offered through the company and you better take it because you’re not gonna find anything else out there. And things change- health conditions change, people develop sickness. So, having something in place that you can continue to work with if something were to happen is always a good decision to be made. So…
Berton: Yeah, it’s better to get life insurance, obviously what you’re healthy, right? Because if your health does change, they can’t raise the rates, it’s kind of locked in right?
Eric: Right.
Berton: And so, ah, the thing about life insurance is very confusing, is that you can get something simple like a term policy that, you know, will go out 10, 15, 20, 30 years, uh, but what’s going to happen after year 15, year 16 or whatever? If you get a 16, 15-year policy, year 16 the premium jumps rather substantially because it’s not guaranteed at the same rate anymore. They basically leveled the amount of money it’s going to cost and they spread it out over a certain number of years. So year 15, 16, year 31 all of a sudden that $100 a month you’re paying becomes $1,500 a month. And, most of the time it doesn’t become economical to carry it. But 30 years from now, if you’re 30 years old and you put in a 30-year term policy at age 60, you may need insurance further down than that. You may need, uh, it may be something that you might want to put towards a retirement plan or it might be something that you would wanna leave to your children or grandchildren because, uh, life insurance has a very good multiplier effect. Obviously.
Eric: What does that mean?
Berton: Well, multiplier effect is obviously you don’t want it to happen. Well it’s going to happen to everybody at some point or another is if you knew what date you were going to pass and let’s just say I knew it was going to be next year or whatever, I could buy a 10-year term policy, put in $100 and potentially turn it into $1 million in a course of a year. That’s a hell, heck of a return.
Eric: Right.
Berton: But the thing is, is that you’re not doing it in anticipation of that. But um, even if I’m finding that people even in their sixties are finding that life insurance is a great investment to put towards their children, grandchildren because they get that multiplier effect, even if it’s diminished as much because they’re older. But if they know that they’re going to be able to tap that or get that kind of return, that they’re not going to need this particular portion of money. So let’s spend down our retirement assets much more, much more, but we still want to leave something to the kids, grandkids.
Eric: {inaudible 28:12}
Berton: Let’s do that. Let’s do that with the life insurance side. And so, we’ll know that going forward we’ll be able to actually get more uh, income out of the whole ah, out of the whole egg.
Eric: That’s kind of that, that, that rich philosophy, right? Is that what the whole premise of the uh, those books are right? Is putting tons of money into life insurance?
Berton: Mmm…Yeah.
Eric: I think so. Right?
Berton: Yeah.
Eric: I could be wrong.
Berton: Yeah, that was…yeah, that was uh, that, that is it. That is a strategy. But like I said, it needs to be done correctly. If you’re, if it’s not funded the right way, you’ll find out that you just have a ton of life insurance. And if you wanted to use that particular policy for income, if you haven’t fully funded it the right way, you’ll find out that you’re not getting nearly as much as you thought that you were. Also, it’s also going to be affected by interest rates. So, if you go into a plan that’s not flexible, such as maybe a whole life policy, it’s basically you are at a contract that you’re going to put in x number of dollars every single month. What happens if you can’t make that payment for six months because you’re out of work? Well, then you take loans to cover it and it’s different than if we had something like a universal life policy where the premiums aren’t required and contracted and set by, by it. As long as you have a balance, you’re going to be okay. You can just, it might affect things in the future, but you can actually catch up and makeup on it. So, um, whole life is something that is one of those plans that you’ll find is not usually as, is not as flexible as doing something that would be able to give you that flexibility at any given, particular time.
Eric: How does life insurance work as an, uh, providing you income?
Berton: Well…
Eric: ‘Cause most people, I think, think of life insurance as you, but money and do it every month. And then if you die, you get a payout.
Berton: Right. Well, you have the term policies. You put money in. You don’t die if it’s money that was not well spent.
Eric: Okay.
Berton: But you know, it was there for protection.
Eric: Sure.
Berton: Just like you have auto insurance
Eric: Car insurance or health insurance or…
Berton: You didn’t crash your car so…
Eric: Homeowner’s insurance…
Berton: You didn’t need it; it just went away.
Eric: Right.
Berton: Right. Homeowner’s insurance-the hurricane missed us this year, so…
Eric: Yeah. We got lucky.
