Compare options for retained earnings by what the money needs to do

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Most business owners think that there's only about three asset classes inside their corporation. Stocks, [music] bonds, real estate, and you were telling me that there's a fourth one and that their accountant has probably never mentioned as well. I call it real estate on paper. It's because it acts exactly as an asset, which is real estate, and it grows as well, which [music] you're allowed to take advantage of those gains while you're alive. And even better, if you do pass, well then we get to transfer all that wealth out taxfree to the inheritance in Canada. So sometimes we're paying 65% tax. Imagine like you take $1,000 out of your ink, you get 500 in your personal pocket, and then you go buy something that's 500 bucks, but it's not $500 anymore, right? It's $575, right? How could we find a way to keep more for ourselves legally?

Now, once we incorporate that doctor, all of a sudden we go from a 53% rate to a 22% rate. That's a lot of money on $700,000 as a cardiologist. If we do the quick math at $210,000 of saved taxes on the day we die, all assets that I own in my holding company are deemed sold. The government comes knocking 6 months later. Nobody that has built a Fortune 500 company doesn't have a board of directors. So, why do you need a solid board of directors? [music] [music] All right, welcome to another episode of Beyond the Bottom Line. I'm your host, Joey Alon, and this shows about pulling back the curtain. How the ultra wealthy actually protect and grow their money taxfree without the gatekeeping or the complexity so that you can follow the same footsteps.

My guest today is Alex Fion, co-founder of Dreams Financial and one of the most interesting advisor I've met in this place because he doesn't just advise business owners. He is one himself. Alex has spent 13 years helping incorporated business owners and professionals in Canada leverage corporateowned insurance as a powerful asset class which is often overlooked by many business owners. So he holds MDRT top of table status which puts him in the top a fraction of financial advisors on the entire nation and he's coached other adviserss as well. He's spoken at industry events. What makes him special and different is his two lens approach that we're going to dive into today. He brings both the emotional understanding of what it's like to run a business and the structural expertise to optimize the financial architecture around it.

He's also the creator of the concept called real estate on paper, which you guys are going to learn about that today. And by the end of this conversation, you're going to understand why that might be the most important thing your corporation right now in Canada is missing. With that said, Alex, welcome to Beyond the Bottom Line. What an intro. Holy moly. [laughter] Okay, I was practicing it for you. Yeah, I love it, man. I love it. I need you to walk around with me and just uh, you know, introduce me to people. I love it, man. Thanks for having me, Joey. Very excited to dive into it. I think uh Canadian business owners that happen to fall or stumble across this conversation are going to be very lucky today. So, uh very excited about all that.

And I want to get into the value straight away. We don't waste any time. Alex, most business owners think that there's only about three asset classes inside their corporation. stocks, bonds, real estate, and you were telling me that there's a fourth one that most incorporated business owners or profess or professionals have never heard of and that their accountant has probably never mentioned as well. Can you get straight away straight to the point about what is it and why is it hiding in plain sight? Yeah, it's such a it's such a crazy concept that uh people not that they're uh uneducated because I think that's the wrong idea here. I think it's just that some people are really good at what they do and others just follow, you know, the guidelines of what is allowed. So, in a holding company, like you said, we could have multiple assets in a holding company.

We're allowed to own real estate, we're allowed to own stocks, bonds, you know, but there's, I think, two other really, really important assets that we could hold in a holding company. Now in a holding company as it's the term holding right is because you want to hold it for life. It's not just something that you want to have for a small amount of time. You want to hold it for life. Now if you get rid of it, whatever that's that's up to you. But one of those assets I call it real estate on paper. Now why do I call it real estate on paper? It's because it acts exactly as an asset which is real estate and it grows as well which you're allowed to take advantage of those gains while you're alive. And even better, well not even better if you die, but even better if you do pass.

Well, then we get to transfer all that wealth out tax-free to the inheritance. It's life insurance essentially. And so when we use life insurance in a holding company, we allow for all those gains within the life insurance policy. And it might be a little bit complex, but the outcome is the same. the outcome is how could I make most of my money work for me while I'm not working, right? And so real estate does that. Real estate, it grows with time, right? And we get paid rental from those real estates as well. Let's call those dividends or profit, whatever you want to call it, rental income. And so eventually if your real estate goes from $1 million to let's just keep round numbers, $2 million, okay, and it grows, well, we're going to have an issue if we die.

That issue is capital gains tax, right? We're going to have to pay taxes if we die. So, one of the parts where it kind of sucks is we have to give away money to the government. That's the first part. But what's really great about real estate is we could pull money out of real estate over time, right? If if my my my entire building was a million dollars and now it's worth $2 million, Joey, well, how would I be able to pull money out in your in your eyes? What are the the ways that I could pull money out? I mean, through some loans. Well, against your financing, right? We could sell it or refinance it. Yeah. Well, if we sell it, yeah, we're going to pay taxes. Yeah. But if we refinance it, well, then the bank typically will lend us 80% loan to value, right?

So, if they could lend us 80% of that $2 million, hypothetically speaking, we're able to now take out more money from that building without selling it. Yeah, that money is not taxable. It's as a loan, right? We'll pay interest at the bank, whatever, but we'll whatever we do with that cash, we get to invest it. We could buy more property. We get to do whatever we want with it. Correct? Yeah. Same thing happens with this life insurance policy. If it's in a holding company and we own a life insurance policy that we're contributing to with retained earnings, well, that policy is going to grow with time. And if we want to leverage it or collateralize it at the bank, well, we could. and then we'll just take money out of there and use it for more real estate, more stocks, more bonds or whatever asset that you want to essentially buy.

