It was April of 1986 and I just found out that I passed my series 7 securities exam with a score of over 90%. Anything over 70% would be a passing grade and after the 6 hour test all I wanted to do was to pass.

I had dreamed of this day. I was now a financial advisor. Years ago, as a teenager, I thought about becoming a stockbroker. I pictured myself sitting behind a computer and trading stocks for clients and of course making them all kinds of money. And now, I could.

There was only one problem… I had a license, but had no clue what I should sell with all the products now at my disposal. I began my career with a financial planning company which has been bought and sold several times over the years and with the changes came several name changes too. I’m not sure what they are called now.

The important thing is that I was trained by one of the best training companies in the country.

Over the next number of years I learned how to analyze, diversify, create, and allocate portfolios. I learned about risk factors such as Beta’s and Alpha’s. I learned about and how to assess risk tolerance. I learned about divergence and standard deviation. I learned how to read stock reports and determine all the important data necessary to analyze a stocks performance.

In short within about 5 years I was able to set up portfolios, properly allocated to the current models, and assess the probability of performance. I was in fact a typical and traditional financial advisor.

Fast forward 15 years. Why were investors not getting where they were supposed to get? We followed the models, did what the mutual fund companies told us to do, listened to our broker/dealer experts and economists as to how and why to allocate models, yet we seemed to be on a treadmill. Investors would ride up with the economy and everyone was happy, and then we would subsequently hit a bump in the economy and wham, everything we had earned over the last number of years was wiped out in a matter of months.

We had to start over again. The market took back most, if not all (more in some cases), of the past year’s returns.

Most investors don’t know that if you lose 10% in the market, you have to get over 11% just to get back to where you were. If you lose 20% it requires the market to grow 25% to break-even. At a 50% drop, the market has to have a 100% return to get you back to where you began.
This became a difficult stumbling block for most investors to achieve their financial goals. Mutual funds that just lost 15% or 20% may take 2, 3, or 5 years to get back to the starting point.

I remember my very first market drop. It was “Black Monday.” October 19th 1987. The market dropped over 500 points in a single day. Still the largest percentage one day drop on record. It dropped over 22%.

I remember the phone ringing off the hook. I listened in on a few calls to my manager. He was trying to keep his clients from panicking. He said, “markets will go up and down, no need to worry, it will recover, maybe you should buy some more.”

Have you heard that before? As luck would have it on October 21st the market roared back 10%. However it still took another 15% just to get back to October 18th levels. That took almost another year.

Well this happened again in 1994, 1998, 2000, and of course 2008. In almost every case years and sometimes even a decade of growth was wiped out.

Retiring or hoping to retire in those years of decline would devastate a retirement plan which in turn prevented the investor from retiring.

My clients were getting older. How could I subject them to the gyrations of the market? What would happen if a client had a million dollars in their retirement plan and now wanted to retire. Then along comes a market like 2008 and their account drops to 500k and after the IRS takes their 30% they may end up with 350k, all in a years time.

I saw asset allocation models change as the economy changed. The models changed based on the assets that performed well. My question is, who couldn’t look back and create a model based on past performance? No one seemed to be able to make a model based on the future! So what good are they?

Around 1999 I was fed up with trying to compete and make money in the market. I’d given it nearly 15 years. I followed all the rules. I used diversification plans and asset allocation models. I used dollar cost averaging. I used risk and standard deviation tools. No matter what I did, I could not control the market. I could do everything properly in the “traditional” sense, but the market’s still took away what it gave.

It was time to find a different method or leave the business. My frustration level was at it’s highest when I stumbled upon a couple of methods that did not risk capital. They were exactly what I needed.

For the last 12 years I’ve been a proponent of not losing money. As I’ve proven time and time again, losing money has a greater negative impact on a portfolio than a positive return has on a portfolio.

When I was introduced to the banking concept I was at first surprised that I had not heard of this before. I took pride in being educated and informed on all types of investment planning.

Coming more from the “investment” side of planning, I ignored, for the most part, insurance in the planning process. I certainly took it into consideration for premature death and estate planning, but not as a means to create wealth.It was kind of a necessary evil that needed to be addressed, but then it was on to investments where you were really going to make some money. I was on the “Buy Term invest the difference” band-wagon too. I really wasn’t interested in talking about boring insurance, I wanted to talk about investments.

As I look back I realize now I was missing something very interesting. The greater net worth a client had the more permanent insurance was a large part of their planning. In fact some clients had millions in cash value and I was trying to help them understand that those funds needed to be in the market. They were extremely reluctant to move it, and now I can see why. It is in fact the most stable and predictable vehicle for storing and creating wealth, not to mention the tax benefits.

I spent several days crunching numbers and trying to prove that the banking concept could not work. It was too easy. How could something so easy actually work? I had been taught and trained that the only way to wealth was through risk and this concept was telling me just the opposite.

It didn’t take long after I read a book on the subject to come to the conclusion that the financial planning community has it all wrong. It’s not about risk and return, it’s about controlling and directing ALL of your income.

Most people will make well over a million dollars in their lifetime. Its not how much you make its how much you keep that makes the difference. How much of this million dollars that they get to save and put away will determine their future lifestyle and retirement. Those who learn how to direct and keep the majority of these income dollars will have a higher net worth and create wealth far beyond those who relied upon rate of return.

How you make purchases will also either increase or decrease net worth. It’s really that simple. The banking effect on your finances has more power to create wealth than nearly any other means available. Add tax benefits to the mix and it even gets better.

Now the Banking Strategy has become a foundational tool for most of our clients. It has become a great succession planning tool to teach families the proper use and control of money. It protects capital. And it will incidentally create wealth when properly implemented.

Am I opposed to investing? No. However if I can make every investment better by going through the banking system first, that is my preference. it also keeps investment risk in perspective. I think most investors over the past two or three decades have taken much greater risk than even they realized. You just can’t afford to lose any money no matter how wealthy you are. More importantly you don’t need to. There is no reason to lose money when you can get where you want to be, financially speaking, with no risk at all.

I know some people hate insurance. I have to admit I was one of those people. But truthfully only about 1 in 1000 financial advisors knows how to set this up properly. More importantly to understand why and how to use it. If people had a bad experience with insurance, don’t blame the product or the company, blame the person who sold it to you. Maybe it was sold incorrectly or for the wrong reason. But don’t throw the baby out with the bath water. Insurance is the LAST place in the country that has been grandfathered some wonderful tax benefits. These benefits along with guarantees and liquidity make for a very competitive savings vehicle in the long run.

Dan