This month's interview is a 2-for-1 deal as Jay chats with both Todd Walters, Managing Partner & Co-Founder and Jarrett Bostwick, Partner, General Counsel & Co-Founder of Spearhead, LLC. The trio discuss Todd and Jarrett's decades long friendship, the 10th anniversary of Spearhead, career changes....oh, and a little insurance talk as well.
Jay: This month’s interview is a bit different because I’m sitting down with two interviewees instead of one. Though, many folks who know them, might say that Todd Walters and Jarrett Bostwick are actually one person who sometimes manage to be in two different places at once! This is due to their life-long friendship which eventually led to their purchase and re-launch of Spearhead 10 years ago this month.
Thanks for doing this interview, guys. Readers know that the Tier One interview series is about top tier participants in the life insurance industry. Let’s start by hearing about Spearhead and your ties to the life insurance industry.
Todd: Thank you for helping us celebrate our 10th anniversary, Jay. Earlier in my career, I never had anything to do with the insurance industry and never thought I would! Actually, Jarrett even suggested to me in 2004 when I moved to the US from London, that I wrap my assets in this thing called private placement life insurance before coming to the US. I think I actually laughed and asked him “what do I need insurance for?”. Some crazy lawyer tax thing he had up his sleeve. As a normal best friend would do, of course I didn’t listen to him. Fast forward 6 or 7 years and Jarrett brought up this crazy idea of doing private placement life insurance in a broker dealer and combining it with an RIA. The more we looked into it, the more it made sense, especially since no one really had Jarrett’s tax structuring skillset combined with my asset management skillset in the marketplace under a single umbrella. We spent about a year before launching Spearhead talking with other market participants and clients. We eventually thought it was just crazy enough to do, so we launched Spearhead, wrote our first PPLI for clients and outsourced the asset management to a variety of wealth managers.
Jarrett: I have been in and around insurance my entire career. As a tax attorney, using life insurance is a key tool for tax planning. I have actually been using private placement life insurance for both income tax planning and estate tax planning since day one of my career in 1998. By 2010, it was clear income tax and estate tax were going to increase, especially at the state level, so I started getting questions from a lot of my old law clients. At that point, Todd and I got together to figure out how to help these clients efficiently reach the capital markets through PPLI.
Jay: I’m always fascinated about how people ended up in their careers and your stories are incredibly interesting. The story of the two of you starts on the other side of the world in Hong Kong. Bring me back to your upbringing, how you met and how your careers finally brought you together professionally.
Jarrett: Our friendship definitely started on the basketball court about 40 years ago or so. We were in the same class at Hong Kong International School. I had moved back to Hong Kong after a couple years in the Philippines and Todd had moved from the German Swiss International School, an English curriculum-based school, to the Hong Kong International School, a US curriculum-based school. We ended up in the same class and, as most pre-teen kids, asked the ultimate question “Do you like basketball”?
Todd: “Yes”
Jarrett: “You wanna be friends?”
Todd: It was like straight out of the movie Step Brothers!!! The rest is history.
Jay: It won’t be long and the two of you will have been friends for half of a century! That is really amazing. I wanted to take a minute to ask Todd to talk about his mother and her career. You know that I’ve made 71 business trips to Hong Kong over the years and, unbeknownst to me until we spoke a few weeks ago, Todd’s mom had a meaningful impact on my environment. I wish I had known her and had gotten to speak to her about her work.
Todd: Yes, my mom had an interesting career and an incredible impact on the art scene in Hong Kong. My mom was American but brought up mostly in Europe as her father was in the Foreign Service. She had a great love for France and French culture. Through her lifetime of work she actually received two of the highest civilian awards from the French government for her support of art and as an ambassador of French culture. She was a fluent French speaker - so fluent, even the French thought she was French - and she studied art history.
After meeting my father at the University of Minnesota, they went straight off to Chad Africa in the Peace Corp. After two years of service, they got a free trip back to the US where they traveled up through Europe, across Asia, where their last stop was Hong Kong. Rather than go back to the US, they decided to cash in their airplane tickets and stay in Hong Kong for a couple of years. A couple of years turned into 55 years.
My mother started off as a French teacher at the German school but then started working with European and American artists, bringing their art shows to Hong Kong and putting on exhibitions. After a few years, they started to realize that no one was promoting the Chinese artists locally or internationally, so my mom started working with contemporary Chinese artists. She became one of the most well-known contemporary Chinese art dealers in Asia and ended up putting together the art programs for most of the hotels in Hong Kong as well as various clubs and corporations.