I want to stop you there because I'm sure that there's a lot of business owners that are listening to that and as soon as they heard life insurance like it probably even clicked off, right? Because I would have been that business owner a couple years ago before meeting a bunch of you guys. Right now I'm educated and I understand the principle but for those that that that maybe don't and it takes some time to understand like why is there such a big negative connotation around life insurance and why is it hard to understand the difference between life insurance as a employee right or or a normal resident right and a and and as a business owner that actually uses it as an asset. explain that so that we we we get some business owners to stick around a little bit more here.

Yeah, it's it's crazy. It's crazy what life insurance used to be and what it is today is two different animals. It's it's truly not what it is today. That's the first part of it. The second part of it, as you say, as an employee, well, how are we paying for this life insurance policy on the personal side essentially cuz we're not incorporated. So on the personal side, we're paying with after tax dollar. Now, that's not to say that it's not good to have life insurance on the personal side if you have no choice. It's it's best to do so. But life insurance in a holding company is an asset. It's no longer if I die, my my inheritance gets paid. It's now how could I build another asset class in my holding company through taxexempt life insurance.

So, life insurance now becomes an asset. The same way real estate is an asset, the same way stocks are an asset, the same way owning shares to another business. That was my fourth asset because I love owning other businesses. As you said, I'm a business owner myself. So for me, it's all about having, you know, people in place, employing people, allowing them to also make money. And so another asset is owning shares to another corporation, right? All these things trigger tax on death, but not life insurance. So life insurance is is just a tool that we use another asset that we use in the holding company to diversify our portfolio. Okay, there's a negative connotation around it. Fine. It's normal. You know, like if you don't know about something or you're not fully educated on it, well, you're going to have a ne negative connotation around it.

But this is not for 99% of the population. Let's get that clear, right? Who is it for truly? It's for maybe the 1% 2% of the population that have a holding company in place or an incorporation in place. It's for them that say, you know what, I'm building wealth at a different level. I have a lot of money now in my holding company. What what do I do with it? Right? Who do I go see? Who do I who do I speak to? I I don't know. Should I speak to my accountant is always the question. Like maybe my accountant knows about this these strategies. It's not the case. It's uh it's not that accountants are not educated. That's not true at all. I've worked with incredible accountants over the years. It's just that they're used to being reactive to your scenario, right?

The great ones will be proactive. That's if you find a proactive accountant, hold on to him with dear life and pay him money and as much as you can because those are the ones that are going to truly put these strategies in place for you or preferably refer you to an adviser who's going to put these strategies in place for you at a higher level. So, if you're not sure about these kinds of strategies, it's it's okay. It's it's because we're not taught this in school. We're not even taught how to budget in school or how to pay taxes in school. We're not going to learn about the strategy that only 1% of the population needs to know about. Yeah. I I see that a bit like it's like any any opportunities that comes to us that is there there's always the the masses often times that negates it right away and find a way to not adopt it.

I'm just think like AI for example, right? If you speak to just the masses about AI, a lot of people are, oh my god, it's it's going to destroy the world and it's it's going to take all the jobs of everybody. And then there's business owners like us that finds every single way where we can use AI to make our employees better, right? Made everyone better. So even if it has a bad connotation, the ones that actually gets the over that hump of learning it cuz it obviously takes some times to learn it like crypto, right? It's that's another thing similar to that. If you get the if you spend the the the thousand hours of of learning um or at least a hundred, right? you're already going to know more than than 99% of the population.

And I think insurance falls into that, especially in Canada falls into that category as a business owner because once you start seeing it as an asset class that that's what the richest people have ever like are doing and have been doing for decades, then you start acting different, right? Yeah. So, if I if I like asked you a question like how are you integrating AI? Do you think AI is going to replace you in your job? I mean it hasn't yet. I think it made me better. Ah so I I see it and I when I went to one of the conferences in Atlanta and there was a speaker who spoke about AI this was maybe 3 four years ago. He mentioned the centaur. Do you know what a centaur is? [snorts] I've heard the word but I will need you to explain a bit more.

The man horse. Man horse. Yeah. Yeah. Yeah. Yeah. Yeah. So so he always says like you know AI is the horse. We're a man. Now alone a horse is great, a man is great, but a centaur version is when the man uses the horse, right? Or becomes the horse. And so with AI as well, it's if we're not integrating it, then fine, we'll be replaced. Yeah. Okay. But if we use AI, then all of a sudden you just power it up. And now you're [clears throat] saying to yourself, okay, this is this is easier than I've ever thought. I'm able to 10x my business. I'm I'm able to go to another level. And so this is where the difference is made. It's when you figure out how to use these strategies in your holding company combined with your advisor, accountant, and lawyer.

That's where the magic happens. It's it's truly the the biggest difference I've seen is is when all three of us are together in a call. And wh why should an incorporate business owner in Canada think about corporateowned insurance the same way as they think about real estate or equities and businesses? Wow. So Canada um there's a lot of great parts about Canada, a lot of bad parts about Canada. I think we are taxed tremendously in Canada. On the personal level, we get taxed half and then we pay consume good tax as well. So sometimes we're paying 65% tax, right? Imagine like you take $1,000 out of your ink, you get 500 in your personal pocket. And then you go buy something that's 500 bucks, but it's not $500 anymore, right? That's 15% in Quebec. It's 575, [laughter] right?

So you're you're like all of a sudden you you just lost more money. So we're extremely taxed in Canada. Extremely taxed. Where all that money goes, I'm not sure. If they could fix potholes, that would be fantastic [laughter] at least as a starting point, right? But [snorts and clears throat] why are we so heavily taxed? Well, I don't know. But can we find a loophole around it or a legal one at least that says we're able to keep more for ourselves and our families because we work extremely hard for it. Business owners in general, it's not a 9 to5, right, Joey? I mean, you know it yourself. You're a business owner. You you probably put in 80 hours easily, if not more mentally, 100 hours a week. Yeah. Mentally? [laughter] Yeah. all the hours, right?

