In episode 39 of the GHOGH podcast, Jamarlin Martin talks to family wealth advisor Tunde Ogunlana, CEO of Axial Family Advisors, about estate planning and Snoop Dogg’s comment that he doesn’t need a will (“I don’t give a f— when I’m dead. What am I gonna give a f— about?”).
They also discuss the growing college debt bubble, whether more free tuition will help solve the problem, and why MBAs are like the bachelor’s degrees of 30 years ago.
You can listen to the entire conversation right now in the audio player below. If you prefer to listen on your phone, GHOGH with Jamarlin Martin is available wherever you listen to podcasts — including Apple Podcasts, Spotify, YouTube, and SoundCloud.
Listen to GHOGH with Jamarlin Martin | Episode 39: Tunde Ogunlana
Jamarlin talks to family wealth advisor Tunde Ogunlana, CEO of Axial Family Advisors, about estate planning and Snoop Dogg’s comment that he doesn’t need a will (“I don’t give a f— when I’m dead. What am I gonna give a f— about?”). They also discuss the growing college debt bubble, whether more free tuition will help solve the problem, and why MBAs are like the bachelor’s degrees of 30 years ago.
This is a full transcript of the conversation which has been lightly edited for clarity.
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Jamarlin Martin: You’re listening to GHOGH with Jamarlin Martin. We have a go hard or go home approach as we talk to the leading tech leaders, politicians and influencers. Let’s GHOGH! Today we have family wealth advisor, Tunde Ogunlana. We’re going to change it up today and talk about wealth. So you have 17 years of experience as a financial advisor. You’re running your own advisory practice, creating wealth for families, managing wealth for families. Share with the audience what you do.
Tunde Ogunlana: I’d like to say this, we help to create peace of mind in a nutshell. What that means for everybody is going to be different. And I don’t mean to sound cheesy or cliche with a quick answer like that, but the reality is, what I’ve learned over my career is that money is psychological. So at the end of the day, my job is to get to know the family I’m working with and how they relate to money, period. After that, investments, services, things like that to me are all tools that help them meet those goals, whatever those goals that they have as it relates to money might be. So that’s really what I do in the end.
Jamarlin Martin: How often are you thinking about kids within the family and the college planning in terms of the age group 21 to 35?
Tunde Ogunlana: I would say if that age demographic is in within the family that I’m working with, then it’s a thought. Clearly if I’m working with a young family that has a two year old kid, then I’m not thinking about that age range in that particular scenario. But we work with families. A lot of the families we work with are entrepreneurs, either first or second generation business owners. So where we find that age range might be either the children or the grandchildren of the owners and maybe their interest or lack of interest sometimes in getting into the family business, and how that’s going to then relate to the family’s overall wealth plan and strategy.
Jamarlin Martin: Okay. Got It. Are you familiar with the Jay-Z’s lyrics on 4:44? I believe the track is called ‘Legacy’, but he’s now putting gems in his music about wealth creation and some mistakes that he’s made. But it’s interesting that you’re starting to see that injected into hip hop.
Tunde Ogunlana: Yes, I am familiar with the album and several songs, not only Legacy. I was impressed with certain things that Jay-Z alluded to in ‘The Story of O.J.’, when it came to talking about art, for example, as an asset class. We rarely hear art talked about in general in the financial community, unless you’re really dealing with the ultra high net worth, but even less so in environments like hip hop and more traditionally maybe the African-American community. So to hear not only things like art being discussed, real estate ownership, I believe in legacy talked about wills and estate planning. So yeah, it’s great to hear Jay-Z talking about those things. And you know, I’ve heard different artists throw in some gems here and there. I think there was a song in the nineties by Busta Rhymes where he talked about mutual funds and money market accounts. So you could pick that up over the years, but you’re right that Jay-went a little bit deeper than most in that album.
Jamarlin Martin: I guess after Prince died, reportedly, he didn’t have a will and his net worth was $300 million, estimated net worth. And so Snoop Dog comes out, who I’m a big fan of. He comes out after Prince died, and he says, ‘I don’t give a fuck when I’m dead’. And he says he doesn’t have a will. Let’s talk about this thinking specifically within Black America where, hey, you only live once, spend it while you’re here, or in Snoop’s case, why do I care about money? I’m going to be gone. Who Cares? What’s that about?
Tunde Ogunlana: Well, I never knew that he said that, so I’m a little of disappointed to hear that actually, but it doesn’t make me look any different at Snoop as a man or an artist. Again, going back to how we started the conversation, money is psychological, period end of story. So clearly Snoop has a feeling about his money and his wealth, and I guess the transfer of that wealth to whoever, whether it be his kids, a nonprofit or charity, that he doesn’t seem to care about the direction of that wealth after he’s not here. That’s his prerogative. Like I said, I’m a little disappointed to hear that, but I think to the bigger picture, from my experience in the business, there are cultural nuances about wealth, and it’s not just African-Americans, it’s not a white Americans just, it’s every group. And I think living in south Florida, and it’s even more so for the purpose of this conversation, working in this industry in south Florida has been very interesting for me as someone who was born and grew up in Washington D.C., more of a traditional American environment to now we have a true multicultural environment in south Florida. Looking at a culture, like a lot of the Latin American cultures from South America. Early in my career, when I dealt with from that region of the world, there was a high mistrust of insurance and part of it when you got down to it, it wasn’t about insurance or not trusting the insurance company. It was really about the idea that people didn’t want to talk about their death in that culture and deal with that conversation specifically. I’ve dealt with other cultures where they feel like things like life insurance is someone profiting off your death, so they didn’t want to talk about or deal with life insurance in that type of way. And the interesting thing is, like everything else, those cultures come to the United States, but in the United States we have a legal financial framework that I wouldn’t say requires certain tools like life insurance or trusts or wills, but life is a lot smoother, and death I guess is a lot smoother, if I can say that, if some of those things are applied. And so that’s where the challenge becomes taking someone that has a certain mindset and trying to show them and educate them that, ‘you may feel this way, but here’s what your family is going to deal with regardless of whether you think someone’s profiting on your death or not’. I’ll give you an example. Years ago we had a meeting with someone who had that mindset and this is back when the estate tax limit was lower. In a real quick caveat, for those that may not know, an estate tax is a tax at death when you die with a net worth or assets over a certain amount. Right now, as of last year, that amount was raised to $11 million per person. Prior to that, it was $5.6 million. When I started my career, it was at $1 million. So back then, 17 years ago, if you died with an estate over $1 million, basically the IRS at the time was going to tax anything over that amount at 55 percent. Certain tools like trust planning and life insurance can help one’s family avoid those taxes after death. So trying to explain to someone why they need life insurance when they come to the conversation, looking at it as if someone’s going to profit off their death, but as an advisor you’re trying to educate them and show them, look, it’s not about profiting off your death, it’s about the IRS wanting tax money nine months after your death, and if your family doesn’t have liquidity from a life insurance policy, they may be forced to liquidate real estate, liquidate your business, maybe liquidate a stock portfolio when it’s 2008 and market’s down 40 percent. So that’s where tools like life insurance can come into play, but culturally some people need to be brought to the table to see that.
Jamarlin Martin: Alright, so let’s go back to wills. Why would Snoop want to keep the courts out of this in terms of, hey, I have to plan that if I get hit by a bus, or if I have a stroke or whatever, why would Snoop want to keep the courts from managing the distribution of the fruit of his labor?
09:10 — Tunde Ogunlana: So the first answer that I’ll give you is because he’s Snoop and I’m sure he wants to keep the courts out of everything. But that joke aside, that’s a very good question. So I’ll break that answer up in a couple of pieces. You’re right that a will by itself will go through the probate court, which is a court system. One reason why someone like Snoop specifically, maybe more so than someone like me, for example, would care about not having his records going through the court is because everything in the court is public in the probate court.
