Tier One Interview: Jon Donfeld
This month, Jay sits down with Jonathan Donfeld, President of Donfeld Insurance Services Corporation and the holder of one of the larger PPLI books in the industry. Jon came to insurance sideways, from a first job on John McCain's presidential campaign to AXA, before leaving in 2017 to start his own practice for a single reason...to offer private placement life insurance. He argues that PPLI's rapid growth is best explained less by tax law than by human nature, the "country club effect" among competitive, closely networked clients who follow one another into anything that looks smart.
He and Jay get into who the product actually fits, why the arrival of more banks and managers has made the market friendlier, and how he has built a practice almost entirely on referrals and long relationships. Plus, the famous restaurant question, which Jon, briefly off steak and cheese, had clearly thought hard about before Jay ever asked. Read on to learn more!
JAY: A few years ago, Ken Foley, the CEO at Spearhead Administrative Services, said to me, “I cannot believe you have not met Jon Donfeld. He has one of the larger books of PPLI business in the industry.” Regrettably, we had not met, Jon, but did soon after at a conference. I quickly learned that you do not seek out publicity, preferring to keep your head down and concentrate on working with your clients. I also learned that you established your practice in 2017 for the primary reason of being able to offer PPLI in addition to traditional products. Let’s begin by hearing more about your firm and your role there.
JON: First, I have to thank Ken Foley. He has been a guiding mentor the last 10 years since I started my business. I started my insurance career at AXA Advisors in Los Angeles and did traditional life insurance and estate planning. After about 7 years I learned about PPLI, encountered two hedge fund principals who were interested in the product, and started interviewing at a few of the existing insurance shops that were well-known PPLI providers.I ultimately decided that, economically, it made more sense for me to start my own practice and Ken guided me to Jane Riley at The Leaders Group (now Simplicity) as my broker-dealer where I have happily been ever since.
I am not big on marketing – you might have noticed that my website is just a splash page - and have built my business through referrals. I avoid the appearance of trying to sell something and collaborate with my clients as more of a consultant. This approach seems to be very comforting to clients and wealth managers.
JAY: Although I know you feel differently, you do a great job from the stage when talking about PPLI. You are from Los Angeles as are your parents. However, your parents didn’t meet there, did they? Share a little bit about your upbringing and your path to where you are today in our industry.
JON: My parents both grew up in Los Angeles but they actually met in the Nixon administration. My dad was Assistant to the President on Domestic Council and then put in charge of the Special Action Office for Drug Abuse Prevention. My mother worked for The Committee to Reelect the President and then Voice of America where she wrote a column in Spanish for various Latin country radio stations. On their first date, they got lost in the Pentagon parking lot where my mother rejected my dad’s attempt at a first kiss. They’ve now been married over 50 years.
My parents maintained their professional DC relationships that led to my first job out of college working for Senator John McCain’s Presidential campaign. I worked in Surrogates where I was a campaign liaison between the campaign and prominent supporters, including other politicians, businesspeople, actors and country music stars.
After McCain lost the election to Barack Obama, I left politics and entered the life insurance business when I joined AXA. I was very fortunate because AXA was generous at assigning orphaned accounts and that helped me develop my practice.
JAY: It is heartening to hear how you open you are about how you source clients interested in PPLI. In fact, your business development approach is what I have always felt is best for this market niche. You do not initially concentrate on individual clients, do you?
JON: When I first started my company, it was difficult competing with the established firms in the space. Existing IDFs were hesitant to work with a broker in his early 30s so I had to source my own funds and develop relationships with RIAs and multi-family offices. I have built my business by approaching emerging managers and wealth managers, educating them on the benefits of offering PPLI and PPVA to their clients and then working with their existing LPs and investors. The investment component of PPLI is critical so it is much easier working with clients who know what they want to invest in and have already done diligence on a manager.
JAY: A few weeks ago, when you and I discussed what is driving the exponential growth in PPLI, you mentioned the “country club effect” and a couple of other reasons. What did you mean by that reference and what are the other buying motivators you are witnessing?