When you're sleeping, you're working. When that brain is just going and going and going, right? So, we worked extremely hard. And so, for us to be on the personal side, part owners with the government of our personal life, right? Cuz if we keep 50 and they keep 50 or sometimes they even keep more, how could we find a way to keep more for ourselves legally? So, this is where this asset class comes in into your holding company because we're building and building constantly as business owners, right? We're buying real estate cuz it's great. It's one of the best asset tools that we have. Real estate is phenomenal. I truly love real estate. But eventually, I have to pass on this real estate. And so, when I'm going to pass on this real estate, I'll be double taxed again.

How? Well, first in my incorporation on my holding company because all my on on the day we die, right? All there's a deemed disposition what it's called, which means that all assets that I own in my holding company are deemed sold the day I die. Okay? But I didn't sell them. So now what happens is if and we're assuming we don't have a trust in place and but hopefully if you're well structured you do, but let's assume we don't, right? And so now we get taxed in the holding company and then we have to pay a tax bill. The government comes knocking 6 months later. Hey, where's my money? No one's there to manage it. Nobody knows. There's no injection of cash. So what happens in your in your mind? What happens in order to pay this tax bill?

If we own a lot of real estate, we have to sell off the asset to pay for the real estate. This is what great deals are made in real estate. They're called fire sales, right? It's the inheritance is looking at this. The estate is looking at this and it's like, "Look, I don't have $2 million to pay for these taxes, so I'm just going to go sell a building quickly because I just need to get rid of it." Okay, whatever. So, we sell it at a loss. All right, no problem. Hopefully, we we built up enough CDA in the holding company to be able to flow it out taxfree. If we haven't, well, then we'll get taxed again once we pull it out of the holding company. Double taxation. You get screwed twice. If we have life insurance in the holding company, well, now all of a sudden we created two things.

First thing is injection of cash of injection of cash at the exact moment we need it when we die to pay the bill. Second thing we do is we open what's called a CDA. Now for those who don't know what a CDA is, it's a capital dividend account. It's a fixious account that's created by your accountant. See it as a tunnel. All right, Joey. see it as a tunnel where it goes from your incorporation, your holding company to your personal side tax-free. Now, how does CDA is calculated? We could get into it. 50% of the gains, doesn't matter. Just understand that the CDA is created on death by the life insurance policy. So, not only do we get an injection of cash when we need it the most, let's say 2 million, 5 million, 10 million, 20 million to pay off any bill from the government or to keep things rolling while people are mourning and they could try and figure things out as well.

It allows us to free flow assets out of the holding company taxfree. It's a double win. Now once you understand the tax code and you apply it, it's it's it's almost impossible. I I have multi multi-millionaires and most recently billionaires that are asking me for strategies and in conjunction with their accountant and especially their lawyer, we're putting these strategies in place, right? and we're allowing them to say, you know what, if something happens, God forbid, my family will be taken care of fiscally at least. H that's very well explained. That's very well explained. So, I I know that you have real estate yourself, right? Like you're real estate owner, you business owner. So, and you're also a financial adviser. So, you kind of know all the all the spheres and you're not biased at anything because you you have all three, right?

businesses, insurance, and real estate. If I showed you today a sidebyside comparison of a $500,000 real estate investment or a $500,000 into a properly structured corporate insurance strategy for your business, it was through your business. What would the numbers look like 10 years from now? Wow. So I think what's extremely important is that they're not or concepts or r concepts. They're and concepts, right? It's not I'm not asking myself am I going to do real estate or corporate owned life insurance. It's I'm doing real estate and as well I'm doing life insurance. Right? It's just having many pillows around you so if you fall it hurts less. So the projection of that is real estate will win. If this is not if this is a numbers game, real estate will win during the accumulation phase.

But a death life insurance will win. So it all depends when, right? And nobody knows when we're going to die. If we did, I think tax planning would be a lot easier. Um that's scary on the emotional side. I think our families would would lose it a little bit as well as ourselves. But it's not the case. The case is we don't know when we're going to die. So to give those projections is saying in 10 years your half a million dollar let's say real estate property might grow to one one and a half let's say two, right? If we're if we get crazy lucky and it's a really great deal and we put in a lot of work into it and we don't have any headaches from any renters calling us in the middle of the night and we have no renovations to do and everything works out beautifully well, which never does in real estate, eventually we'll have a lot of money in that building.

Great. Fantastic. That's usually a growth rate of let's say 15%. So it's hard to beat. Real estate is very hard to beat. On the life insurance side, we have growth as well in there. It's less. It's 6.35% the dividend rate that's given into this policy every single year. Subject to change and at the same time this this policy is growing taxree. So it's as if in fixed income it were 12%. Or in capital gains it was like 9%. So it's saying okay but Alex that's not as great as my 15% real estate. That's true. That's true. I'm not here to compare rate of return for rate of return because life insurance won't win. That's why I have real estate myself. It's not that game. It's reallocating retained earnings into a policy that I know will help my family.

And strategically, you know what? If 10 years down the line, I have an asset that I built, I could also leverage it. I could also pull out money. I could also buy more real estate with it. So it's it's not just necessarily saying should I do this or should I do this. It's an and it has to be an and concept. This this is what we've always spoken about with with business owners and those who understand the math behind it understand that it's a it's a no-brainer. Yeah. And that's what I see as well for the wealthier people which I think are the one that you're you you work with uh the most which is like having at least $500,000 in retained earnings every year. So you're you're you're owning a a seven figureure business, right?

seven, eight, even sometimes nine figure business. Um, it's it's rarely just one thing. It's oftentimes a stacking of things well presented, right? Which is why you need to have someone and I think that's why in your case, people that work with you are are are luckier because you have access to the different knowledge of of real estate, of of having a business, of all the financial strategies, um, and you get the whole picture. I think it's a multi-layered strategy and structure for most of the time, right? Yeah, definitely. Definitely. And one other thing is when people work with us, they might be missing one of their professionals, right? They might be missing a really solid lawyer, like we call it a tax lawyer, or they might be missing or not missing, but they might not be as happy with their accountant as they should be.

