This month, our CEO, Jay Judas, talks to Sam Jacobs, Senior Vice President, Executive Planning, Gallagher. The pair discuss Sam's path from Southern Jersey to the world of ultra high net worth life insurance, how he uses PPLI in his practice, the Cherry Hill Mall, and where to eat in New York City. Read on to learn more!
JAY: I have been looking forward to this month’s interview with you, Sam, because you and I had a similar start in our life insurance careers. We each went to law school and jumped right into the industry, beginning with executive benefits before expanding to working with high-net-worth individuals and families. It is fair to say that, like me, you have only worked in the high-end of this business. You recently joined forces with Gallagher and before we talk about your background and dig into the rest of my questions, start by telling me about your practice with Gallagher.
SAM: I’m a huge fan of the work you and Pete have been doing and have been looking forward to this interview. I have spent 25-plus years in the financial services space in various life insurance markets and my practice has evolved. Currently, I have a worldwide focus in the ultra-high-net-worth and high-net-worth segments where I work closely with the families, family offices, and their advisors to provide life insurance strategies to help solve some type of complex financial problem. The relationship I have with my clients and their advisors is unique - almost private bank-like - in that we help with multiple issues including, but not limited to, life insurance, and at all hours of the day or night.
Our conversation with clients begins with some form of tax, financial, or planning issue that the client is looking to solve. My focus is to analyze, model, and illustrate alternative solutions while educating the clients to risk parameters so there are no surprises downstream. In doing so, the goal is to evaluate the most cost-effective means of solving the problem, which may or may not entail the purchase of life insurance as a potential solution. From my perspective, my clients’ purchasing habits are similar to a barbell. On one side there is private placement life and annuity products and, on the other side, are traditional life insurance products that are guaranteed for a certain period like age 100 or 120, and nothing much in between.
JAY: You are from Cherry Hill, New Jersey and, from an outsider’s perspective, appear to have had an idyllic upbringing involving summers at the Jersey Shore. Since I went to law school a few miles away in Camden with a lot of kids from South Jersey, I am elated I understand a lot of your references about how you grew up. If you would, share with our readers about growing up where you did and the path you took to the life insurance industry.
SAM: Jay, you can’t ask for more than Cherry Hill, New Jersey off of Exit 4 on the Turnpike and the Jersey shore! My family has lived in Cherry Hill for over 60 years, and my wife and I both grew up there and then raised our children there. It is a great place to live and to raise a family. My wife and I recently moved to New York City but return to the area all of time.
My childhood in Cherry Hill was not the norm as I spent every summer in Wildwood on the Jersey Shore. My parents owned a restaurant on the boardwalk and a miniature golf course around the corner. Every summer I worked in the store or on the golf course. As a child I was emptying balls out of the clown’s nose on the 18th hole, sweeping the greens or cleaning tables in the restaurant. I graduated at the ripe age of 12 to the grill, making cheesesteaks, burgers and hot dogs all day and night long. Between working, playing basketball and miniature golf every day, and going to the beach, my summers were complete.
After attending Cornell University, I went to law school at the University of Baltimore and then onto NYU for my LLM in tax. I graduated law school, passed the bar exam and found my way to the life insurance sector—so much for the master plan! I thought I could use my tax, legal, and accounting backgrounds in dealing with corporations and high-net-worth families. Initially, I was doing a little of both, but more focused on the deferred compensation area for the first several years.
I pivoted to more high-net-worth planning as I started connecting with the executives of the deferred compensation plans that I put in place. About five years into my career, a few partners and I structured a transaction and sold our business to a regional bank in Philadelphia. It was a very interesting deal and extremely early in the lifecycle of those types of transactions. Subsequently, a few years later, I started my own firm, Manor House Capital, which I built for over two decades, eventually merging into Arthur J Gallagher a short time ago. It’s been a great 25-plus years—but can sure seem longer on certain days!
JAY: Everyone I went to law school with from South Jersey would swear the Cherry Hill Mall was the first air conditioned shopping mall in America when it opened in 1961. I have to give them credit for how convincing they were. Now that Google exists, and I am actually speaking to someone from Cherry Hill, I want to point out that the Southdale Mall that opened in 1956 in Edina, Minnesota carries that distinction. I’m sure I am now persona non grata in South Jersey!
Let’s turn to the topic of PPLI because you have been continuously writing private placement life insurance since 2000, far longer than most any other broker, active or otherwise. How does the topic of PPLI come up with your clients and what problems are they trying to solve with this strategy?