She also spent the last 10+ years of her career as the head of Hong Kong Land’s Art Program. Hong Kong Land is the largest land owner in Hong Kong. Most of the art you see today in public spaces owned by Hong Kong Land has my mother’s fingerprints on it. Even today, in Hong Kong, if you dabble in the art scene, you will most certainly find a connection to my mother. Without a doubt, if you stayed at one of the 5-star hotels in Hong Kong during your 71 trips, you would have most certainly stayed at a hotel where she put the art program together with local artists.
Jay: Jarrett, I’m always curious about attorneys who start in ‘Big Law’ and eventually embrace an entrepreneurial spirit and venture out to start a business like you did and my husband, Pete, did. How did that process work for you? Were you totally comfortable with jumping from a traditional legal role to the life insurance and finance world…or were you totally freaked out?
Jarrett: As I was building my law practice, my client base consisted of more and more entrepreneurs and business founders, and I worked closely with many of them to help divest them of their businesses during the late 1990s and 2000s. In that sense, I was becoming more entrenched in private business issues, and as a tax attorney, with some of the more advanced estate and tax planning issues that founders face.
Acquiring that skill set, as well as building those relationships, made the transition to launching Spearhead viable and very very real. The ‘freak out’ part came and went very quickly, and that was in order to build our vision the right way, we needed entities. That meant acquiring a broker-dealer, purchasing an RIA, launching a consulting and administration business. As I look back now, I was probably more ‘freaked out’ over seeing on a consistent basis what had happened to Todd’s golf swing more than anything! “Right in the Lumberyard, Danny!” (chuckling)
Jay: Spearhead has morphed quite a bit from how you started. At first, you were a conventional PPLI brokerage and worked with third-party investment managers to bring their strategies to policy owners. Then, you began to develop your own strategies, and this led to Spearhead offering full-service wealth management. Tell me how you work to prevent any conflict with your PPLI work when you continue to work with third-party managers but also have created your own offerings.
Todd: We really backed into the wealth management business through the demands of our clients, most of which originated as old law clients of Jarrett’s. Our original clients we did PPLI for were the clients that asked us to get into the business and work with their balance sheets.
As our infrastructure developed over time, they slowly started asking us to help them with their investments. Over 80% of our revenue comes from this client base, which is only about 35 families. All of our new wealth management business currently comes from client referrals. We are not really out there competing for wealth management business. It is a very finite and select group.
The foundation of our PPLI and Administration business really started around working with others and driving assets to the industry. We work with a variety of agents, wealth managers and asset managers, and over time, they, along with PPLI insurance carriers, came to us and asked if we would be open to allowing them access to our “piping & plumbing” that we had already built and were using, and thus organically, an Administrative Services Division is born.
As we have grown our PPLI and Administration business, we have divided our resources and support staff. Our PPLI and Administration business is now a stand-alone business. Since our partners and clients within the Admin business are the investment managers and RIAs themselves, we never know their clients, don’t need to know, don’t want to know, they are all just a policy number given to us by our life insurance carrier partners.
At the end of the day, our wealth management and asset management partners will tell you that our team has been able to enhance their PPLI offering by working “hand-in-glove” with their internal operations teams, financial advisors and sales teams, bringing a unique offering that others have not been able to provide in the same way. Big things are happening here for us and our partners in the market… so definitely watch this space in 2022.
Jay: I want to talk for a bit about IDFs and SMAs. For our readers, insurance dedicated funds and separately managed accounts are the format that investments must take to be a part of private placement life insurance and annuity contracts. For years, the industry was led to believe that IDFs were the only option. Spearhead, going back to at least 2015, has embraced the use of SMAs and you see tremendous growth there.
Why are SMAs growing in popularity?
Todd: That is a great question. I would say there are three reasons for the SMA growth and I will tackle two here and let Jarrett handle the third. First, RIAs – as more client wealth moves to the RIA marketplace, more ‘teams’ lift out of wirehouses and set up their own RIAs and they are inherently more entrepreneurial in exploring ways to add ‘down-the-line’ value for their clients through both investments and tax mitigation. The SMA program allows the RIAs to deliver their investment solutions - 100% - and not watered down. Where they are now in a position within a PPLI or PPVA policy to deliver a bespoke, custom investment solution to their client from their own investment menu, and not having to select off an insurance carrier’s investment menu.
Second, education – the more RIAs that are educated on the SMA option, the more they can see the ‘art of the possible’, and how they can deliver their investment strategies and
solutions to their clients. They are not changing the clients’ investment allocation, just potentially the investment location. The more agents that are educated on the SMA option, the more they can help the investment managers and RIAs already in their network and bring them a ‘solution’ that potentially helps the RIA grow their business.
Jarrett: The third reason for the growth in SMA utilization is the greater adoption by life insurance carriers. When we started working with SMAs in 2014-15, there were only a couple of carriers - Crown Global and Lombard International - that allowed for SMA programs within their products. As we enter into 2022, the number of carriers that now have SMA programs has expanded exponentially and with more carriers doing it, there are more people talking about it, and that is a good thing for the entirety of the PPLI industry.