So, one thing working with Dreams Financial is that we have professionals that we work with every single day that we get into calls every single day with and it allows for you to take that load off your shoulder of saying I need to do this or I need to research this or I need to find this or my accountant is not too sure or my advisor is not too sure or my tax lawyer thinks this is best but you know it's not his area of specialty. Yeah. So we we I think we all have found ourselves in this moment at one point during our building of our business. Yeah. For yourself, if if you're not surrounded properly, you've seen the difference as well, I'm guessing. Yeah, for sure. So, yeah, I I I think that if you're you're coming to work with us, the one huge advantage is that if you don't have someone that's fantastic, well, then we have them on our team.

And if you do have someone who's fantastic, that's even better. Then we work with them. Yeah. And accountants are very happy to work with competent people 100%. Lawyers as well. I want to touch on that because that's something I hear you repeat a lot which is the the the the professional synergy gap right which is a lot of people have are working in silos with their professionals. They're working with their fiscalist which doesn't know anything about the accountant side which doesn't know anything about the law side which doesn't know anything about the insurance side and this creates a huge gap where again and that synergy is where the real money or the savings are but that they almost never talk to each other. So what does that gap from what you've seen actually cost a business owner in Canada having that gap within the professionals?

Yeah, the the this the specific number is thousands and thousands and thousands of dollars. There there there's a huge gap in professional advising in Canada, whether it's accounting, tax lawyer, or financial adviser. At Dreams Financial, we call it the triangle. That's my favorite saying. It's the triangle effect. The triangle effect that we've nicknamed it is because in a triangle, we have three sides. Correct? And so we always put financial advisor, accountant and tax lawyer in this triangle. Now in the middle of this triangle, we have the client yourself, right? So the point of this is that if we don't move all together upwards, well, you're going to have each point going in different directions and you're not going to have that synergy that you speak about. That synergy is so important. When you don't have three people on a call together working on your file, you usually have massive gaps in between.

I am not an accountant. Fine, I have a minor in accounting, but I'm not an accountant. I don't do my own accounting purposely. I'm to be up to date constantly with the new laws and the new regulations and what I could deduct, how I could, you know, grow my CDA, all these different things. I'm not a specialist in this. This is I know my area of expertise. tax lawyer as well. I understand corporate structure extremely well, fine, fair, but I'm not going to be opening up operating companies or holding companies or creating shareholder agreements for people. This is just not my area of expertise. And so for the same thing for the accountant or tax lawyer, their area of expert, their area of expertise is not financial advising or corporate own life insurance. Now we educate them on it obviously the same way they educate us on their specialty but it's not an everyday thing.

So we need to work as opposed to in silos as you speak as a triangle together. So when we work as a triangle it goes so much faster. What's that saying that they say like uh uh faster alone uh yeah if you go if you go alone you go faster. If you go you go as a team you go further. Yeah, something like that, right? It's so true. It's so true. I've seen it every single day with clients. When you don't have the right advisory team, it's uh it's a tough tough thing to have. Do you have a specific client situation that you can remember that they were exactly in that position and then you came in connected those three those three dots of the triangle and what was happening before and what changed after they they started talking all together and having that triangle set up?

Yeah. So, one thing that I had I had a client who came in and he told me like, "Alex, look, I have $600,000 in my operating company, right? And every year I keep making more and more money, which is fantastic. That's usually what we love. And so, at the end of the year, what I'll do is I'll just open up um a savings account and I'll just put money in there. The bank is offering me the best rate. You know, you know those [snorts] guys, my bank is offering me the best rate possible." Cool. Oh, what's the rate? 4%. Wow. Okay, that's great. And so I asked the client, I'm like, "So, who advised you to do this?" And they're like, "My accountant." Okay. Okay. Well, how much are you making off it? You said 4%.

Yeah. Well, do you realize there's fixed income passively on that? And so, you're only truly getting half of it. So, it's 2%. It's not four. And so, they're like, "Oh, I didn't know." Okay, cool. So, what else could I do? I was like, well, what else has your accountant offered you to do? They're like, well, that's it, right? Okay, well, you're missing a piece to the puzzle here, right? Did you ask your tax lawyer if you should keep it all in the operating company or maybe we should have a different strategy because you're in a business where you could be liable for anything real quick? No. All right. Do you have a tax letter? Nope. All right. let me add mine into the call with your accountant. Right now, when speaking to the accountant, the accountant is like, "Well, look, it's not necessary that I advise him to do it, but I'm not a strategist when it comes to this." So, we spoke about the situation together, and what we were able to do is we're able to keep most of his retained earnings as opposed to losing half of it.

One quick move was just moving it into an investment account and instead of paying fixed income, we're paying capital gains. So, that's 26%. Number one. Number two is having a holding company, right? Where we could shelter this money into a different company and grow it as a passive company. Operating company is more of an active company. We could get into it further as we go. But having it in a passive company, well, now all of a sudden we could do more things with it, right? Cuz you don't want to necessarily own real estate in your operating company. It's going to contaminate it. It's not going to be great. Passive income rules, you're going to grind down a lot of different things. So, we move it to the holding company. Now all of a sudden the client feels like, "Okay, I have direction." He tells me like, "I was going to pull it all out just to buy real estate on my personal side." And so the accountant goes, "No, no, no, no, no, no.