Jamarlin Martin: Confidentiality.
Tunde Ogunlana: Correct. So people at Snoop’s level, a lot of the high net worth folks out there, just like confidentiality, they don’t want people knowing what they had or what they didn’t have maybe, because maybe when he dies, maybe he won’t be worth as much as we all thought, for example, or maybe he’s worth a lot more. So that’s the one reason why a lot of people don’t want their stuff going through public record. Now the way to get around that is by transferring the title of one’s assets from an individual name, so from Snoop Dogg, I think his name is Calvin something.
Jamarlin Martin: Calvin Broadus.
Tunde Ogunlana: Yeah. So from Calvin Broadus to the Calvin Broadus revocable living trust, for example. Just that simple switch means that those assets now aren’t owned by him at his death, meaning his social security number isn’t going to be run through the probate court and them seeing all these assets. The assets are now owned by an entity, a trust, so almost like a corporation. So what happens is the probate court would almost see that Snoop Dogg is worth zero at death and all the assets would be piled into his trust and then his family and everyone else or whoever the trust is left to will know what’s in that trust. But none of us will ever know. So that’s one reason why I guess Snoop wouldn’t want the courts involved. A lot of high net worth people just don’t want that type of attention on their estate, and to their defense, there’s a whole kind of shadow industry out there of people defrauding estates. They look in these probate courts around the country and if they see an estate worth over x amount, they start throwing stuff at it. They’ll throw a lawsuit at the estate to try and make money. They’ll start bringing up that there were kids out here and there, so a lot of high net worth people just don’t want their families dealing with any of that. However, you have to have a will as part of the trust component. And, I’ll just keep going a little bit. The reason why one would always want a will anyway, even if you have a trust or don’t have one depending on if one is needed for that particular family, is because people only think of the will as death. I’m dying and here’s a will to say who gets what. The important part of a will, or a will package I should say, that is often overlooked, is the living will. And I’m going through that in my practice right now. We have a family, good clients of ours, and good not just their wealth, but their close relationship and we build good relationships over the years with our clients. They were vacationing in Italy this summer, just four months ago, and I get an email from the wife that the husband basically had a brain haemorrhage while they’re on vacation, not too old, he’s in his early sixties and today he is in a hospital here in Florida, basically brain-dead. I believe they’re giving him about a year from the time they admitted him to the hospital back here in Florida and at that point she’ll have to make a decision if he doesn’t really wake up, whether she needs to pull the plug or not. Right now, where you just got done with submitting all the powers of attorney to the various financial institutions that his name was attached to. So something like his IRAs, individual retirement accounts. You can have a jointly titled IRA. So for her to act on his behalf or to know what’s going on in the IRA, we needed to send a power of attorney to the companies that have custody of the IRA. With regards to the life insurance contracts, for her to be able to access and talk to the insurance companies directly, we needed to send a power of attorney over there to them. So what happens is the living will is important because God forbid, let’s say that happened to Snoop Dogg, whether he had a stroke or the guy obviously travels a lot and is all over the place. God forbid he’s in a plane crash or a car crash, but he didn’t die, but he’s incapacitated. I’m sure he’s got such a big estate that someone needs to be able to have access to manage that and if you’re legally incapacitated, how’s that going to take place? The other thing that’s important with the living will is the healthcare directive. In the event that Snoop Dogg again is in a car accident or something and he’s rushed to the hospital and there may be decisions made about pulling the plug or not pulling the plugs. Someone’s going to have to have that authority, if not the hospital has the authority and who knows what decision they decided to make on your behalf. So those were all things that come into play with a will. It’s not just the assumption of I’m going to die and this is…
Jamarlin Martin: It just sounds like the message is that you want to plan ahead because when you pass on, you want to leave your family a guide in terms of direction on how you would want your legacy distributed and handled. With most things in life, if you don’t plan, it increases dramatically the risk profile for your family, for your kids, where all this stuff was not thought about. Now everyone is scrambling and trying to figure out what’s wanted. When you don’t leave a will, how does that create stress on the family?
Tunde Ogunlana: There’s a lot of ways, probably too many for us to get through just on the podcast here, but I would say probably the first ways that it can create stress is it really doesn’t provide a guide for the family, the heirs, as to what to do with things. So what happens is things just build up in families over time and we never really know who wants what. For example, we have three kids, my wife and I. Let’s say we have a painting on the wall, we’ve got some books, I read a lot. One of my kids might really just like one of those items more than another because of just how it made them feel when they were young growing up, so on and so forth. So if I don’t have everything documented when I pass away as to who I think should get what and who gets this piece of jewelry and mom’s wedding ring and all this kind of stuff, there’s a chance that they could just start fighting over it. And we’ve seen that a lot, the painting on the wall, the vase, the family heirlooms, those are actually the things a lot of times that caused brothers and sisters not to talk, more so than bank accounts and investment accounts, because those are the things that are really emotional. So that’s part of the issue that can come up with not leaving a will. It can leave a vacuum as to instruction as to who gets what. And what I often tell our clients is, by leaving the direction in writing through a will or trust planning, it doesn’t mean that someone’s not going to be upset about maybe being left out or being left out over a certain amount, whatever they feel their grievance is, what it does is it just helps everyone else continue to move on because at least one thing they can do is bicker and fight and come up with the works. If you and I were brothers, let’s say, and our parents pass, and they decided to leave you 90 percent of their estate and me 10 percent, I could be mad all day, but I can’t really stop the legal process of you getting that 90 and me getting that 10. What happens if they didn’t leave anything, now you and I can actually start having a fight in the court about who gets what.
Jamarlin Martin: Is it a fair statement to see that the difference of folks without a will and folks with a will is that folks without a will, they’re letting judges and the laws decide how their legacy is distributed, but the person with the will, who has thought this through, they allow themselves to guide the distribution of their assets?
17:54 — Tunde Ogunlana: 100 percent correct, and you’re right, it’s about empowering yourself and to make those decisions that will affect your family when you’re not here. One thing to say because you made a very good point about the judges in the system. We often see this and advise on this in blended families. So I’ll just give you a quick example. Let’s say that husband and wife, they have kids from two different marriages and let’s say they have one child together. Well, I’ll pick on myself. If I was the father in that example, and I had two kids from a prior marriage and I had one child with my current wife, for example. With no trust or will planning, the court, at least in Florida, will do what’s called per stirpes. They’ll just look at my immediate lineal descendants and go a third, a third, a third. I may not have wanted it that way, not because I don’t love all three of my kids, but let’s say my ex-wife, who I had the first two kids with married a business mogul or an NBA player, someone who’s doing okay financially. And let’s say I’m a regular guy making $50,000 a year and my wife’s making $50,000 grand, maybe I would’ve wanted to have more of the resources go to my current family and the child just because it makes sense financially. So you’re right that the court won’t start looking into all those details. Okay, well let’s see which family is doing better. And they’ll just say, okay, well when Tunde died, who are the three lineal descendants? Okay, these three boom, they just get it all equally. And what happens too is, let’s say my ex-wife, not in that example of the wealth, let’s say the reason why she got divorced is because we had her Baker Acted, and she had a history of issues, maybe not to the point where she is in a facility or something. She’s legally capable, but she’s someone I don’t trust with money. Let’s say she’s just going to blow through. If the kids are minors, when I pass away with nothing in writing and she is their legal guardian because they’re not age of majority and they can’t handle money yet, what happens is the assets that will be left to them by the court are left basically with the guardian. So what happens is if my goal was not to have my ex-wife have her hands on my assets because I don’t trust that she’s going to do the right thing with the money. Let’s say she had a drug problem. I mean, this is the real life stuff that we see, and no matter what the wealth of the family is, something like drug issues happen in high net worth as well as low net worth families. But if she were to have those kinds of issues, again, if they’re not documented in the court and all that, the judge is not going to know that and the judge will say, okay, well these two kids belong, so 66 percent of Tunde’s estate is going to go to these two kids and the guardian is his ex-wife, that’s great. And then everyone moves on. Maybe I wanted that money to be there for future education costs, maybe a down payment for the house. And then next thing you know, in a year or two, the money’s squandered. So that’s another risk that can happen in the event that we don’t have anything in writing and the courts are making the decisions.