Jay: It wouldn’t be right to discuss your IDF and SMA administration services if you didn’t give some credit to your team member, Ken Foley. If I can think of myself as a staple in the life insurance industry, then Ken is a bolt. Shine the light on Ken, his background and what his efforts have met for Spearhead.
Jarrett: You are 100% right!!! Todd and I were able to get something very small started. It had some assets, it had some brand recognition, but we couldn’t get the “buy in” and we didn’t have the know-how on how to position it just right. As our Wealth Management Division really took off, we felt we had a “wasting asset” in our Administrative Division. We finally went to Ken for his help, and he already had a plan in place. The first year was to rebrand and reposition Spearhead. No one knew we actually had 30 people in our company, had “best-in-class” systems and protocols and had a diverse business base.
The second year was to establish partnerships with agents, wealth managers and asset managers. Ken had worked with all these people for the past 17 years when he was a senior executive at Lombard International before joining us. He knew who to go to and how to work within their systems to get the results they wanted, which ultimately makes our partnership successful.
The third year was all about growing the asset base. The Administration business grew by over 300% in 2021 and will double again in Q1 2022. Needless to say, this platform needed the leadership, skills and focus that Ken possesses and he has made it a big success.
Todd: Very similar to how you & Peter have been able to help your pre-existing network expand their businesses and relationships by looking at things in totality as opposed to thru a single lens. What started as partnering with investment managers and RIAs via our ‘piping and plumbing’, has now grown into not only providing that but assisting with internal education on PPLI and PPVA within the firm, collaboration on marketing materials for them to use for their SMA program, and to being asked by insurance carriers to partner with them to help create their SMA programs within the walls of the carrier itself. Assisting our partners in such a deep and personal way, to help them truly grow their business within PPLI has proven to be just a huge win for them and us.
Jay: One more business question. How can the life insurance industry grow the PPLI market? We hear all the time from clients, “Why haven’t I heard of this before?” and “This is so great…why aren’t more people doing it?”
Jarrett: This is the year, right!?! How many times have all of us heard that?? It starts and ends with education, and a phrase we at Spearhead use daily, “the art of the possible”. The more individuals and firms understand what they can do in PPLI and PPVA and how it can potentially benefit their clients and their business, the more adoption the industry will see as a whole.
Todd: I would add thought leadership. When you have experienced PPLI and PPVA practitioners sharing that experience, providing PPLI and PPVA education with a ‘best practices’ mindset, and marketing simplicity and efficiency as opposed to fear and complexity, the industry will see the growth that we have been waiting for and expecting.
Jay: Let’s hear about your lives outside of work. There must be leisure pursuits that you enjoy independent of one another. …or maybe there isn’t any!
Todd: Well, we like to golf as evidenced by some of the pictures accompanying this interview! (chuckling) And we tend to work a round of golf into any place we travel. Jarrett lives in Florida, and I live in New Jersey. We talk about 10 times a day for about 30 seconds a pop. The nice thing about golfing when we get together is that it gives us 4 hours of uninterrupted conversation. It tends to be where we do our best thinking.
On the personal side, I have 4 kids - 3 daughters and a son - and a wonderful wife. That alone keeps me pretty busy. I have coached 4th grade to 8th grade girls’ basketball for our town’s recreational league for the past 8 years. With my daughters out of the system now, I am coaching the young kids, which I am not sure I am cut out for!
My wife is heavily involved in our town and has been running our Recreational League for the past several years. She is also the treasurer of the library, has run the PTA at school and been the Treasurer for our Mayor’s last 2 elections. Needless to say, being her sidekick also keeps me pretty busy.
But when I get a moment to breathe, I enjoy spending time on the lake water skiing, swimming and enjoying quality time with friends and family.
Jarrett: For me on the personal side, I also have 4 kids - 3 sons and a daughter - and an equally wonderful wife. As you can see, best friends do build everything the same, almost! (laughing) So with all of the above, plus my golf-game to maintain, personal time is precious and overcommitted!!
Jay: Here we are – at the restaurant question. I know Todd, especially, has been thinking about his choices since we booked this interview months ago. Without naming a steakhouse or a steak dish, tell our readers your choices for restaurant they should visit and the dishes there they absolutely have to try.
Todd: So where we find ourselves in the world today, I will leave off my international restaurant suggestions…..and having lived for many many years in Hong Kong & London, I have quite a few, and stick to a domestic option. I recently had a fantastic dinner at a restaurant called MILA in Miami Beach. The whole place is a scene. Make sure to order the grilled branzino for the table. They literally set it on fire!! Top off the night with an after-dinner cocktail at 1 Hotel rooftop or Sugar in Brickell.
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