Don't do that. You're going to lose half." He goes, "Oh, okay. So here we just kept it all into the holding company. So instead of having 300 on his personal side, he now has 600 in his holding. So instead of buying that one building that he was going to put it down for 300, he could buy two buildings. [snorts and laughter] How much is that worth? Right? So it's just thinking outside the box. I think that's the most important piece is that we all think outside the box at times. And if your accountant thinking outside the box and your tax lawyer and your financial adviser and we're all thinking outside the box, well, we could just throw things out on the whiteboard. If it sticks, it sticks like spaghetti. If not, we toss it. And so we just keep going with whatever you want to accomplish.

What are your dreams? What What do you want to do? Right? Did you just want to hoard cash for a rainy day or do you want to grow your wealth? That's essentially how we've saved business owners hundreds of thousands of dollars over the years. And you talk about real estate on paper, which is a catchy name and probably makes a made a lot of people stop to watch this episode. I want you to explain it right as as best as you can in a way that answering the question of how does corporate insurance give a business or the benefits of real estate without the headache because that I think that's where the big benefit of real on paper is. It's real estate without all the the tenants and the headache of owning a physical building.

Oh yeah. Well, let's start with the headaches. What kind of headaches do you foresee in real estate, Joey? Oh my god, man. It's uh the tenants, the leaking, the management of everybody that has to fix everything. Yeah. Not renting anything, right? Your your vacancy. I can go on and on, but these are the top ones. People not paying in time, squatting. Uh there's so many different things that could happen in real estate. Uh it's sometimes, you know, there's fires that could happen. We have insurance for that. Okay, I got it. But like it's a headache. It's uh it's not as easy peasy as I'm going to buy a building and I'll see you in 20 years. That's that's not the reality of things. So with great returns as real estate gives, great effort comes with it, right?

Kind of Spider-Man style. So we we need to kind of say to ourselves, fine, real estate is fantastic, but I have to put a lot of time and effort. But most of our business owners don't have the time. Most of our doctors have even less time, right? They're working excessive hours and they just don't have the time to allocate towards it. So, they'll put a team in place, but they'll lose 25%. Okay, fine. No problem. Cool. But there are headaches in real estate. So, how do we go with that to a headache-free corporate owned life insurance? That's that's the strategy that we put in place. So, corporate owned life insurance works as follows. We put a policy in place in your holding company for a certain capital amount. Let's call it $5 million in case you die.

Great. We're going to fund this policy every single year. All right. Let's say $100,000 a year. Great. And this $5 million acts as a building that you would own where if you own a building today, it's not going to be the same value next year or 10 years from now. If it is, you've you've done something quite wrong. Quite wrong as we've seen in the real estate market. I think all our parents could probably attest to this that real estate has helped them out when they bought it for 40k and now it's worth 4 million. So real estate is fantastic like we said right and it grows with time. This corporate owned life insurance policy that we are covered for $5 million essentially will grow with time as well. We usually see a 2x multiple on this 5 million after 20 years usually at the death benefit level.

But at the cash level is whatever we've put into it, we usually have a break even after year six. If I put in $100,000 a year, my cash, now let's be specific on this. That means that I have cash like a imagine a savings account within this life insurance policy. All right, this cash surrender value as it's coined. this cash value in the life insurance policy will break even on the amount that you're depositing into it at year six. So if I put in 100k times six, I usually have a break even at $600,000 of cash value in this policy at year six. Let's go a step further because break even is not so much fun. At year 10, right, this 600,000 of cash is also growing every single year. So, we would have put in a million bucks, but it's no longer a million.

Now, it's roughly 1.3 $1.4 million because it's grown. This this account over years. If we keep going further and further and further, we could keep going. And like I said, this 5 million will also grow of death benefit will also grow. But as my question happened before, how do we access this cash that's in the policy? This is this is where the difference is made is is understanding how do we access this cash? It's a very big question mark in the industry and a lot of advisers are unfortunately giving really bad advice on these types of policies. So, how do we access the cash? Well, we hit up a bank and we say, "Hey bank, I have an asset right here, right? I have this policy right here and this policy is worth $1.4 million if I cancel it." The cash surrender value surrendering it, right?

If I cancel this policy, Joey, I'll have $1.4 million. But I don't want to cancel because there'll be tax implications. So what I'll tell the bank is, I have $1.4 million. Can you lend me off this $1.4 million? And they're going to say, well, of course, because if you don't pay me, I'll just cancel it. Yeah. Right. When you put it in collateral, now the bank is first payer. So they love this. This is like this is like their their their bread and butter. Bread and butter, right? [laughter] This is like so easy for them. Imagine if I told you Joey like look lend me 1.2 million on the 1.4 million charge me interest right prime let's say and worst case I cash in 1.4 no well you'll cash in 1.2 two and you'll give me the other 200, right?

Whatever the loan is. So, it's gold for you because you're like, I have a guarantee here and I'm also being paid interest. Yeah. So, the bank is like, please come on in. Red carpet, my friend. And so, when we get this line of credit on this policy, essentially it's a line of credit on the policy. Well, now we get to use it for whatever we want to build more business. What could you do with 1.2 million? Joey, where do we start? What kind of business would you want to buy for? I'll reinvest in the business. Reinvest in whatever will give me the best return right now. Right. Right. So, maybe more real estate. More real estate. Yeah. Maybe stocks. Yeah. Maybe maybe you become, you know, like a venture capitalist style where you're going to invest in another business.

Someone brings you a business idea. They go, "Hey, look, I have this amazing idea, right? We're going to sell coffee to, I don't know, to young professionals in a in a building and I have the perfect idea. It's the best business plan ever." Da da da. We're going to source it. I need capital, Joey. I I have time. I know you don't have time. I have capital. I need capital. Sorry. Yeah. So, okay. You give him a million dollars. Now, you own 50% of the business. Where did this come from? Well, it's from the line of credit off the policy. Yeah. Once you start making more money, you reimburse the the line of credit and you free the collateral. And the the policy kept on building, right? Yeah. If you refinance a building, actually, Joey, does the does the building stop growing?