JON: Many of my clients are hedge fund principals and PMs. They are all very successful, are sensitive to estate planning and, most importantly, competitive. If one of them has an edge or is doing something smart, then they all want to do it. This creates the “country club effect” and has made PPLI highly popular within circles of the financially sophisticated. I also offer discounted group pricing to business partners and colleagues which organically creates the “country club effect.”
Another driver behind the increase in PPLI adoption is that more money managers and brand-name banks are offering PPLI. This creates a “friendly” environment where the client’s advisor already understands PPLI and can speak to its benefits as well as I can. Finally, the change in the definition in life insurance in the Tax Code that came from the Consolidated Appropriations Act of 2021 has helped drive interest in PPLI. Under the updated codification of the formula of life insurance, those using life insurance for accumulation, including PPLI, can put more premium in a policy for little to no increase in policy costs.
JAY: In the marketplace, we see life insurance companies and any number of producers marketing all sorts of strategies to cast a wide net for PPLI clients. Knowing that you are a legitimate major producer, I’d be curious to hear your feedback on the most likely profile of a client.
JON: The most likely profile of my client is a financially sophisticated investor. PPLI is most typically used as an estate planning tool, but it is also investment driven. It is a much more difficult product to implement with a high-net-worth person who does not understand investing. For the most part, these clients have identified funds that they plan to leave to future generations and recognize having those funds grow within a PPLI policy is incredibly tax efficient.
JAY: I hope I don’t embarrass you by saying you have a great reputation for carrying out PPLI structuring involving multiple generations. Can you give some examples of this?
JON: Thank you for your compliment. Yes, this focus in planning fits well for the client type I have mentioned – hedge fund principals and PMs who use PPLI for estate planning. Inevitably, as their kids get older, they ask if their young adult children are candidates for PPLI, viewing the product as a supercharged Roth.
A concept that resonates is gifting funds to young adult children, so the funds are inside the children’s estate and then investing in the parent’s IDF. This is not a violation of investor control as the children are each the grantor of their own trust and they do not work for their parent’s fund. Further, because PPLI is a non-marketable security, the children can gift their PPLI outside of their estate in the future at a meaningful discount under their own lifetime gift exemption.
JAY: Thankfully, you are not working all the time. How do you spend your time away from placing life insurance?
JON: I feel like I am always working or “on call” but am never getting crushed by work. I am a unique life insurance broker in that I do not golf, so I feel I have the time and processing power of many brokers (chuckling). Because I am currently a small shop, I always need to be available for my clients, and they can always call me directly. If I don’t answer immediately then I will call them back within the hour. This sounds like a basic business rule, but it never fails to amaze me the feedback I receive about some of my peers in the industry – that they are hard to get ahold of. This reminds me when Athene was launching its PPVA product about 3 ½ years ago. I was in Egypt and had to stay up until 1AM every night to process Athene’s first PPVAs.
Away from life insurance, I love spending time with my wife and kids. My wife, Alex, is a real-estate agent and I have an 8-year-old daughter, Grace, and a 5-year-old son, Beau. We like to take advantage of our incredibly efficient high-tax state by going to the beach and having pool days. We also enjoy fostering dogs and just adopted our second puppy. When I’m not with my family I stay active playing pick-up basketball, pickleball, tennis, and working out 3 or 4 days a week.
JAY: What a great job, Jon. Thank you for being so open about yourself and your practice. We have reached our famous restaurant question. I will point out to our readers that you wanted to cover this right away when we spoke – that you had put a great deal of thought into your answer. Without naming a steakhouse or a steak dish, can you give me some recommendations on where I should eat and what I should order when I am there?
JON: I recently had a slightly elevated cholesterol reading but, fortunately, I would still qualify for Preferred Plus, so cheese and steak are currently off the menu. If I had to recommend a consistent restaurant it would be Koi. It is my go-to for kid’s birthdays as well as client dinners. One of my best friends owns Koi which has locations in Los Angeles, New York and a few other cities around the world. The tuna crispy rice was invented at Koi LA 25+ years ago. One cannot go wrong with either Koi’s omakase or many of its proprietary fusion rolls.
Since its inception, Life Insurance Strategies Group has solely focused on the individual high net worth life insurance market. We do not sell products. This allows us to offer unbiased, pragmatic advice. Visit us at www.lifeinsurancestrategiesgroup.com.
Comments