Maximize & Manage Your Money Like a Billionaire with Jim Dew – EP 185

Justin Donald: What's up, Jim? Good to have you on the show.

 

Jim Dew: Hey, Justin. How are you?

 

Justin Donald: I'm doing great. It's always a pleasure getting time with you. And I'm excited for today because it's not just you and me. We have a whole bunch of people that are going to listen in, and I think they're going to learn all kinds of cool stuff from you.

 

Jim Dew: Yeah. I always love my time with you, and we always manage to uncover some interesting things to talk about.

 

Justin Donald: We do, don't we? And you are really kind and thoughtful and gracious to include me in one of your last messages. You were speaking to a group that we are part of called The Wellspring. Just an incredible group of Christian entrepreneurs. And you were giving this awesome talk on money and you're like, "Hey, Justin, we got to loop you in here. I'd like for people to hear your opinion as well.” And I think you do such a good job of not feeling like you have to be the foremost expert but that you're so confident in yourself, you can bring anyone else in that has relevant data or insights into what you're talking about. And I think that's really cool.

 

Jim Dew: Well, thanks, Justin. I think you and I share that and I can't know everything. I don't know everything. And I want to include other really smart people like you that just makes it better for everyone who's trying to learn and grow. And that's really the game, right? We're all trying to learn and grow in life.

 

Justin Donald: Yeah, there's no doubt. It's really funny. I went through your credentials and I was like, "Oh my goodness.” You have so many darn credentials. I mean, I don't even want to list all of them here. Like, you should actually list a few of them for everyone. But it's like I was looking through, you've got like 15 different sets of credentials. So, if you were to just summarize it real quick so people know how qualified you are, like, what are the key ones?

 

Jim Dew: Yeah. I guess that shows that I don't have a lot of hobbies, right? Yeah. Well, I have my MBA, which is always helpful in business. I had my certified financial planner designation, which kind of is a fundamental base for financial advisory work but very basic type stuff there. Certified Private Wealth Advisor, that's a little more advanced and complex. That was at the University of Chicago. I mean, those are some of the big ones that I have but I think the biggest thing that I have is 30 years of experience in the finance world and 25 years of experience of running the company that Mimi and I started 25 years ago.

 

Justin Donald: That's right. And you guys have been married almost 30 years or maybe a little over 30 years, which is incredible in itself but that you've been in business doing business for almost just as long that you're co-running a business. I mean, we could do a whole podcast episode just on how you've been able to survive that.

 

Jim Dew: Yeah. Well, I like to say that if she would have killed me in our first year of marriage, she'd be out of prison by now but it's too late. This year I'll be 32 years married and March was 35 years since our first date, which is pretty hard to believe, you know?

 

Justin Donald: Unbelievable. Yeah, that's awesome. And for those of you that have never met Mimi, she is incredible. And one of the faces of the business but just a real gem, just huge energy. And both of you guys, you're so fit. Whatever you do, the way you eat, the way you work out, whatever you're doing, you guys are both so fit. People should probably learn from you on that front, too, even though today we're going to probably talk about finances, investing, wealth creation, asset allocation, and estate planning, all the stuff, asset protection. We're going to get into it all.

 

Jim Dew: That's great. Yeah, I'm looking forward to it. Yeah. Mimi's not only an amazing wife and partner but an amazing business owner. I always say she's my number one person to go to for consulting on business. She just has so much experience and grew up in an entrepreneurial family, which I didn't grow up in a family like that. So, that's great but, yeah, I would love to talk about some of the stuff that you and I kind of banter back and forth on.

 

Justin Donald: Yeah, this is fun. You and I can geek out on all these details and how we build wealth and how we save on taxes. And so, we got to get into that. Before we do, though, you guys are going, you're taking one of my favorite trips in the world. And we were talking about this a little bit off air that you're actually going to disconnect, for a handful of weeks, not check emails, not check text messages or phone calls. I mean, you are literally going off the grid but in the best place to be off the grid, which is in France, all over France. I'm assuming Bordeaux is part of that list. And I'm so excited for some of these chateaux that I know you're going to hit up.

 

Jim Dew: Yeah. Thanks, Justin, and thanks, for you gave us some tips as well. Yeah. I mean, we've never taken a trip where we didn't check email, check in with the office, but we have a great executive team. We have our managing partner, we have our COO, we have extraordinary people, and part of it is just founder's syndrome, where you create this baby and you build it up to where it is today. Now, we’re 33 employees and you just don't want to leave it alone. You're afraid that something's going to happen to it. And so, we've had some counseling kind of from our team to say, "Go. We're fine. Everything's good. You don't have to worry about something blowing up.” And so, we're going to do that and we're committed to not checking. And I would encourage everyone who's listening at some point it's good just to disconnect. And I mean disconnect. No emails, no text messaging, all that kind of stuff. So, that's what we're going to do. We're excited.

 

Justin Donald: I love it. That's so fun. So, you're going to have a blast and you're going to try some amazing wine and you're going to let me know all this other cool stuff about wine that I haven't yet figured out or some chateaux you go to that I haven't been to. So, I'm looking forward to that. I would love to, before we get into all the nitty gritty details, I think it's important to just share the huge pivot that you made being a teacher to running a family office or fractional family office and even what that is so people can better understand that. But then I also think you have had some unique experiences just on structuring the office, structuring a deal for a sale.