Jamarlin Martin: Okay. Let’s talk about student debt. I believe, and many other folks believe this is a big bubble. As you know, tuition is skyrocketing across the country, but wages are not keeping up. Robots and automation, of course is going to put more pressure in the future in terms of that gap. How should folks be thinking about changing culturally or thinking about the value and the ROI from a college degree, meaning that the economics have dramatically changed, but in a lot of cases the thinking has not?
Tunde Ogunlana: I think we, meaning you and I specifically, because we’re right around the same age, I think we’re kind of that last generation that we were able to kind of go to school and all that and if you had to take out student loans, it was still decent. Maybe you had $20,000 in debt when he came out, that type of thing. It’s amazing nowm I work with someone in their mid thirties that is either a medical doctor or a lawyer, I mean I’m looking at literally $150,000 to $300,000 in student debt. And what I realized is, that’s a massive drag on someone’s life. It’s also an economic drag because these are all people that in prior generations that’s the perfect age where you’re buying houses or you’re kind of starting to really spend money. And unfortunately a lot of these professionals that have those advanced degrees aren’t able to see their money circulating around the economy like it should be. It’s going off to pay this massive debt. So you’re right about the potential for a bubble. I’ve thought about that when I looked at recently, a chiropractor who we recently onboarded who has over $300,000 in student debt and is 36 years old. I thought about it and I was thinking, what is that degree really worth? To your point, could you have made the similar income as a chiropractor, not taking on that kind of debt. And that’s why there’s no perfect answer because I’m not going to sit here and tell people not to go to school, but I do agree that we’re probably around some inflection point where people really need to start looking and saying, is it worth me paying $100,000 for an MBA? Because I think at this point, MBAs are like bachelor’s degrees 30 years ago. They’re a dime a dozen.
Jamarlin Martin: When we look at the subprime crisis in 2008, and the buildup to that, the most dangerous debt for society is debt that’s easy to get, meaning that people behaviorally get into a lot of trouble when we have easy access to debt, right? And of course, America and other parts of the world experience a lot of pain from that easiness of getting a mortgage, no documentation loans, 500 FICO score loans. I read about a worker who picked strawberries buying like a $400,000 house in California. And in this case, the government is holding over a trillion dollars of debt in their portfolio. The Education Department, at least in 2016, had a $1.2 trillion student loan portfolio, and that excludes of course some private student debt. But because students can get hundreds and hundreds of thousands of student debt without credit or without a job, and so everyone could borrow this money without any credit check. We’re not paying enough attention to the risks that are being added, tuition inflation, in the run up to this debt. It sounds like we’re going to be facing a crisis pretty soon, and the Wall Street Journal reported that 40 percent of student borrowers aren’t making payments. And this includes most of these students have graduated college already. That’s 40 percent of student borrowers aren’t even making the payments and we’re in a bull market, meaning that the recession, you’re going to have to experience that. What’s gonna happen with this trillion dollars plus student debt, in the next recession or financial crisis?
Tunde Ogunlana: Well, you made a good point, I didn’t even think of it that way, that we’re in a bull market when you’ve got 40 percent according to the Wall Street Journal of student debt, not even being paid. So what happens when things are actually bad? I’d say this, just to kind of stay on that point really quick because luckily it’s only a trillion dollars and I know I say only and there’s a T there and it’s a lot of money. But what I mean is, we’re at this point, there’s an economy where we’re producing $19 trillion per year in GDP in terms of our output. And we’ve got a federal deficit of almost $22 trillion now, we’ve got a budget deficit now back up to around $800 billion. So my point is, I’m not saying that lightly. I actually am concerned about the debt all in our country, but I think this is going to be a drop in the bucket compared to some of the other bubbles that could burst, that could have a much bigger effect. So because if you look at the $1 trillion, probably there’s a lot of it that’s performing, people are paying back those notes. So you’re probably talking around $300 billion that might really be at risk of default. And I would say this, fortunately our economy is big enough that even if we had a $300 billion scare, we’d survive it. It wouldn’t be like the collapse in 2008.
Jamarlin Martin: I don’t think the student debt bubble in itself would collapse the economy, but most likely if you have a build-up, a massive build-up of the student debt and you don’t really have the employment support for it and wage support for it, most likely there’s other pockets of issues. And so when that stuff all comes together, that’s when the experts say, oh, we haven’t thought about how this stuff.
27:46 — Tunde Ogunlana: They’re all intertwined, like fingers of instability, almost like an avalanche, right? It’s one little thing kicks it off and then 10 minutes later half the mountain’s falling apart. That’s definitely a possibility and I think it’s the way that the last great recession started, right? It was that little department in AIG somewhere with 400 people that were messing around with some of these subprime mortgages and all of a sudden Lehman Brothers collapsing a year later. So, I agree. Now going back to some of the things that you alluded to because they are very important. One of the issues with student debt versus something like a mortgage and why it’s a little bit more of a dangerous type of debt for the system is it’s unsecured. At least a mortgage is secured by some hard asset. So that means there’s always going to be some level of value there. That’s what happened during the financial crisis. All these mortgages went default, all that. But then you had hedge funds, private equity groups, business development companies that could go in there, they bought the debt cheap. They were able to go and fix up buildings and fix up homes and eventually the system starts correcting itself because there’s still value there and people start moving back into homes and buildings and wealth starts getting created again. The problem with a student loan is, if I default on a student loan, whoever lent me the money really has nothing to gain from it. They’re not taking back a piece of property that can then be resold so that can be a little bit more painful than when there’s a default on a hard asset. But a lot of this, and you make a great point in the way you lead it into about debt being easy and cheap, so this really gets back to, again, behavioral finance and psychology. I mean we’re all humans creating all of these different things. Money and all, it’s all human inventions. So this goes back the way the brain works and chemistry, and there is a certain percentage of humans, a large percentage, 35, 40 percent of human beings can’t think past 90 days. Their brain isn’t made up that way. So when they’re being dangled these carrots of easy money and all that, their mind isn’t thinking all the way ahead to what is this going to mean in four or five years, or they might be deluding themselves that somehow they’re going to be able to pay this off through some scheme. So the point is, I think what we saw going into the financial crisis, and this is where I’m going to be very careful in how I say this because I love the capital markets and I own a business in the financial industry, but because of human behavior, that’s where I’m a fan of certain types of regulation in the financial industry. For example, not allowing somebody with a 500 credit score to borrow 100 percent against the property because they will do that, and the fact they have a 500 credit score means that they don’t have the track record to pay it back. So in order to keep the system solvent and functioning well without these massive booms and busts all the time, that’s where we should continue to promote an environment where people that are responsible have access to credit, people who have shown that they’re irresponsible, maybe not so much. And that can only be done if you have a regulatory system for the financial industry that can look out for those kinds of risks.
Jamarlin Martin: How does that relate to the student debt bubble though?