Berton: We got lucky. There’s no premium, we just paid the premium and nothing happened. But you don’t want to use term life. You don’t want to use, um, your homeowner’s insurance. With permanent life, it’s going to be in, in effect for essentially your life as long as there’s a balance.
Eric: I got lucky one time. Um, I had, uh, I moved into my house. My roof was 20- something years old.
Berton: Mhmm.
Eric: Um, I was due to replace it. We got hit by a hurricane Francis or Irma, one of those, uh, tore the roof off. Uh, homeowner’s insurance replaced the whole thing for me.
Berton: Mhmm.
Eric: I, uh, I think it’s the only time I’ve gotten lucky with anything in my, probably my whole life. It worked out real nice. Yeah. I got a free roof out of the deal, you know, 15 years ago.
Berton: Mmm. There you go.
Eric: 10 years ago? Whenever that hurricane was. But uh, yeah, other than that…
Berton: Yeah, so.
Eric: I, I miss everything.
Berton: With permanent life it’s, it’s variable the amount of money that you can put aside, uh, or if it’s whole life, then you’re contracted to put aside x number of dollars.
Eric: Right.
Berton: Now it should set up, it will be setting up money that’s a cash value that you can tap later, uh, that you can use for income purposes. And it’s usually not reported to the government as not taxable when you’ve, because you’ve put after-tax money into it. So it can be a great supplement to a retirement account. Let’s say you have 401k with your work, you’re putting aside some money because you’re getting a match. So that’s free money right there. Definitely take that. But after that, what if your 401k isn’t the best investment? It might not be; it might be higher fee than you expect. And you know, I work with small businesses to uncover those fees so that they find out, well, “Wow, I didn’t realize I was paying that much or my employees were paying that much.” Uh, so let’s figure out what we can do to change that. But back to the life insurance is, is that if you fund it the right way and you overfund a policy, there’s a certain point to where the government won’t allow you to put more money into something.
Eric: Ok.
Berton: And you know that if the government’s trying to discourage you from doing something, you know that two much of something is probably a good thing, if you’re doing it right. So if they’re saying you can’t put $101 and you can only put $100 in, but you can also put $25 in. You’ve got to figure out where you want to work on that. You want to put as much as you can into it or as little as you can into it; because then it’s going to work either in his favor or it’s going to be, let’s put our money, use that money elsewhere where we can also grow it and do something else. But if you’re somewhere in the middle, chances are if you’re recommended to do something in the middle and do that for the long term, chances are that’s, you’re probably, uh, lining the pockets of an insurance agent more than you’re going to be helping yourself.
Eric: But not maxing out the possible…
Berton: By either not maxing it out.
Eric: Right.
Berton: Or by not using the vehicle to its best intentions. And so, that’s why I’ve even recommended for people that are interested in uh, permanent insurance, but you only have a certain number of dollars. Everybody has a budget. Let’s look at a permanent policy and a term policy. So, that way we still get the coverage that you need, but you can still use the permanent side of it for other purposes. And permanent policies as well-the ones that I usually work with also have chronic illness built into it, which means if something happens to you, you become disabled, um, not even terminal; but if you can’t do two activities of daily living, you will automatically be able to access a portion of that death benefit so you can actually live off that money while you’re still alive. Um, and hire somebody to come help you, not necessarily have to hire your son or daughter away from college to, uh, you know, get you out of bed in the morning.
Eric: Sure.
Berton: So there’s all those ins and outs and that’s the reason why, you know, permanent life insurance can be used in the right way. As long as it’s done the right way to be able to supplement income, help with other aspects of either retirement or disability or uh, other occurrences like that.
Eric: With people who have young kids, what’s, is there a mistake that you see people make often?
Berton: Mmhm. Um, usually I see a mistake is, is that people want to put money aside and they set it up, they set up a UTMA or UGMA account.
Eric: What is that?
Berton: Uh, it’s, Uniform Trust to Minors Account.
Eric: Okay.
