Doug Andrew - Laser Fund

[romeroaaron]

I watched this 21 episode playlist over the weekend which ended up being 4ish hours. There is some good information if you want to sell IULs, but man, there are some serious claims for this product. I've always seen IULs as something that can be used as a savings account that yields more interest than with a bank. As for Doug, he recommends to put the majority of your assets inside of a max funded IUL so that you can pull loans on it as your main form of untaxed income in retirement with the idea that, as the cash value compounds at the same interest rate the loan is at (zero wash), if you were to die, the cash value would pay the loans back and also leave the original cash value or MORE inside of the policy. A few things.

1. The guaranteed interest from life insurance companies from the general account portfolio that is not linked to an index is usually 1-2.5% MAXIMUM. Meaning, if you were to pull out too hefty of a loan (10% like he recommended in the series) then the fees and low interest when the IUL is not indexed would eat up the cash value.
2. He uses the example that if you average 10% in an IUL with $1M of cash value you should pull $100K in loans annually. This would be true if we averaged 10% but is there anyone who can consistently hit that goal? Especially when the market is down, the low interest from the general account portfolio would only make you $20K in a bad year. Worse yet, if you are linked in a down year, you made ZERO.
3. Is it true that if you properly max fund an IUL the cost of insurance and fees is only about 1% of what the total cash value is? If so, then I would definitely start looking into properly linking and rebalancing to yield a good interest rate. Curious what you guys have to say.

I guess I wanted to get your opinion on these ideas. It's a sales pitch assortment of videos so of course it is going to sound good, but there is some useful info in here. Do you guys have any opinion of this guy? Also, have any of you guys seen a company that provides a guaranteed 5% in their general account portfolio?? Crazy stuff. Looking forward to hearing the horror stories about this guy.

 

[topflight06]

To answer your question (partially) with my own opinion from the one live event I participated in recently, he seems to know his stuff pretty well and has a pretty decent grasp on practice management/philosophy. It looks like the real/primary service that he is offering to other producers is a membership to their IUL Insiders group where they share how they have client cash values allocated, such as when they think someone should be in fixed or indexed positions...more so a tactical/timing type of service as they appear to actively manage their client's cash value allocations. Other than that, I am not very well-versed in indexed life contracts so I wouldn't be able to provide much insight into your other inquiries.

 

[topflight06]

This was his quick/slightly generic take (15 minute clip) on how to combat the risk of fees from a zero return in cash values from improperly structured/funded/company selection policies. I am interested to read his book, soon, to get a thorough take from him...

 

[romeroaaron]

I am interested to read his book, soon, to get a thorough take from him...

I'm excited to read the book too! I ordered it on Monday. Definitely gonna read it with a grain of salt though. After posting this I found out that he has been in the courtroom a few times, and his son was disbarred by the SEC for selling a Ponzi scheme. Might have no relevance to the topic at hand but hey, we'll see.

 

[topflight06]

I'm excited to read the book too! I ordered it on Monday. Definitely gonna read it with a grain of salt though. After posting this I found out that he has been in the courtroom a few times, and his son was disbarred by the SEC for selling a Ponzi scheme. Might have no relevance to the topic at hand but hey, we'll see.

It certainly isn't the best look for him, is it? But as you say - if he really knows what he is doing with the product, do those other things really matter all that much pertaining to how to effectively place/manage IUL contracts? Come back here and let us know what you think of the book in the future!

 

[ejbarraza]

1. The guaranteed interest from life insurance companies from the general account portfolio that is not linked to an index is usually 1-2.5% MAXIMUM. Meaning, if you were to pull out too hefty of a loan (10% like he recommended in the series) then the fees and low interest when the IUL is not indexed would eat up the cash value.
2. He uses the example that if you average 10% in an IUL with $1M of cash value you should pull $100K in loans annually. This would be true if we averaged 10% but is there anyone who can consistently hit that goal? Especially when the market is down, the low interest from the general account portfolio would only make you $20K in a bad year. Worse yet, if you are linked in a down year, you made ZERO.
3. Is it true that if you properly max fund an IUL the cost of insurance and fees is only about 1% of what the total cash value is? If so, then I would definitely start looking into properly linking and rebalancing to yield a good interest rate. Curious what you guys have to say.

Do you guys have any opinion of this guy? Also, have any of you guys seen a company that provides a guaranteed 5% in their general account portfolio?? Crazy stuff. Looking forward to hearing the horror stories about this guy.

F&G Life currently offers a fixed interest of 4.75% and starting Year 11 it bumps up to 5% fixed. PennMutual's current Dollar Cost Averaging account has a fixed rate of 10%, but this is a promotional rate that is normally 4%. The policy he and his son promote is Pacific Life since it has the highest asymmetric upside versus downside. Policies in force since 2008 have been averaging 10-11% since inception. My own policy shows the cost of insurance decreasing to $160 in Year 11, $120 of which is a fixed administrative fee, and the remainder being term insurance.

 

[romeroaaron]

Come back here and let us know what you think of the book in the future!

I finished the book about 2 weeks ago. As I was reading I was highlighting, taking notes, and pulling out pros and cons. The first bad thing about this read is that it was hard to pull out cons. When someone cannot criticize the product in which they endorse, it automatically shows me that the opinion is one sided. Before I go into it more, I would like to say that I understand there are IUL's with amazing performance, and a properly structured max funded tax advantaged IUL is a great product! I'll start with cons so we can end on a happy note.