Tunde Ogunlana: Well, I would say I don’t know where the exact correlation is directly. I would say indirectly, I’m sure they correlate, meaning, I know that a lot of people can get student loans, and I remember when I was in college, I mean for pell grants and things, I was just signing stuff and all of a sudden I had five grand.
Jamarlin Martin: You get some extra money.
Tunde Ogunlana: Exactly. And when I was 19, 20, 21 years old to get an extra $3,000, why not? And I wasn’t thinking about when I’m 35, am I going to pay that back or not. So should I have been allowed to do that? We’re looking back, probably not. I mean, I didn’t do anything productive with the money.
Jamarlin Martin: Some Democrats, probably some Republicans too. I just haven’t heard them. They’re pushing for free tuition, more free tuition in the academic landscape in the United States. And the problem I have with that, and I think free tuition is good in theory, free tuition is great, if people can get a quality education and not be loaded with a lot of debt, that’s great. But knowing American culture, how many students, if you give them the option to go to a free in-state university, to get a quality education. But no, I don’t want the Honda Accord education. I want the Ferrari. And so even if government provided for free tuition, I see a significant, possibly a majority choosing not to go with their free option because they perceive the other alternative, a $150k tuition over a four-year school as kind of the bling degree. Hey, I’m going to get a better job. I’m going to have more prospects if I go to the more expensive school. So I’m not just gonna think about free. I’m really going to go towards the quality. And then if I can borrow without resources, they’ll let anybody borrow money, then I’m just going to go to the more elite school. And so I feel like the politicians can only do so much, in terms of even if you have free tuition, there’s a lot of people like, hey, I don’t want to drive a Honda Accord, I want a BMW. There’s nothing a politician can do to fix that mindset.
34:08 — Tunde Ogunlana: Well, I do agree that, with the way our culture is, you’re right, sometimes the things that cost more automatically are perceived to be better. I agree with you that free tuition for everybody probably isn’t the answer and it’s just because I’m not a big fan of free stuff because what happens is when people get stuff for free, they don’t appreciate it. So I’m more, my attitude would be more of if everybody just got free tuition for secondary education because I am a fan of public schools for K through 12. I think that it’s important for our society to have most of its citizens literate and having a general knowledge of just basic stuff that we all kind of are educated in a similar way, so we function similarly as a society. However, once you start getting into the university level, I mean I just look back at myself when I was that age. I wasn’t the best student. I wasn’t the worst student. I was a regular kid that was not totally as mature as I am now, of course, when I was 18, 19, 20, and I get the feeling that if I just had a free university with nothing out of pocket, no cost to my mom and no obligation of anything, I might’ve just dropped out in the first semester because there’s nothing really holding me. I didn’t have to earn anything and do anything to get it. So I think the idea of having some sort of commitment to a university, now what does that mean? You know, that could be that you get a free tuition in terms of financially, but you need to serve in the military for four years after or something like that where you’re kind of paying back, whether it’s paying back society through service, or paying back through money. But the idea of just free college for everybody, I don’t see that as a viable answer for accomplishing the educational goals of the country. The other thing I’ll say is, kind of looking at this with a ‘start with the end in mind’ mentality, I would say if I was a politician, I would say, look at it this way: What are we looking at from our society? Right? Is it that important that we have everybody getting master’s degrees in liberal arts or whatever. Or is it important that we just have a population that is occupied, working and gainfully employed because I think something that our society and our culture specifically as Americans has moved away from in the last few decades, definitely my whole life I’ve never really seen much of this, but other cultures, when I lived in Australia they did this and I know in other parts of Europe they do this a lot, which is apprenticeships. I remember when I lived in Australia in the nineties, they had a system called the university system, and they had a system called TAFE, which I can’t remember what it stands for, but TAFE was basically electricians, plumbers, auto mechanics apprenticeships and there was nothing wrong with that. And guys went and they did two to four years directly out of high school in those systems, and by the time they were 22 they had a plumber’s license and they were earning great money, and I’ve learned since coming back home to the U.S. going to college and all that, that our university system isn’t for everyone. Not everyone wants to just sit in a classroom when they’re 20 years old and I have to learn about Voltaire and Shakespeare. Some guys are hands on people and they just want to be under a car under a hood or they want to be servicing computers. Why not create a system where right out of high school kids that don’t want to go to college can at least go earn some sort of professional license or designation that they can still earn an income and a living.
Jamarlin Martin: I mean it’s not just the higher income parents, where my mom, she didn’t have a lot of money, but she didn’t want me to go to public school. She always pushed private school and she was willing to come out of her pocket to make sure I go to a Christian private school. And I just think it would be hard for politicians to do something about that. That’s just how the people are thinking. Okay. So let’s move to younger professionals, they’re out of college for a couple of years. Hey, I want to start building wealth. I have a job and I want to start building wealth. How should I think about prioritizing things like home ownership, owning stocks, owning bonds, paying for a life insurance. How would you kind of think about prioritizing those things out of college?
Tunde Ogunlana: The question about a house and all that depends how young that someone is.
Jamarlin Martin: Let’s say 24 to 30.
Tunde Ogunlana: Okay. Because I would say things like the home ownership side and all that, I would almost lean more towards, again, where do you see yourself over the next five to 10 years in terms of your career, but also geography? Because one thing that we know is that people that are at a college, I will say prior to 30 years old tend to move a bit. So sometimes I would say don’t get bogged down with a house just because you don’t want to buy a house and then in two years the best opportunity comes for your career and you have to move three states away, because having the overhead and the burden of a house and having to sell it, that might create more headaches than you intended. If one knows that they’re going to stay in their city for a long period of time and maybe they’re having a family at a young age and they’re already settling down in that way, then maybe home ownership, maybe makes sense at that age.
Jamarlin Martin: Let’s say I plan to stay in this city for three or four years. I’m trying to reconcile that with a lot of smart parents, what they’ll do is, hey, why would I pay all the money to the dormitory or for you to rent over four years. I remember parents buying properties for students to live in for four years. Not a guarantee, but possibly gain from the appreciation, I don’t want to give money to a landlord or the school for four years when I can just buy something and possibly get some appreciation. Let’s say, I plan to live in this city or area for four years. How would you prioritize those things?
Tunde Ogunlana: I would say it’s a very unique to the geographic location we’re talking about. So I’ll give you an example of working with a family. Their son’s at a university in a school in Kentucky. Now, Kentucky is not south Florida in terms of real estate pricing. So what they were looking to do was buy a single family home there for $125,000, so that their son could live there while he’s in school, but after he were to graduate, they could rent that house out to other students going forward. So for them it was really a long-term investment, which made sense. It was, I think, two miles from the campus. And the price point made sense, $125,000 taxes, insurance in that part of Kentucky, were going to be less than $1,000 a year. Now let’s translate that to south Florida. If you are going to have a kid at Florida International University or University of Miami, both schools being within probably 20 minutes of each other down in Miami, you’re not buying anything for $125,000 in Miami. So you’re looking at probably the equivalent home in that part of Miami is going to be $250,000 to $300,000.
Jamarlin Martin: So at a lower or moderate price point, you’re saying, hey, I would really crank up the home ownership.
Tunde Ogunlana: Well it’s just about what’s your level of risk? If someone has $50 million dollars in cash laying around then I guess $250,000 is nothing. But most people don’t. And then, what I was going to go with on the Miami side is the carrying costs. In Miami, because we don’t have a state income tax, you’re going to be looking at about two percent of the purchase price in property taxes. So if you’re looking at $300,000 house, you’re looking about $6,000 a year in taxes and then the amount of hurricanes and all that stuff we get, you’re probably looking at another $2,000 to $3,000 a year in insurance. So now you’ve got carrying costs in Miami on a $300,000 property of about $8,000 to $10,000 a year. But if you can only get $1,000, let’s say $2000 a month for rent at best. You see what I’m saying? Is that the smartest thing financially? Whereas if you can get $1,000 a month in rent from the house in Kentucky and you’re able to pay cash and you’ve got just $1,000 a year in carrying costs. That makes sense.