Berton: And they set it up, they put the money into their child’s name and then they get to the point to where they have to file for financial aid. And then they’re finding out that all that money they’ve been putting into their child’s name is all going to reduce the amount of aid that they receive by several thousand dollars a year. And they may only have $20 or $30,000 in there. And they’re like, “Well, I just lost $20 or $30,000 per year that the money’s there. So when you see an issue like that, you do the best that you can to try and spend down the mistake as quickly as possible. And, so that way you can still achieve some sort of financial aid later. Um, so, um, when you apply for financial aid, you have a form, it’s called the free application for federal student aid or FAFSA form. Some companies or some colleges require also a CSS profile, which is the College Scholarship Service Profile. These are two forms that you would think very, straightforward. It’s very easy for you to fill out and take care of-submit. And it’s anything but. It is, it can be very complicated and complex just as if you don’t do your own taxes because it’s just, you know that there’s, you’re going to miss something. It’s usually the same occurrence. And yet so many, uh, so many parents just rack their brain and try and figure out how to put the form together, send it in. and they could potentially either put themselves in, in trouble because if you purposely understate income purposes or assets, it could be considered criminal, uh, because you’re getting financial aid for it.
Eric: Sure.
Berton: Uh, Or if you overstate, then you’re leaving money on the table.
Eric: Right.
Berton: That, you know, you’re going to have to find to help or the, will end up being debt for the student later. So, um, when you’re, you’re asking, if you ask how to get a family, the most financial aid, really the best way of doing it is to, during that second phase when the child’s looking at the schools, what, what school is going to work for them, what the, what their major, what they’re thinking their major’s going to be, um, how your assets should be structured. It’s during that time in high school that you can make these changes that you can even on, even on the parent’s uh, side, because certain assets are considered counted, and certain assets are not considered counted. So…
Eric: Towards financial aid, you mean?
Berton: Towards financial aid. Exactly. Like I said before, if you make less than $250,000 a year as a family, you can hopefully, probably get some sort of financial aid somehow depending on how your assets are structured. But if you have, you know, $250,000 in the checking account uh, and you have so many other things, you have a lot of money in the kid’s name because maybe the grandparents gave them money every single year, then you might be in a position where you won’t be able to get any financially when you normally could have. And that also brings it into a multigenerational aspect is, well what about the grandparents? The grandparents want to help too. They want to save money too. They want to see that their grandson or granddaughter goes to the best schools and does that as well. So that’s even a strategy to ask, you know, mom or pop, you know, what are the, what, are you going to do something? And sometimes it doesn’t make sense to actually have them give the money to you. Sometimes it makes sense for them to set up their own plan as well.
Eric: Are there any other big uh, mistakes you see people make? You know, any missteps, you know, besides the, uh, you know, putting money into uh, a college account that ends up sabotaging them later?
Berton: Um, well I think I’ve covered a good amount of it.
Eric: Yeah.
Berton: A lot of it is just misconceptions.
Eric: Okay.
Berton: Things, thinking like, ” Oh my income’s too high. I don’t think I’ll be able to qualify for financial aid. So I guess it really doesn’t matter how well I structure everything.”
Eric: What about aside from college? Just, um, you know, financial planning in general that young families tend to have missteps on.
Berton: Mhmm.
Eric: Uh, I imagine probably a big one is just not doing anything, period. You know,
Berton: Well, not doing anything period is obviously a huge mistake.
Eric: Yeah.
Berton: Uh, the other things are, is that if you kind of go about things piecemeal, you know, just, I, you just, you see an ad on television saying, you know, save for college and you said, you know what, where you go to a party and you’re talking to all your friends and all, they’re like, oh yeah, I’m just, just started a bright, you know not bright futures, but I started a five 29 plan for my son and, or I started the Florida prepaid and then you just go, God, you know, I haven’t done anything. I better just do something. And then you just, you just jump into something and then you don’t realize or you think, okay, well I’m setting aside $12,000 a year for my retirement, uh, and I need to do something now so I’m going to set aside $600 a month and I’m gonna put it into this account for my, for my son and daughter. And then three or four months down the road, they’re like, God, you know, I really can’t keep doing this. I didn’t really plan it the right way. Now I’m just, now you’ve socked away $3,600, $4,000 into something. It may or may not even be the right investment strategy for your situation. And it’s not something that was sustainable; because it was something that you just found, oh, I better go and do something about it. And you just go do something. Sometimes you need to, you, planning ahead is, and using somebody that can figure out multiple aspects of your life and put that all into uh, a fixed set strategy for a few different things, is usually the best way about going in and not just all of a sudden making some huge drastic change because, oh, well my next door neighbor has decided they were going to start a 529 plan, I better go figure out what that is and go do it myself.