No, it keeps growing, right? Right. And so like five years later, can you refinance it again on the growth? I think so. Yeah. Yeah. Yeah. Absolutely. The same way this policy works, right? So, if I if I loan myself $1.2 million from this policy, it's going to keep growing. And if it grows to $2 million, that difference I could also grab as a line of credit. So, it's going to keep growing no matter if you have a collateralized loan on it or not. This is the magic behind this policy. This is where you make the difference between building wealth and just put money aside in a checking account. Hm. That's interesting. And I think you're explaining it very very well. That makes a lot of sense. And um I know that you said that you specialize with professionals and a lot of doctors, right, from Montreal or province of Quebec.

I know you're licensed or you're getting a license in other provinces in Canada, but mainly in province of Quebec, specialists making at least $500,000 or more or retaining that every year. Why do you think is this particular group so underserved? and what are they specifically leaving on the table um inside that holding company for those that even have one? Yeah. Wow, what a great question. Uh yeah, I'm excited. We just got our licenses in Ontario, New Brunswick, working in Alberta, BC. So, uh really, really cool stuff happening right now. And doctors now doctors their number one element that goes against them is time. time is is is is a killer for them. They they they work crazy hours. They're, you know, underappreciated as well from a lot of the public. People are like, "Oh, he makes half a million dollars a year.

He's great." They don't realize that everything that has to go into account that that has to be taken into account for these doctors. So doctors don't have time to go and research every single strategy in finance. It's it's not their domain. The same way you can't you're not going to research every single thing about your health. Something goes wrong, you're not chant GPT, how could I get better? You're going to the emergency room, right? Then they're going to take care of you because they have all these years of experience. So doctors who we are serving don't have that time. And so the the reason why they come to us is because we specialize in them. We know their ins and outs. We know the problems that they face on a daily basis. We know what would they would like to achieve.

And we asked them, "How would you want to achieve it?" Right? And we put these strategies in place. So we see these doctors that are making half a million dollars a year all the way up to I have doctors making $1.2 million a year. These guys are working crazy hours. Also, they're saving lives every single day. So for us, it's how could we serve you best? What could we do for you to alleviate your financial problems that you might face? Or how could we grow your wealth even better? And so they're like, "Well, give me time." Right? So we give them time and we give them education on what we need to do and what strategies we need to put in place. And we work with their accountants and their lawyers as well or we usually implement our own cuz they don't have them.

And then we essentially put these different products in place and these different strategies, right? These different strategies that we put in place for them. Well, it goes from in their operating company having a solid solid critical illness policy in place because if they get sick, ain't nobody paying them. That's for sure. And we also put a holding company typically in place because they'll have enough retained earnings to do so typically. And in that holding company, we'll put real estate if they want to. Some doctors don't like the headaches and they don't have the time to manage investment. So stocks, bonds as you say, right in there and we'll grow it for them. They love the passive effect of that life insurance policy as well in there because if you're building a family and and a big estate, you want to protect that estate.

And then sometimes we'll put shares to another med medical clinic that they'll buy, right? And that's also great passive income. So having this structure in place for these doctors, understanding that in Quebec you need a prem in order to work in Quebec, understanding that, you know, you're going to graduate and you're going to have a $350,000 line of credit that's practically full on your personal side and how do we get rid of that? Understanding all the hours that they put into their work. Understanding exactly what they go through mentally on a daily basis is what we faced over the last 13 years. Now, I'm not a doctor, but I definitely know how to serve them. Let's say I'm a doctor. I'm a cardiologist in Montreal. I make about 700 grand a year. And I walk into your office.

I have about 1.5 million in my old co um earning about 3% in guaranteed investment certificates, right? GIC's. What's the first thing you would show me? Wow. Wow. The first thing I need to understand is how much are you pulling out of your operating company onto your personal side? and let's try and limit that as much as possible. The second thing that I'm going to figure out is all right well now what kind of protections do you have in place because it's nice to earn $700,000 but if we get sick we're earning nothing. I don't have any protection. I'm just working right. I'm just working. No protection. Wow. Okay. Well, if you have no protection in place and you're between the ages of 30 to 50 years old, we're definitely putting a critical illness policy in place for you.

Definitely. Uh typically for at that level typically we're going to put at least $2 million of critical illness in place. After that in your holding company when you where you have that $ 1.5 million making what did you say 3%. 3% GIC's GIC's. So essentially a net rate of 1.5%. Yeah. Right. So that's I mean not even touching inflation at this point. Yeah. You're you're losing money essentially, right? Um, and it's just more work for the accountant for no reason. So, what we're essentially going to do is ask you the questions of what do you want to do with this $ 1.5 million? What are goals you want to set for yourself for this money? How much money do you want to eventually grow this money to? Right? We'll ask all the great questions that come with there's a series of questions that I always ask and there's a back and forth that happens.

Once I understand that this is what you want to do, I could put a financial plan in place for you. Right? If it's real estate, well, then we have real estate investors that work with Dreams that will be able to help you find the best piece of real estate for you. If it's investments, well, let's put it in proper investments that will yield less taxes, right? Because GIC's is, in my opinion, the worst place you could ever put money, even if you're 70 years old. [laughter] [snorts] I would say even especially if you're 70 years old. Yeah. Right. If you're 70 years old and you're putting money into a GIC, well, who is this money for? Because you're not going to use it all. Yeah, it's for the next gen. So, why are you invested based off your risk?

Invested based off their risk. Anyways, that was just a little in between of how I speak to clients, but it's kind of seeing things holistically, right? And not saying I'm going to make 1.5%. Can I go make it 8 n 10% in the market, 11 12 15? Yes. in the last 10 years. Just kept it in the S&P and you would have made 20% in the last few years. 12.4% in the S&P, right? Crazy. Now, we've outperformed the S&P, which is fantastic. But essentially, our our portfolio has made at least 17% in the last 10 years compounded yearly. That 1.5%. It would take it 17 years just to get to that 17% in that one year, right? So like you're you're just going at a whole different level. You're now exploding your wealth at a different level.