Jamarlin Martin: If home ownership is within the range, you do believe it should be top of the list.
Tunde Ogunlana: Owning an asset is always preferable to renting the asset.
Jamarlin Martin: Reading from the Silicon Valley entrepreneur investment set, they’re smarter than anybody else. Some of these people, what they’re saying is, home ownership is for losers. When you calculate the taxes, the maintenance, the fees, you’re better off putting your money in a diversified stock portfolio and I can show you the past returns and prove to you that when you factor in the taxes of real estate, the cost and everything, you’re better off putting your money in the stock market. And to me that is ridiculous. Before are a little bit after the financial crisis, if you had invested in the stock market, you were looking at dead money, meaning that there was a period where your returns were flat over a 10-year period, right? I think you want to have both, but one underappreciated point about real estate that these Silicon Valley folks, who are suggesting this is one underappreciated point with real estate is, it’s a saving mechanism. Meaning that if you’re sending a check against your mortgage, obviously a big piece of that is going towards interest, but if you’re paying your mortgage every month, right, you’re paying down some principle, right? You put a down payment on a home, that equity is in the home. So it’s a saving mechanism. These Silicon Valley, they may be right, but they’re not factoring the behavior of folks, meaning that a stock portfolio is more liquid. Right? And so, hey, I need some money to go on a vacation. I’m going to sell these shares in Apple and Facebook. Meaning that it’s much more difficult to pull the money out of the real estate. And so I think that’s under appreciated.
45:21 — Tunde Ogunlana: I think you’re right. That goes back to the behavioral finance and then some of the stuff we alluded to earlier. I think people who have those assets already, like stocks and investments out there. Folks like us don’t appreciate that mindset that that person who can’t save and who can kind of think past a certain period of time.
Jamarlin Martin: But that’s most of them, if you look at the credit card usage.
Tunde Ogunlana: That’s what I’m saying. That’s why when I talk to most of my peers and even my clients are like, oh, well, I don’t understand how someone can do that, but I think you’re right. One hundred percent and I think that’s where when I hear this type of thing, like you’re saying to Silicon Valley guys’ advice and all this, I think what they’re doing is they’re projecting their own self and trying to say that everybody should just be like that because you’re right. Maybe that’s great for that person in Silicon Valley that is earning a certain amount of income. You also have property values in San Francisco, and the Silicon Valley area that are astronomically higher than most of the country. I mean, going back to my example of Kentucky, that is a very affordable area to live and it doesn’t have high carrying costs. And to your point about the stock market, I think a lot of us give ourselves too much credit for being smart, when really we’re lucky, because you alluded to something that was very important, which is timing. There was, I remember that period because I remember looking at charts of the S&P 500 when the market was bottoming out in 2009, and I think the S&P at one point was equal to where it had been in 1997, it was 12 years. Had you just bought the index, I’m not talking about reinvestment of dividends and all this stuff, but just point to point, 12 years the market had collapsed, was so bad that it went right back to where it was. So technically, if that’s how you’re looking at money and you had 12 years, you’re invested in 1997 and let’s say you were going to retire in 2009. Well technically that’s bad timing. Doesn’t mean to stock market’s bad, it just means that it didn’t work out for you. So the thing could happen with real estate and that’s where I think that a diversified approach to it all makes sense. But I do agree with you that for most of us in our society owning a home, you know this has been proven over again, is the number one way to build wealth because, to your point, most people have a certain amount they can spend every month and at least if the bulk of that’s going to a mortgage or something that is going to create an asset for you, it makes a lot of sense. And that way, like you said, you can’t just decide in two years you’re gonna sell a piece of your wall to go on a cruise. But you can decide if you have a $200,000 built up in your stock portfolio that you are going to take out 10 grand to go on a cruise. So you’re right. That is the difference.
Jamarlin Martin: Can you talk about, and I think this relates to some of this stuff with this new money Silicon Valley crowd that’s bashing real estate home ownership and they’re projecting on everybody, but you don’t compare returns on real estate versus the stock market because we know that smart investors, they don’t look at just the number of returns. ‘Oh, it’s a 50 percent return versus a 10 percent’. You’re looking at the risk adjusted return. Can you explain that to the audience?
Tunde Ogunlana: Well, and let me say this because I know when we first got on this topic of kind of that younger crowd, the one thing I don’t want to forget that I would recommend for everyone that is working right out of college is, max out your 401k. Let’s get back to that and I’ll explain why, but to allude to what you just asked, risk-adjusted return versus kind of just total returns overall. I mean, that’s a great point. Let’s look at the stock market. Today is Nov. 14, starting on Oct. 10, the market started really gyrating, and I think from top to bottom, the Nasdaq went down 14 percent and if you look at some of the stocks like Amazon and I think Facebook, and to a lesser extent, Apple, I think they’re all down over 20 percent over the same period. So to your point that the market has good, better returns in real estate, but the risk is a lot higher. Real estate’s a little more boring, but the risk is a little bit lower.
Jamarlin Martin: There’s no free lunch.
Tunde Ogunlana: In general. Now real estate can be risky if you make a bad real estate investment. But I’m just saying in broad generalities, just like a savings account, right? Has the one of the worst returns.
Jamarlin Martin: Real estate generally is a lot safer than holding Facebook
Tunde Ogunlana: And here’s something else that I’ll get to besides safety and returns. Here’s where I do advise a lot when it comes to real estate, the tax benefits. Remember, let’s not forget the use of the tax code as almost an investment vehicle. We advise clients to do that regularly. If they have a little bit, if they have the means to do it to buy investment properties, for example. Why? Because you can do things like use accelerated depreciation. You can write off certain expenses, depending on if you’re actually incorporated as a real estate business. If you own several properties, you can start writing off your gas mileage for driving to look around and collect rents. You can write off your cell phone because they’re taking calls from tenants and you’re using that to manage your business. So there’s a lot of creative ways through the tax code, that real estate provides us that can offset other things that might be generating income. So for example, I might buy an investment property, depreciate it, but because of the depreciation on my real estate, it offsets income tax that I might pay from an investment I made in the stock market or a capital gains tax or, or just my regular income from working. So that’s an example of, if someone just had hypothetically $100,000 laying around per se, and you asked me, let’s just say it made sense for them to buy the real estate. Maybe because they’re a high income earner, it makes more sense, we’re actually gonna put more money back in that person’s pocket through the long-term growth of real estate plus because of the depreciation, if they’re earning a high income on the other side, they’re not paying taxes on that income versus if we put that hundred grand in the stock market. Well if it went up 10 percent in a year, okay, great. We made 10 grand, but we didn’t offset income tax and other things that real estate provides.
Jamarlin Martin: Before we move on, I just want to tighten up how to look at a risk-adjusted return where if you see somebody and they say, man, you’ll get better returns in the S&P 500 or in stocks than real estate. So let’s say stocks give you four times the return compared to real estate, right? So the right way to think about it, it may give you four times the return of real estate, but it could be 20 times the risk or 15 times the risk. And so that’s what we mean when we talk about a risk-adjusted return. Are you being compensated for the risks you’re taking?