Cons:

• 1) Risk: This book RARELY mentions any form of risk. My big turn off with IUL's and UL's in general is that the insurance company has flexibility to change your COI. And yes this can be mitigated by using the cash growth to pay premiums, but let's just say you are linked to an index for the full CV growth that year and it is a down year. The book does not mention what happens!! Not only can your cost go up dependent on your age, but you also made no money. You can opt to pay with already accumulated CV or just be out of luck that year and pay out of your own pocket. Another bad scenario for an IUL would be if you were to pull loans out based on Arbitrage like the book recommends. If the premium goes up, fees go up, and the market is down, you have to pay your massive amount of interest + COI + you made nothing. Rule #1 is to NOT lose money! And the only guarantee in this policy is the guaranteed interest, and God knows how bad that is especially when fees and COI goes up... We have to evaluate where we are in regards to this product as agents. Interest rates are low, and inflation is at a 40 year high. Internal costs are crazy and returns would be absolute garbage. To base retirement off of arbitrage on something with so much risk is not something I would recommend to ANY of my clients. Insurance companies can also change the cap rates for your participation in the market which could affect your returns in the future. The book has hardly any mention of these points.
• 2) Blame: The authors of this book put very plainly that if your IUL fails, it is because of the structure & agent. Now, I would be willing to bet that 95% of IUL's DO fail because of those exact reasons, but again, there is hardly any mention of the above risks from my first bullet point. It feels like they are trying to convince you that they are the ONLY people in the world who can build you an IUL that does not fail.
• 3) Arbitrage: When using an IUL for returns that provide you income, remember one thing. IUL IS NOT AN INVESTMENT. This book likes to treat it that way and that is its main mistake. The only way to use the interest accrued on your policy tax free is through a collateralized loan. Spending that money on liabilities that provide you no financial value or growth is just praying that the market does well enough that your already accrued cash value will not be eaten by interest payments for previous loans, COI, & fees. If you used this book as your main source of information for IUL, you would be convinced that arbitrage is 100% possible every single year and you would never lose money.

Pros:

• Knowledge: This book provided with so much valuable information and simple ways to explain tax laws. I can confidently say that if someone were to ask me about 72e, 7702, 101a, TEFRA, DEFRA, & TAMRA, I could answer why and how we can use the code to build a great policy. I also don't think IUL is a bad vehicle. I just think that some of the ways that they show the vehicle being used are over inflated and risk is not assessed.
• IUL Usage: As mentioned before an IUL can be really great! If you maximum fund while keeping it tax advantaged you have access to very liquid money as you do with most permanent insurance. For me, an ideal scenario would be for someone who can purchase an IUL, once maximum funded they loan out money for an investments like real estate where they can use rental income to pay off the loan, all while the CV has uninterrupted growth that HOPEFULLY was higher than the floor on your policy.
• Risk (Again lol): Risk can be amazing! The book shows some really great examples of linking indices and illustrating awesome growth. With an IUL you have the opportunity to participate in a market more abundantly than you would with most permanent life insurance, & this book shows you how to sell it to your client like that. EX: If you were to set a 5 year point to point to the S&P 500 with a 125% participation rate and the market goes up by 11% annually, you got the full benefits of the index fund PLUS 25% more... tax free! The book's examples are mostly based on situations like that.

Overall, I would say that this is a good read for the knowledge that it provides. I would recommend to not take this book at face value and call it scripture because, well... it's not. I love the idea of using an IUL because yes it is LOWER RISK than the stock market. I think we can all agree on that. But it should not be touted as the safest bet for an insurance contract because it definitely is not. IUL is probably most optimal for someone who has money in whole life focused on cash growth, and wants to put some more money in something they are willing to risk for some more gains, but keep it tax free for other investments. It's an amazing product and you get to see the whole good side with this book.

 

[pfg1]

Doug Andrew has been around a long time. He's certainly very knowledgeable and successful. I haven't read this book but I will at some point. The real key to success with IUL is designing for max cash accumulation, and funding it properly. I don't ever tell people it will spit out the kind of returns he always mentions. I look at it as a bond alternative, and tell my clients that if they do their part (funding properly and not liquidating all the cash early) they should average somewhere around 6%, possibly more. And historically, they have done that for sure.
Doug is a great one to learn from, just take everything for what it is. Sounds like you have learned alot. I also agree, the cons should be mentioned to clients... because there is some risk in owning these policies for sure. Its a different type of risk maybe than market investments, but some risk none the less. Good luck

 

[romeroaaron]

I don't ever tell people it will spit out the kind of returns he always mentions. I look at it as a bond alternative, and tell my clients that if they do their part (funding properly and not liquidating all the cash early) they should average somewhere around 6%, possibly more. And historically, they have done that for sure.

I love this take! Every product has usages and IUL is great for different purposes. Thanks for your response. Cheers.

 

[ejbarraza]

The biggest criticism is that the COI will go up, but that can only go up by a contractual limit of maximum 300%. Also, they don't have the ability to unilaterally force those costs on the policy owners. They have to get permission from the state department of insurance. This far no IUL has ever maxed out charges. If they did obviously people would take their money elsewhere. In fact an executive at Ameritas said that if they had to raise costs it would only ever be on new policies not existing policies. This is an extreme scenario and not the base case. Also some IULs do indeed guarantee returns like Ameritas will true up the policy to receive a 4% IRR the first 10 years assuming the index does not perform. The way to prevent the cash value from being cannabilized is to use a 95% loan to value bank line of credit pledging the IUL as collateral. This way you have access to the liquidity without subtracting from the cash value.