Eric: And I mean, as confusing and complicated as it sounds and now the nomenclature is probably foreign to most people. Uh, it’s probably not as expensive or as hard to get into it, probably a lot of goal think. Would you say, is that right?
Berton: No, it’s not.
Eric: Yeah.
Berton: It’s not at all. Um, even when it comes to the financial aid aspect of it, if you’re filling out those types of forms, if you make a mistake, you understate your income, it could cost you several thousand dollars a year.
Eric: Mhmm…
Berton: So, even if you hire somebody to help you associate with this, because there is services like that, like, just like you go get your taxes done…
Eric: Right.
Berton: You go find an accountant that’s reputable that you trust to help you go through that process. You can do that as well. Uh, for somebody, and I’m actually working with a company that helps during that second stage planning process to um, help you fill out the FAFSA form correctly based on what your stated assets are and income. They help your child figure out their major. They critique assets that go, er ah, essays that go out to the colleges. They, let’s see, what else they do. They um, like I said, they help with figuring out what major might be the best major for them because if they get done in five, four years instead of five, that would save dramatically the amount of money that would be involved. Um, and they also have the, they inform you about what rates that you can get with what companies, if you do need to get loans that would help you in that process as well. So there’s a lot of things that, that particular company that I’m working with, can help the family get everything on track and not have to take lots of time to research and research to figure out, you know, which, which college might give them the best amount, uh, best compensation package for coming to this, to go to that college. And some other misconceptions are, is that, “Well, my guidance counsellor will help me with that.” Chances are the guidance counsellor is not going to be well enough versed in, I don’t know if you want to tell a high school, college, guidance counsellor all of your financial situation.
Eric: Sure.
Berton: Uh, and especially if it’s a public high school and they’re dealing with how many thousand kids every single year that are, they’re just hoping that they just get them out of there, let alone go into college, you know, and it’s like, well, you know, maybe you should go dig ditches for a few years and figure out what you really want to do because I don’t, I got to be talking to the next guy.
Eric: Yeah.
Berton: So, you know, the guidance counsellors, um, nothing against them. But sometimes, sometimes they can be really helpful for people and other times it can be overwhelming.
Eric: Sure it’s a tough job.
Berton: Right, exactly. And also, like I said, you don’t want to give them possibly your financial information and when you’re doing it yourself, also figuring out which schools are going to pay, give the best compensation packages, if you’re working with somebody that has that information ahead of time, knows your, knows your financial situation, they can tell you that for your particular child’s major, you might be better suited to go to a small private college in a different state because you’d actually might even save you more money. And they might even get a better education. So if you didn’t know that information, they may have gone to a big public college in, in, in Florida that they might end up actually costing them more money and they may not have picked the right major. So then, they’ll actually be, you know, spend a lot more time there. They might have too much fun and flunk out, you know, because they went to the wrong place. So, there are these types of services and I am a part of one that I’m able to recommend to people that they will be able to get that type of assistance.
Eric: So, you know, um, imagine we’ve got a uh, young family, you know, 12-month-old and they want to get into, you know, long-term planning. They want to make sure that they’ve got their life insurance set up, their accident insurance. They want to start putting money aside, you know, they wanna start getting their, their stuff together essentially for their child’s future. What are the, the first steps they should do to get that ball rolling?
Berton: Well, they need to get ahold of an advisor. Uh, they can talk to their accountant or the, and their advisors. If they don’t have an advisor, they can probably get a recommendation from an accountant perhaps. Um..
Eric: Yeah. Where’s a good place to, you know, if you, you know, don’t have a friend who does it? If you don’t have a, an accountant with a recommendation, how does somebody find an advisor?
Berton: Well, I’m available.
Eric: Okay.
Berton: Um, uh, I work for Primoris Wealth Advisors and uh, I can definitely assist, uh, based on what your situation is.
Eric: Are you only licensed in Florida?
Berton: Uh, I’m licensed, I can do business in every state.
Eric: Okay.