53:02 — Tunde Ogunlana: I would say in our industry, the measure to look at would be what’s called standard deviation. The standard deviation of a portfolio and individual security or even something like real estate can be measured. Normally in the investment world, they go back one-year, three-year and five-year standard deviation. So what does that mean? Let’s just say hypothetically, over the five years, the stock market has averaged 10 percent annual return, but it’s had a standard deviation of eight. It’s a broader way of measuring risk because that tells us that over that five years the market has deviated eight percent up from the average. So the high point was 18 percent or eight percent below the average. So the low point would have been two percent. So it’s a quick way to say, okay, I could average a 10 percent return in that investment, but I’d be watching maybe my portfolio swing between two and 18 percent. Again, that goes back to someone’s emotional situation, some people can take those kind of swings, some people can. Now I might look at a similar investment in a real estate portfolio, let’s say, and maybe we’ve had a good run in real estate in Florida in the last few years, maybe their real estate portfolio has averaged eight percent return. But the standard deviation is two. So that means over the last five years, the real estate has returned anywhere between as high as 10 percent and as low as six percent, averaging eight. And it’s a good question you’re asking because that gives us a comparison of risk-adjusted returns because just looking at the rate of return of eight and 10 percent, someone might just jump at the 10. But once someone like me sits down and explains, okay, this maybe has a better track record, but look at the experience it takes to get there, the large swings. That’ll allow them to say, okay, well maybe I’m comfortable with that and maybe I’m better off with real estate because it’s more of a tighter, narrow standard deviation. I can kind of predict a little bit more where I see things going. Also, I think liquidation and timeframe are important in that discussion because again, from my legal disclaimer, past results are no predictor of future results, but let’s assume that the next five years look exactly the same as the last five years. In my example of the market having a 10 percent average return and an eight percent standard deviation. Well, if you are sitting across from me and you were saying, ‘Tunde, I want to invest this money, but I want to pull the money out to go buy a condo or something else in two years’. That’s where, again, we could look and I could say, ‘okay, Jamarlin, I know that we think we can average 10 percent over the next five years’, but knowing that we have these massive swings, you may have to be prepared that if you tell me in two years you need the money, it might be one of those negative standard deviation periods where we’re not making the return we thought we were going to make. We’re making a two instead of a 10 percent. So that’s where timing comes into play because if you told me, Tunde I have 20 years to worry about this money and we can just invest in the market, that’s when things like standard deviation and all that they tighten over time and they become less of a concern, the longer you have.
Jamarlin Martin: I’ve heard this from quite a few folks, they’ll say that our people, African-Americans don’t really have life insurance, and that we’re not thinking right about life insurance and the benefits. There’s a big disparity. But professors, Timothy Harris and Aaron Yelowitz, they came out with a study this year, where when they adjusted for income and education, they said that African-Americans have more life insurance, not less than whites. They said two percent more when they adjusted for those factors. Would you be surprised at that or were you with the consensus that, hey, African-Americans, we need to step up our game in terms of how we’re thinking about life insurance? We don’t have enough.
Tunde Ogunlana: I would say this. I would say a bit of yes and no. So I’m not surprised when you adjusted for things like income and education because I think that’s just a human thing. Once you’ve got some means and you start getting educated, you realize the risks that are there and you have more to protect, more of a reason to protect those risks. So obviously life insurance is a risk play. You’re protecting against the risk of premature death. So that part doesn’t surprise me. What I would say that I am not surprised about, I guess is not on a risk-adjusted return that African-Americans own life insurance. Sorry, not risk-adjusted but not adjusted for those factors you mentioned, that African-Americans have less life insurance. And again, without getting too far in the weeds with some of this stuff, a lot of this just has to do with history. I saw this early in my career. I started my career in 2001. So at that point, someone that was 70 years old, maybe even 80 years old, was born in the twenties. So dealing with that generation and how they related to money was much different than dealing with someone maybe born in the fifties and sixties and later. And that’s just because the history of our country, there were things like redlining. I know that the African-Americans weren’t allowed probably until the 1960s to own more than $10,000 of life insurance. So there are actual legal impediments that were promoted by the U.S, government. I mean, the FHA promoted redlining, in neighborhoods in America.
Jamarlin Martin: So the government was involved in, hey, we don’t want these people to get life insurance.
Tunde Ogunlana: It’s just the way our country was. None of us should be surprised at any of this history. I guess fortunately for us, we’re starting to get further removed from that. But I think that a lot of it, and we see this with a lot of things in our society, culture takes a long time to change. So you have a culture. I mean, let’s really take it back, right? Slavery ended in 1865. You had reconstruction for a couple of decades, that went backwards in the south with Jim Crow. So what happens is you had a couple of generations of black people in this country that just were not allowed to participate in the system at all, until the sixties when legally the participation was allowed again. So that’s why in our communities you see huge disparities in terms of how money is approached based on honestly, when people were born. The older generation doesn’t have the exposure to financial literacy and other things that maybe someone who’s 25 today does.
Jamarlin Martin: It looks like this study that said that African-Americans own more life insurance when you account for income and education, those factors. They say that more than 12 percent of African-American males who reach age 50 die within 10 years, double the rate in the entire population. And so, my understanding is that the life insurance companies, they can’t factor in race. They’ve had a discriminatory history and so the laws prevent them from using race as a variable and they have to charge people the same rates. Right? So it’s highly regulated now because of the discrimination and racism in that industry. But when I read this and say that, hey, we die a lot faster. When you look at the race, we die a lot faster. It sounds like if the life insurance companies are forced to price this stuff the same, that we actually have an advantage, meaning that we may be getting a big hidden advantage when we buy our policies, because the statistics show that we die a lot faster, but they cannot use that in their risk models because of the past discrimination.
Tunde Ogunlana: It’s an interesting way to look at it and I never thought of it that way. I think that, unfortunately in our country we tend to draw things so much just on literally color lines, race. Again, living in south Florida has been an interesting experience because if you look at it, I was always just exposed to African-American as a black American in a sense. But living in south Florida now for 20 years, I’ve learned that there’s Haitians and Jamaicans and people from Brazil that are black and so on and so forth. Do they die at the same rate as African Americans after 50? I don’t think so. I think a lot of it goes back to lifestyle, socioeconomic status and the ability of access to good food and good medical care, honestly. So is that something that an insurance company, is it really a racial thing or is it, again, more of a socioeconomic thing in our country that is unfortunately the way that our country just is for a fact, is that more people that are on the bottom end of that socioeconomic ladder statistically have been unfortunately African-Americans. So it might be reflected in those statistics, but from an actual genetic point of view, is what I’m getting at. If you look at someone’s DNA and their bloodstream, and that’s where the life insurance companies, remember they’re doing a blood and urine test…
Jamarlin Martin: I don’t think its DNA but…
01:03:26 — Tunde Ogunlana: Well, I don’t either. That’s kind of my point.
Jamarlin Martin: Hey, you guys like to eat soul food…
Tunde Ogunlana: You make a good point.
Jamarlin Martin: You guys have a lot of stresses in society in terms of on the job and financial pressures. There’s a lot of different factors, but the data says we die faster and let’s say even if you account for education and income, it just sounds like there’s an advantage there, to use the past discrimination against the life insurance company.
Tunde Ogunlana: I agree there’s an advantage if you look at it from that perspective. I would say similarly, because I saw a very interesting article where the life insurance industry is trying to get access, that what they’d love to do more than anything else from the underwriting perspective, which I can understand from their perspective is getting access to the information from these DNA companies that everyone’s been using, 23andMe, Ancestry.com. Things like that. Because when you’re doing your DNA test to find your heritage, there’s a lot of good information about health and all that kind of stuff. So I would put it as a similar example of that, that if I got an Ancestry.com result back and it said that I’m susceptible to this type of cancer or this type of whatever, technically a life insurance company right now in the way the regulations are, they can’t get that information from that company. Lying on a life insurance policy is against the law. I mean it’s a material misstatement, but if I had a policy I just got last week and then a week from now I get back my Ancestry.com information and it says I’m susceptible to this and that type of cancer, but I came back as a preferred nonsmoker on my life insurance thing, it’s kind of a similar thing. I got away with a standardized underwriting, but my individual position means that I’m probably better off having this life insurance because I might have a shorter life expectancy.