Can you lose money? Yeah, you could. But in the long term, you're going to make money in anything you do. And so I'll ask them, is your dream to build your own clinic? Do you want to acquire a clinic? Is that something you want to do? Most of the time it's no because there's headaches that come with being a business owner. So fine, no problem. If it's yes, okay, let's get your account on the call. Let's let's try and figure out how we could do this best right now. And sorry, I want to ask you this cuz I think that's what a lot of business owners might think of as well. Like let's say you're in your your mid20s, right? Early 30s and you're a doctor. You just finished all your studies and you're finally making almost a million dollars a year, right?

700K a year. You want to enjoy for yourself, right? But right now, if you don't have any strategies in place, you're basically working half the year for the government for free, not making any money. half the year cuz that goes to taxes. Is there a way like of course I want some for the legacy for the future, but like right now I just want to I just want to have a bit more for myself. Is there anything I can do to not pay 50% taxes like right now and just have a bit more for myself right now? Yeah. Yeah. Wow. You just touched on a huge subject. A huge subject. And we have time. Let's get into it. One of my least favorite things is the line of credit that medical students receive. Yeah. So, all medical students are usually offered by the bank a $350,000 line of credit.

Yeah. Okay. Now, doctors or medical students when they get this line of credit, they say to themselves, "I'm going to use it. I'm going to use it. When I graduate, I'll make 700,000. I'll pay it off one shot." Yeah. You [laughter] know, you know, just forgot. forgot about the tax men there and their living expenses while while they're working, right? Yeah. They're not going to drive a a Toyota or or a Civic, right? If they make a 700 grand, another problem is saying, "Oh, the doctor I'm working with is driving a Porsche 911." Yeah. I'm going to go buy myself one. My god, what a mistake. Right. You didn't realize that that doctor has been working for 15 years and has been building up all these strategies and has enough cash in order to build or in order to buy this 911.

Right? So, you're you're just getting out of residency. You're getting into your first year. You're not incorporated yet. Why? Well, I have a lot of debt on my personal side. Okay, let's figure out a way of to paying it off slowly. You know, like we'll we'll take care of it slowly, slowly, slowly. Not a problem. Not a problem. Whatever. we'll take care of that line of credit. That's the first problem that we see. The second one is if I make 700, I'm going to be left with 350. It seems like a lot of money, but it goes very, very fast nowadays. You have a lot of expenses as a doctor that are not spoken about out loud. So, we need to figure out how much are we going to budget on the personal side. The least amount of money I get to use on my personal side, the more wealth I'll build on my corporate side.

So, we incorporate the doctor, right? We try and tie in his line of credit that he has on the personal side. And if there's like a little window that we could open up here for a second is saying, "What was that $350,000 used for? That line of credit, right? Was it used to go on vacation like most of them do? Was it used to buying clothing?" Right? Non-deductible interest as we call it. So, what was that $350,000 used? Cuz it's definitely not used for schooling. All of it. Maybe half of it. But we can't deduct the other half, the interest on the other half, which sucks. So, we want to make sure that we educate the medical student to say, don't first of all, try not to use it at all. Try not to. And if you're going to use it, use it because you are building a business in your brain.

The smartest ones will take this line of credit and buy property with it. but is very very small amount of very smart ones in the financial field, right? They usually have a financial background or they're really well advised. Now, once we incorporate that doctor, all of a sudden we go from a 53% rate to a 22% rate. That's a 30% savings on your taxes. That's a lot of money on $700,000 as a cardiologist, right? If we do the quick math, that's $210,000 of saved taxes. Now, okay, fine. We also have to pay corporate tax. I get it. No problem. Okay, 20% there. But when we take out money on our personal side, we get to deduct it against the whatever. Essentially, the effective rate is a lot lower than if we didn't incorporate. So, we incorporate the doctor and all of a sudden we have if they're do working in multiple clinics or multiple hospitals, they could put the card through the ink to some degree.

They could deduct their insurance. They could deduct, you know, their their gas or their electricity. They could deduct whatever they want. You know, they could pay an admin as well, which most of the time is their spouse and that's a salary that goes against the ink. So, it's less taxes for the ink. Then there's a bottom line. What do we do with that bottom line? Well, we're going to move some of it into the holding company and some of it we're going to put into a critical illness policy which 15 years later if structured properly and there's a nice taxable benefit associated to it could be taken out all tax-free into the that doctor's personal pocket. So, if we take random numbers right now, the rough numbers, and we say, you know what, we're going to put in to this critical illness policy, $50,000 a year.

All right, the rest of the the $300,000 that I made in the in the ink. I'm going to push that to my holding company, but I'm going to take a small portion, 50k, I'm going to reallocate it into this critical illness policy. I'm I multiply it by 15 years, right? So all of a sudden I have $750,000 in this policy at year 15 if structured properly and we've taken a small taxable benefit on it every single year and the business is not relying on it in order to keep going. It's not in like deficits or stuff like that. We get to pull out we get to cancel this policy and pull out that $750,000 taxfree into the doctor's personal pocket. M. So Joey, I'm going to ask you to do quick mental math. It's on the fly, so you better be good with it.

But if if I pulled out $750,000 today from my ink into my personal pocket, how much would I have in my personal pocket? 750k after tax divided by two 375 375. So now if we reverse engineer it and we say 750,000 in my personal pocket, how much is that in the ink? 375. So, no. If I have if I have $750,000 in my personal pocket. Yeah. How much did I need to take out of the ink to get $750,000 in my personal pocket? Oh, 1.5. 1.5. Yeah. That's the missing gap is that I needed to generate enough money for this $50,000 a year every single year to get to $1.5 million in my holding company in order to liquidate that 1.5 one shot to get 750 in my personal pocket. Yeah, I get it. Damn, it's huge.