Berton: So it just depends on, uh, if it, if it requires insurance, I can get licensed in that state. It just depends on what your situation is. But as a, as a registered investment advisor, um, we can get registered in any individual state if we have more than one client that we need to surface in there.
Eric: Gotcha.
Berton: So even if it’s just one client, we can do business with one client there.
Eric: Okay.
Berton: And once we become SCC registered, we’ll definitely be able to do it anyway. So that won’t be an issue. But, um, I recommend looking for a Registered Investment Advisor, first and foremost. Somebody that is a fiduciary, somebody that has your best interest uh, at heart and, um, just, you can interview them, you can talk with them and maybe one or two others and just really try to find out what questions, what questions are they asking? Are they asking about you? Are they asking you or are they asking about your account balance? Uh, are they trying to figure out, you know, how much money they’re going to make when they bring you on as a client? Or are they really trying to figuring out, hey, what is your situation? What is really going to be the best thing that’s going to be able to help you? And sometimes it may not even be the finance side. It might be something else that’s going on in your life or something, something that might not be, you would think that you would talk to an advisor on the financial side about, but they may have personal information or personal, uh, you know, aspects of what they know about what’s going on with that. So maybe that can help coach you into a better situation in general. And if you’re finding, if you interview one or two people and one person says, “Okay, well let me see what your statements that look like,” at the first meeting, chances are they just wanna, they may have dollar signs in their eyes looking to try and figure out how to take care of it. But it’s really up to, up to the individual about who they can work with and you know, what makes, who makes them feel comfortable, who makes them feel like that they know that they know what they’re talking about.
Eric: Is there anybody out there who shouldn’t do anything? I mean, who you know, shouldn’t uh, be investing, shouldn’t be long-term planning?
Berton: Uh, I don’t believe that there’s an, everybody should take responsibility for something, for their future. Everybody should do something. So I don’t think there’s anybody on this earth that shouldn’t consider what their life will shouldn’t consider what their life is gonna look like tomorrow, next year, 10 years from now. So I think that everybody should at least take some initiative to figure out how they can do that.
Eric: Is there anything else you want people to know? Anything important? Anything you really wish everybody did? You know, if you can beat something into somebody and make sure happened to the world at large. Is there one piece of advice that you wish uh, you could impart?
Berton: Well, I said it once before. I said just don’t divert everything piecemeal. Don’t do it as just something that’s overall, I figured I’d better go do that because that’s what my neighbor’s doing.
Eric: Right.
Berton: Uh, you know…
Eric: Don’t wing it essentially.
Berton: Don’t wing it. Exactly. Work with somebody that is a seasoned professional at what they do and can help guide you in the right direction. And if you have new questions, new concerns, they can help either put them to rest or uh, redirect, whatever your plan is. Um, so that’s what I would recommend for people. And keep in mind too, when you file your taxes, you don’t know what your next door neighbor’s doing.
Eric: Right.
Berton: They could be getting some huge tax deduction for something that you can’t possibly do. So going by what your neighbor’s recommendation is sometimes is really not the best way of doing it because the, even the tax law’s set up that way is for you to go “So and so shouldn’t be making so much money.”
Eric: Right.
Berton: They need to be paying more taxes, but not me. I need to be paying less taxes.
Eric: Sure.
Berton: And so that’s kind of the way that the IRS kind of set things up so that we want things to change for everybody else but we don’t want to do anything about it for ourselves.
Eric: Right.
Berton: And so, you know, I guess that’s kind of something that upsets me, that that’s the way it is. But, go with, go with what makes the most sense for you, not necessarily what your neighbor’s doing.
Eric: And it’s funny that, you know, as complex as it is and as difficult as it is. You know, I wouldn’t try and give myself a root canal, you know?
Berton: Exactly.
Eric: Uh, you know, I wouldn’t even cut my own hair, right? But people think they can chart out their own you know, financial future.
Berton: Mhmm.
Eric: Uh, that seems crazy, you know?
Berton: No, I agree with that.
Eric: Yeah, do, do you think it can DIY it, you know?
Berton: You seek out a professional…
Eric: Right.
Berton: You know, uh, to help you with what you’re doing. You go to a doctor. Uh, a doctor gives you a recommendation. Sometimes well even, the doctors will be like, well, I don’t know what you’re going to do.