Jamarlin Martin: Okay. Can you quickly share with the audience, the difference between whole and term life insurance, just really quick in very elementary terms?
Tunde Ogunlana: Okay. That’s hard for me to do quickly, because now you’re getting into stuff that I do for a living, so I could go on. But to be quick, there’s a way in the industry that we’ve learned to explain it. So think of term insurance as exactly like it sounds. You own it for a certain stated term, a period of time. So it’s like leasing or renting. Generally terms are offered at 10, 20 and 30-year blocks. There are one-year terms or a five-year term, but those are less common. So I’ll just pick on the one in the middle, which is 20-year term. So imagine I’m just renting insurance for 20 years. I’m paying premium for auto insurance, car insurance or homeowners insurance. Meaning if I get in a car accident, my auto insurance does something, it pays out.
Jamarlin Martin: To help people who are not familiar with life insurance. You’re saying like, Hey, this may help you think about it if you compare it to car insurance.
Tunde Ogunlana: Correct. Meaning that something has to trigger in order for the insurance to pay out. So in the car insurance example, it’s getting a car accident or something happened to my car. In the term insurance it’s basically I have to die. So unfortunately it’s a little more morbid. But the thing is, just like with auto insurance, if you had a 20-year term and I either missed premium payments during that period or let’s say my contract anniversary was today, Nov. 14 and I pass away on Nov. 16, God forbid, after the 20th anniversary of the policy. Then my family gets nothing. The policy no longer really exists. It doesn’t pay out. Just like if I missed my car insurance premium and then I got into a car accident and I’m no longer covered, the insurance company is not going to pay. So that’s why we kind of equate it to renting because it’s like you’re renting an apartment for 20 years. Once you give the keys back to the landlord, you don’t really have anything, you didn’t build equity, you don’t have anything to show for it. Whole life on the other hand. And also there’s another type called universal life, but to stick on the topic at hand, whole life is what we call permanent insurance. Unlike term, most whole life’s now are designed to last past age 100. The original whole lives from 100 plus years ago were usually designed to last to age 100. So the idea is that it covers you for your whole life. So for that reason they’re priced a little bit differently, because the industry on average pays out about two percent of term policies. In 98 percent of policies, usually the person lives past the term. So I own term insurance, I bought my first block of term insurance when I was 32. It was a 20 year term, there’s a high probability I’ll be alive past 52. So the insurance companies can price that in. And what happens is they can price turn very inexpensively. So it’s a great way for a young person, let’s say, to start owning life insurance.
Jamarlin Martin: So generally, if you’re in your twenties and thirties, we usually want to go with term?
Tunde Ogunlana: I’ve done for some of our families when their children are doing some planning for them, if they’re getting married in their twenties, I’ve run like 20-year terms on some people in their twenties where it’s literally like $600 a year for $1 million of coverage. I mean it’s so cheap that I just tell them you might as well get it.
Jamarlin Martin: Repeat the kind of pricing that you’re seeing.
Tunde Ogunlana: Definitely. Again, for the legal and compliance folks out there, this is just back of the Napkin math. But I’ve seen definitely stuff for under $1,000 in term insurance for people in their twenties when you’re talking about seven figures, let’s say a $1 million in coverage. So what I’ve told them is, this is so cheap, $800 a year or $600 dollars, depending, remember this is preferred rating, depending on where they’re at. I mean obviously someone 24 is going to be slightly different than someone 29.
Jamarlin Martin: I see ads online sometimes, and they’ll be like $50 a month.
Tunde Ogunlana: Yeah. Well it’s interesting. And those are kind of teasers when you look at it. I mean they’ll say, a 40 year old can get half a million dollars for under this per month. And you look at the fine print, that’s usually a 10-year term at a super preferred rating. You’ve gotta check a lot of boxes off to get that rate. But if someone can check them off then they’ll get that rate. Term insurance is great. It’s a very inexpensive way to leverage money. Let’s call insurance what it is, you’re leveraging a risk. Again, if I want to get car insurance, I’m leveraging the risk that if I total my car, for a little bit of premium, I can now get the value and have a whole new car. If I have homeowner’s insurance and the hurricane blows my house away, I paid a little bit of premium, and getting hundreds of thousands, maybe even millions of dollars to build a new home from a company. So life insurance is no different. I’m paying a little bit in premium that in the event I pass away, my family or whoever I wanted to leave as a beneficiary gets this boatload of money.
Jamarlin Martin: How fucked up is this person’s priorities if they have an iPhone XS that cost over $1,000 and they have a BMW, but no life insurance?
01:11:17 — Tunde Ogunlana: It’s as messed up as Snoop Dogg’s comment about not having a will and how messed up is it for a guy that’s clearly worth probably eight or nine figures at least to not have a will that will cost them probably less than $20,000 with the right law firm. So it’s the same type of mentality. I think a lot of it honestly is ignorance and if people were educated about what all this stuff really means and how it can help their families and all that, I think they probably would choose a different path, but because they haven’t, and I don’t bash any of their own advisory team because I’ve had people in my circle like this too, where you’re trying to explain the right thing to them. They just don’t want to listen. They’re just not in a place at that moment in life. But let’s finish up real quick on the whole life side. I don’t want to forget that because just the main difference on whole life being permanent insurance is there’s also a cash value component. So, I’ll give you an example. I showed a 39-year-old yesterday. That’s why this is fresh in my head with one insurance company at a preferred rating for $2 million of 20-year term, it was gonna cost $1,700 a year, but for $300,000 at the same preferred rating of whole life insurance, it was going to be $10,000 a year in premium. Now that’s a huge difference. And someone would say, well, why would you spend $10,000 on a $300,000 of death benefit when you can buy $2 million for $1,700? And again, there’s not necessarily that one’s better than the other. They both work different ways and one needs to be educated as to how, what the benefits, pros and cons are. Clearly, if it’s someone that’s just on a certain type of budget and their main goal is protecting their family, the best they can, term makes all the sense in the world in that example. But the reason why we were considering the whole life for this gentlemen is he’s got some entrepreneurial stuff going on. Life insurance, whole life insurance, and when you’re building up cash value can offer several great benefits. One is asset protection. In the state of Florida and many other states as well, but definitely in the state of Florida, there is a statute by the Florida House and that says that all life insurance and annuity cash value, with this conversation about life insurance, is 100 percent exempt from creditors. So bankruptcy, litigation, all that is protected. Now that’s not if you’re shoving money into life insurance after you’ve committed a crime. There’s still ways that, I want to be very clear about that. But in normal circumstances, if someone were to be funding a life insurance policy for 10, 15, 20 years, they’ve got a million dollars in cash and then if someone sues them for something random, by Florida statute, that money cannot be touched. So that’s one reason why people find value in cash value life insurance. The other is, as far as whole life, the company we were looking at yesterday, their current dividend rate is 5.4 percent. I think the 10-year treasury right now is around 3 percent. And the Fed fund rate is 1.9 maybe, or 1.75, I think. So in any case, the dividend rates, at least over the last 20 years, if not traditionally longer, of whole life companies on average, because they’re like every other type of institution, some pay more, some don’t. But the dividends are highly competitive in terms of what other alternatives out there that are considered safe. Because remember whole life insurance is considered a safe or a safer investment vehicle.