SAM: Jay, those of us born and bred in Cherry Hill are fully aware of Southdale Mall, but we hang our hat on the fact that the Cherry Hill Mall was the first air-conditioned mall in the Northeast!
As to PPLI, I stumbled on the product in 2000 when a very good friend of mine asked me if I could look at something he received from one of his clients about the product. I became fascinated with the product and started looking at it more closely for my clients. Twenty-five years later I am still talking to clients on the subject. Typically, the topic comes up because the client was speaking to someone who mentioned the PPLI product, read about it somewhere, or was approached by a third party and now he wants to get a better understanding of the transaction.
The PPLI buyers typically fall into three categories. First, clients that have placed funds that will never be touched into trusts, and they are looking for a tax efficient method to invest those funds for future generations. Second, clients currently invested in various alternative investments that are illiquid and tax inefficient, and they are looking for an alternate structure that will alleviate the need to use liquid funds to pay the tax on their alternative investment portfolio. Third, a combination of the first two categories and where there is a need for life insurance. This last category is not the norm as the PPLI product is typically seen as a cash accumulation vehicle and the life insurance company and distribution charges are an additional frictional cost.
JAY: Over the past five or six years, it seems like there is aways talk in Washington D.C. about curbing the use of PPLI in planning. What do you tell clients and their advisors who ask you about those attacks?
SAM: That is a great question and one that is always brought up in the PPLI conversation. I tell clients that there is a risk of that happening, and it will always exist. But we need to focus in on the likelihood of unintended consequences or creating a slippery slope of any tax law change involving life insurance, and possible exit strategies, if the law were to change. We cannot predict the future tax-wise so we spend most of the conversation on a number of points, including what a change would mean long-term to the entire life insurance industry and the carriers’ views on the matter relative to all the other cash accumulation products. We discuss how, if there is legislation, what does that mean to a client who has purchased PPLI? What are potential ways to unwind the transaction? More importantly, if you do not do the transaction, where does the client stand without a PPLI structure? Clients and advisors seem to understand and appreciate this conversation.
JAY: I recognize there were a lot of benefits for your clients when you combined your practice with Gallagher. Is it fair to say that business continuity was one of those? In following that thought, how important is it for a producer in the high-end of the life insurance industry to have a succession plan implemented?
SAM: Succession planning in our industry is critical in general, especially in the high-net-worth space. The clients and advisors I see are extremely educated, Type A, and high touch. It requires a certain skill set to maintain those relationships. Having the right person as the successor is paramount to continuing the client relationship.
That being said, Jay, the business continuity aspect was very important to me when I combined my practice at Gallagher for multiple reasons. My practice pre-merger was almost entirely a ultra-high-net-worth boutique practice, with worldwide multi-generational clients. That coupled with the fact that I have a PPLI practice, led me to look hard at options for succession planning. The merger definitely bridged that gap in terms of succession planning while, at the same time, it gave me a much larger footprint and expanded my capabilities to help my clients.
JAY: Let’s switch gears and hear about your time outside of work. I am going to take a wild guess and say your answer probably involves the Jersey Shore? Am I right?
SAM: You are correct Jay! My wife, Lisa, and I like to spend a lot of time at the Jersey shore in Margate where we can see our family and friends and go to the beach. We bought our home “down the shore” just over four years ago, while at the same time selling our house in Cherry Hill and moving full-time to New York City. In case you are wondering, I definitely would not recommend doing all that at the same time to anyone thinking about a change of scenery. It has worked out well as our children love the shore, so we are continuing the tradition with them just like our parents did for us. Though, my kids keep asking for another “layer” on the house!
We spend most of the year in New York City where there is plenty to do to keep us busy. My big passion is basketball, and I have played my whole life including in college while at Cornell. I’m not playing as much as I would like – but that is fine since then my body is not as sore from all that it takes to play. Fortunately, a little time at the gym, traveling, and some skiing fills the time away from basketball.
JAY: Sam, I appreciate that you were able to share some of your insights on the ultra- and high-net-worth market segments. You have reached our restaurant question….and I know you have come prepared. Without naming a steakhouse or a steak dish, give me some recommendations to your favorite restaurants and tell me what I should order when I go.
SAM: Living in New York City there are plenty of food options, for sure. While I do quite a bit of fine dining, I’m not so happy about it - so I will eliminate those from any suggestions as a form of protest. My favorite food is pizza, and there are too many places in New York City to even start that conversation. If I were going out for a casual meal, I would recommend three places:
Zou Zou’s - order the fried chicken
Lartusi - everything is delicious, and
Chinees Tuxedo – another spot where you cannot go wrong ordering anything on the menu.
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.
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