Eric: Right.
Berton: But this is my recommendation. Take or leave it.
Eric: Or you get a second opinion, you know?
Berton: Mhmm…So yeah, and sometimes it pays. Say, you know what? Uh, I’m 25 years old, do I really want to put a bunch of money into annuities because annuities are for income later. Is that really the right investment for me or is it really the better investment for my advisor? Hmm. Let me think about that. Uh, so those types of things, you know. I don’t want to trash annuities, but annuities are great for their purposes, but if you’re not…
Eric: What is an annuity?
Berton: Annuity is, annuity is the opposite of life insurance.
Eric: Okay.
Berton: Basically, you put money into life insurance hoping that you don’t die. You put money into an annuity hoping that you’ll live forever because you get, hopefully get a stream of payments in the future. But the thing about it is, is that they’re also high commission products. So it’s very easy for you to say, and they’re also considered much safer than an investment strategy. So because they’re held at an insurance company, just like a life insurance policy is.
Eric: Gotcha.
Berton: But annuities can be sold, I’ve seen it for people even in their thirties and forties, even fifties that might not be suitable for them. Suitable. That’s back to the other thing about using an RAA, or registered investment advisor. There’s the suitability and then there’s the fiduciary. Is it suitable? Yeah, it’s suitable. But you know, I can put I, if I was uh, deciding what you were going to wear today, I could put you in a clown suit.
Eric: Right.
Berton: It would still cover your private parts.
Eric: Sure.
Berton: It would still mean that you could go out into society.
Eric: Probably. Yeah
Berton: It would suit you.
Eric: Yeah.
Berton: But is it the best thing for you?
Eric: Right.
Berton: It, you know, maybe, maybe not.
Eric: Yeah.
Berton: So, that’s why that could be a common misuse of funds-is that putting into a strategy or putting it into a product that is not positioned for what it’s trying to accomplish. And I do see that more often than not. That’s upsetting to me-when I see that a 30-year-old is putting money into an annuity or something like that, that they’re going to get an income from in 30 years. It, it doesn’t make any sense to me, for the most part. Now, not everybody is, I can’t make a blanket statement but maybe that particular one 30-year-old has a specific situation and that makes sense for them for that, but majority of the time it doesn’t.
Eric: Especially cause someone doing that tried to do something and they got skewed the wrong way, which makes it almost twice as tragic, you know?
Berton: Yeah. It’s unfortunate but at the same time you know you could, you could take your car to a mechanic and you could get taken for a ride too.
Eric: Sure.
Berton: So it, that, that kind of thing is out there no matter what you’re trying to accomplish. That’s why it pays to take a look at, their recommend-take a look at their recommendations, take a look at who they are; take a look at their background and make the best decision based on what you feel they’re trying to do for you. If they’re, if you feel that what they’re doing is the right thing and what you, what you hear is doing the right thing. And then the other problem too is that if you look it up on the Internet, chances are you’re going to find everything for and everything against it. So, we’re in a society right now where you can look up anything on the Internet. You, you leave the office, somebody that recommend you or life insurance policy or an annuity or a mutual fund, and you could find something that said, this is the worst thing you could possibly do. And you could find somebody else that wrote a book that said it’s the best thing you could possibly do. And so, you just kind of need to go with what you feel is the best thing for you. As well as, if you trust somebody that they’re going to get you through to where you need to go. That, that’s how you’re gonna have to do it.
Eric: How can people find you?
Berton: Uh, you can find me. Uh, my office is in North Palm Beach. Um, you can find me by looking up a, my company website, uh, primoriswealthadvisors.com. You can call me at 561-296-0796. That’s my phone number. My email address is “BB” for bertonbrown@primoriswealthadvisors.com. You can email me and that’s pretty much how you can get ahold of me.
Eric: Perfect.
Berton: And, also for anybody that is in that second stage of planning where they have a son or daughter that’s in high school and they’re trying to get to that point and they may require the services of what I had mentioned earlier. Uh, anybody that’s listening to this podcast uh, and they call me about this service, I’ll give them $200 off.
Eric: Nice. Very cool. Well, thanks Bert. I appreciate it.
Berton: Sure.
Eric: It’s good seeing you. And, um, that’s it.