Yeah, it's big. That that you know what that rate of return is? I I won't I'll spare you the math. It's 14.1%. Yeah. Compounded yearly. And how do you get that? How do you get there? So, if I take $50,000 and I threw it into a stock. Yeah. And I put the end goal of $1.5 million. All this is done through my holding company. I I put $50,000 a year into a stock. Yeah. Every year for 15 years. At the end of the 15 years, I have $1.5 million. At year 15, I say, "I don't want this stock anymore. I sell it and I pull all that money out. Well, after paying capital gains tax, but I pull all that money out taxfree into my personal pocket to get 750,000. That rate of return is 14.1%.

Compounded after tax. Very, very important. After tax Yeah. So now all of a sudden I'm saying real estate is 15% average. stocks S&P is 12 13% average and now I have a critical illness policy that's also generating me 14%. So now I'm double digits on all my assets. And the most important part that we keep forgetting, Joey, I've been insured for $2 million. I get sick. Yeah. During those 15 years, it's a win-winwin. Well, it's not a win if we get sick. [laughter] No, no, no. But at least you're you're it's less of a loss. Less of a loss. Less of a financial burden on my company. Huh. That's really that's really strong. So, it really goes down to having that again that holistic picture of of compounding those different assets and not just relying on um real estate or stocks or anything like that.

And a lot of people don't even have that first step to take to, right? Yeah. Yeah. They It's It's kind of like we always tell people, it's scary taking the first step. It's scary. Like you you understood the first time, but I'm going to need to repeat myself every time. And that's okay. Like we love doing that. That's the education piece. But if we're able to understand it and take one step, we'll take that other step with you. And so now you have two feet in front of you as opposed to saying, "Ah, I I'm not sure." Right? Yeah, we run this by your accountant anyways cuz he's in these calls. We're running this by your tax law as well because he's in these calls alone. It's a little bit scary. That's very strong. Yeah, I like how you explained that.

Um I want to I want to ask you that question. We're going to wrap up soon, but uh that was very valuable and I think this this podcast episode is going to hit a lot for those business owners. I think it makes a lot of sense if if an incorporate business owner would come to you um and like they're watching this video right now and they never had the conversation about corporate insurance as an asset class. What's the one thing they should do before the end of this month um to at least get off zero or get get to the next step, whatever that next step could be for them. Yeah. The first thing they should do is they should reach out and have a discovery call as we call it a fit test to see if they want to work with us cuz it's possible that we like them, they don't like us or they like us and we don't get along with them, right?

So, a fit test is always very important. Now, you could also reach out to many different adviserss if you want to and put them through the interview process and make sure that their knowledge is up to par with what you've heard so far. And so, that's the first step is acknowledging that you know what, I want to grow wealth. Let me reach out. Second step is looking quickly at my finances, right? What's on my balance sheet right now? How much money am I holding or hoarding as we call it, right? What can I do with it? Or what do I want to do with it? Jot down three different ideas. Three different ideas. Doesn't have to be 50. Three different ideas of what you want to do. So you'll you'll be ready for the call when you jump in with us.

Once we acknowledge those three things, we'll associate different allocations of money to those goals so we could track them. It's not a very complex situation if you understand what you're doing as you're doing it. When it becomes complex is because you have no idea what's going on. Yeah. Like anything in life. Yeah. Right. A surgery, right? If you're going in for surgery and imagine the doctor goes, "Yeah, we're going to slice over in here. We're going to move your iota to the left. We're going to push this out to the right." Already, I don't even understand the terms. So, I I I I don't even know what you're saying. And now I'm even more terrified. Yeah. Right. Just tell me, doc, that you're gonna take care of it and that you know what you're doing and I'm going to ask you the right questions that I have in mind and once you answer them, let's go ahead.

Let's get rid of this problem. That's good. That's good. That was amazing. Alex, I want to end with this question, which is the the legacy question I like to I like to call. So, if this episode were to outlive you, which hopefully it will, what's the one lesson about building wealth and keeping more about for of what you earn as a Canadian business owner that you would want everyone watching this to remember? Wow, what a question. Just one thing. What's one thing? all those years of of experience. One thing I would say is surround yourself with the right people and make sure they're all talking to each other. Make sure you're not building wealth alone. It's not a fun journey. It's always funner to do things with a nice team around you. So, I would say reach out to the right people, right?

Get the right advisory team in place for yourself. Make sure like any board of directors that you have the right people on that board of directors. Nobody that has built a Fortune 500 company doesn't have a board of directors. So why why why does why do you need a solid board of directors? What's the point? Guidance. It's different views, right? Understanding that there people have different views and you have the vision of what you want to accomplish. But to implement that vision, you need a nice board of directors. Surround yourself with the right board of directors. That's great. That's good. That was amazing. And uh hopefully if you're a business owner in Canada, that's that watch it through the end of this episode. If you realize that again, you're three professionals might right now might not be talking to each other or uh you got interested about real estate on paper, I'm going to put Alex's information below so that you guys can look at what what he does.

Uh same thing with Brazil Wealth Group as well. Uh, [music] but the most important thing is if you like those episodes, just subscribe, ask your questions in the comments. Me and Alex will be able to answer those and this [music] confirms that you guys are liking it and and and and uh encourage us to get more guests like Alex on the show. So, uh, [music] subscribe and and and every Monday we'll be posting a new episode. And Alex, I want to thank you for your time and the knowledge you dropped. I think that was one of the best [music] and I don't say that every episode, but that was one of the most valuable episode that that we got for Canadian business owners. I want to thank you for that.