Jamarlin Martin: So explain that. So the person decides to get whole life insurance and it has value whether you die or not.
Tunde Ogunlana: Correct. So that’s equity.
Jamarlin Martin: Can you explain to the audience, how are they receiving their dividends?
Tunde Ogunlana: They’re receiving it annually. Most companies just pay one dividend annually and they pay it into the policy cash value. So it’s almost like if it was an investment account, it’s like getting a dividend on your stock, just goes into the account, just kind of mixes back in with the cash. There’s all kinds of different ways that that cat can be skinned. Some dividends can go to buy and pay for buying more life insurance, so your death benefit actually grows over the years. Some don’t. They can cover other things. So that’s a little bit separate. But going back to this, the 30,000 foot angle of the conversation, that’s why whole life and cash value insurance in general, unlike term, is not seen as renting. So just like I said, a 20-year term is like renting an apartment for 20 years. After the 20 years you turn in the key and you don’t have anything to show and the cash value example in whole life, it’s almost like buying a home. You’re building equity, that’s the cash value. So in 20 years you may be able to stop paying the premiums, but you’ve got to a bucket of money basically in that policy and the and the reason why you may be able to stop paying the premiums if the policy’s designed in the right way is because the dividends are large enough to cover the annual cost of insurance inside the policy, so you no longer have to pay out of pocket.
Jamarlin Martin: Okay, got it. So if I understand you correctly, whole life insurance is going to weave together asset protection, investment, savings, life insurance, all in one.
Tunde Ogunlana: And there’s a couple more areas that I’ll add in there. Tax Benefits. So II want to be careful how I say this. It’s life insurance first. I always say that. It’s not the cheapest investment and it’s not the best place to just get a high rate of return. You’re never going to get 30 percent a year and a life insurance policy is going to be nice and boring like the tortoise, not the hare. Now, what it can create is similar to a ROTH IRA. I just want to be very careful how I’m explaining this. You put money into a life insurance policy after tax. The money grows tax deferred, so you’re not paying. Under normal circumstances because there is a way that a life insurance policy can be taxable. It’s called a modified endowment contract, but that’s now starting to get too much into the weeds. So under normal circumstances, you’re not paying taxes on those dividends as your funds grow. So for example, and that’s why a lot of high net worth people like life insurance as an asset class because I have clients that have seven figures in cash value in their life insurance policies. And what happens is, let’s say you have $2 million in cash value in a whole life policy and they’re going to earn six percent as a dividend this year. That’s $120,000 in dividend income. The top tax bracket is 37 percent. So if that was six percent paid on a bond portfolio, let’s just say hypothetically that was in a non retirement account, just kind of someone had at a brokerage firm, that income from that interest or dividend would be added to the person’s overall income for that tax year. So if that person was, let’s say a doctor or a professional executive somewhere and they were already earning two, three, $400,000 a year. Now they just had another $120,000 dumped on top of that. They’re going to be paying a lot of taxes on that. So having that type of income inside of a life insurance chassis avoids that current year taxation. The other advantage of life insurance then is if one is operating the policy properly, can be strategic and pull money out of the policy in a tax-free way through loans up to basis, and then once you return your own principal, you’re not paying taxes on that. So what happens is, one of the things I talked about with the gentleman yesterday was, and projecting out his whole life, if he keeps it for let’s say the next 15, 20 years, he could do a concept which is called ‘bank on yourself’. People that have accumulated a lot of cash in their life insurance can borrow from the insurance policy to do something else with the money. So for example, we talked about, you know, down the road he might be able to borrow, let’s say $100,000 from his policy, use that as a down payment, let’s say on a piece of real estate. He can rent that out and have the tenant basically paying back his life insurance cash value. That’s a way to basically become your own bank. So a lot of wealthy people end up using those kinds of tools and techniques, because like I said, the example of someone who had $2,000,000 in their life insurance policy, now that’s a lot more you can borrow and do something against and you’re not going to a bank, you’re not having to get qualified. You’re not getting your credit affected. You don’t have to wait two, three months to close a deal and all that. You can just immediately move, borrow the money and have them slowly pay back your policy. And a lot of policies are designed where, I don’t want to say you don’t have to pay him back because the purpose of a loan is to pay it back, but the dividends may be credited in a way that the dividends pay the interest of your loan. So that’s where you start getting into the nuances of life insurance.
Jamarlin Martin: I want to go back to into wills. So the scenario is the person is 30. Their situation is pretty straightforward. They have maybe one or two kids. Let’s say the couple is making 75K each. They have investments, a small amount of investment, but hey, we want to do some financial planning and develop a will. What range of cost can they expect, in terms of what type of investment?
01:21:23 — Tunde Ogunlana: Someone that straightforward. They can probably at least get some sort of basic protection through something like a LegalZoom which might be $300, $500.
Jamarlin Martin: So you’re saying it could be okay depending on your budget to just use a template to get started?
Tunde Ogunlana: Think about it this way. I don’t recommend that to my clients because they’re a little bit more complex than the example you gave, but remember something’s better than nothing. Meaning, even if it’s a template, cookie cutter, but if you’re incapacitated and you show up in the hospital, a healthcare directive is a healthcare directive, so at least it’ll give someone authority to make decisions on your behalf in that example, or a power of attorney. I’m just talking in the example you made of a young couple that’s 30 years old. Just having that basic protection makes sense.
Jamarlin Martin: A starter will.
Tunde Ogunlana: Yeah. Now the other thing which is interesting and I think I did this early in my career when I was young and I was working at a big corporation. A lot of big companies, if you’re 30 and you’re working for a large corporation through your group benefits, you might have some sort of prepaid legal. So what happens is, I remember in my example, I think they paid up to $500 or something, the group benefit towards a local attorney that was part of the prepaid legal network for me to go get the will done and I think they just did it for that price. So it didn’t cost me anything out of pocket. So for young people that are in a big company that might have prepaid legal, that’s something else to look at. But now if you’re looking at generally going to an attorney to do this or private attorney or an attorney at a law firm, and I would say this for where we are in south Florida, I know the pricing can be different in different areas, the country. But in south Florida for that type of will, you’re probably looking at anywhere from maybe $1,000 to $2,500 for just a basic will. You start adding trusts in there, you might add an extra thousand. So now that you’re maybe looking between $2,000 and $3,500 for that type of work. I highly recommend people sitting with an estate planning attorney though to do this. Don’t be cheap. I’ve seen too many bad examples of people being cheap and costing their families a lot more than what they would have spent on the attorneys, and also make sure that one goes to an estate planning attorney. Not my cousin who’s a real estate lawyer and who’s going to do our wills on the side because they’re a lawyer, or not my auntie who’s a contract lawyer who does insurance defense and now because she’s a lawyer, she’s going to do our wills. There’s always holes in that. You want somebody that does estate planning. Just like, I don’t want my estate planning attorney showing up to my real estate closing. I want a real estate attorney showing up for that.
Jamarlin Martin: If someone wants to contact you about your advisory practice, how can they reach you?
01:24:13 — Tunde Ogunlana: The best way is email. Our office line is 9544537919, and our receptionist will direct traffic from there. But our website is http://axialfamilyadvisors.com/, and we have our contact information there.
Jamarlin Martin: Yeah. I want to thank Tunde for coming on the show and dropping knowledge.
Tunde Ogunlana: Appreciate it.
Jamarlin Martin: Let’s GHOGH! Thanks everybody for listening to GHOGH. You can check me out @JamarlinMartin on Twitter and also come check us out at www.moguldom.com. That’s M O G U L D O M.com. Be sure to subscribe to our daily newsletter. You can get the latest information on crypto, tech, economic empowerment and politics. Let’s GHOGH!