 

You know, I don't know how much of the details we can get into, if any, on the ESOP but even understanding what one of those is for people that could be listening and in a situation where that makes sense for them. I've had several friends that have moved forward with an ESOP type of strategy and structure for an exit. And then I'd love to get into some tactical stuff with you. So, let's start, though, with this huge transition from teacher to, I mean, you're still a teacher but you just teach differently.

 

Jim Dew: Yeah. Really, the first thing is I was raised by depression-era parents. You know, in France, we're going to go to Normandy, which is going to be very emotional for me because my dad was in World War II in a combat zone in the South Pacific. So, not in Europe but in the South Pacific but same kind of thing. I mean, these young men who went over there and risked their lives and luckily my dad survived. That's why I'm here. But because my parents grew up very poor in the depression, they were very frugal. So, by the time I came along, they had found Tucson, Arizona, of all places. That's where I was born, and we were middle class but I wouldn't have known it because we lived in a little crappy house, went to public schools.

 

No one in the neighborhood had anything nice. You know, we drove Chevys and Fords, and half the time they were broken down. We had no garage or carport. Our cars would just be parked in the dirt on the side of the house. My mom never owned a dryer. She hung up the clothes to dry. So, that kind of family. So, I saw no utility in money. So, I was good at math and science, and I had a counselor in college say, "What do you want to do?” And I said, "Well, I don't care if I ever make any money. I just want to make a difference.” And she said, "Well, you're good at math. You should be a math teacher.” So, I became a public school math teacher. I did that for five years, realized I love the kids but hated the system. We can go into that another day.

 

So, I looked for another way I could use numbers and make a difference. And I knew a guy who was a financial advisor and he said, "You should do what I do.” So, I joined a New York brokerage firm in their Phoenix office, and four years later, guess what I discovered? That's a broken system. I still feel like it's broken today. It's really run by brokerage firms, insurance companies, and banks. So, I went home to Mimi, who you know and, like I said, she has entrepreneurship in her family and her genes. I don't. I went home and I complained about how the system was broken. And she said, "Why don't you start your own company?” And I said, "Hon, I don't think you're listening. I said banks, brokerage firms, and insurance companies.” And she said, “I didn't say I knew how to do it but you're never going to be happy working in these systems.”

 

So, in 1999, we started to do wealth management. We decided we would focus and work with entrepreneurs like us. And then the next big thing that happened is we learned about this thing called a family office that you're very well aware of.

 

Justin Donald: Yeah. So, for those that aren't, it's interesting. And by the way, I feel like this term gets thrown around a lot, “Oh, I have a family office.” And for some people, it's kind of like a status symbol. It's like, "Let me throw some weight around and tell you about my family office.” And I don't like it for that sake but the purpose of it, I think, is brilliant. And if you can afford to build your own family office, which is kind of in housing, everything that you would do from accounting to investments to risk management to insurance, whatever it is, having a team that basically runs all aspects of your life, well, by all means, do it. But most people can't afford that. And that's where you get into kind of the multifamily office options or the fractional family office.

 

So, I'd love for you to maybe even define it more cleanly than I did so people can get a feel for what it is, how it started, and maybe the evolution of it over the last, I mean, family offices haven't been around that long. So, I mean, even over the last five years, there's been major innovations.

 

Jim Dew: Major innovations. Yeah. Although the very first family offices are we track them back 150 years. You know, J.P. Morgan had a family office but really, the modern-era family offices have come around just because of the mass numbers of billionaires that the global economy has created. I mean, if you look at the number of billionaires today compared to 20 years ago, compared to 50 years ago, I mean, it's just exponential growth. And so, they have the same problems that all entrepreneur business owners have because most billionaires are people who started businesses. That's how you get wealthy in America, primarily, being concentrated in a small business that gets to be a big enough business to where you can sell and be a billionaire.

 

So, the problem that these billionaires had is the same problem that other entrepreneurs have, which is you have an attorney, you have an accountant, you have an insurance agent, you have a banker, you have all these professionals but there's no coordination. No one's talking to each other. No one's holding them accountable. There's no united strategy on vision of the owner. Well, the billionaires figured that out a long time ago, and they said, "Well, why don't we just hire all of those professionals as full-time employees and just give them one job, and that's working for this family and achieving the family's goals and visions?” So, that's great. But as you alluded to, it's very expensive.

 

The family office I know, best in New York, I think they have 47 CPAs in their tax department. So, you can do the math. I mean, it's just very expensive, very small as family offices cost 5 or 10 million to create and then payrolls a million minimum, usually a lot more than that. And of course, bigger family offices are paying tens of millions of dollars of payroll. It's almost its own business. But by having those W-2 employees that are only loyal to the billionaire family, then you get that coordination. You get the accountability.

 

So, when I learned about this a long time ago, before people were talking about it, I thought, "That sounds pretty cool.” I asked around, I got introduced to this billionaire family in New York. Never got to know the billionaire. I got to know the team and the family office structure. Flew to New York, spent time with them. And I just realized it's not just the best structure for a billionaire, it's the best structure for any entrepreneur. But as I said, very expensive but also worth it. That's why Sara Blakely has one and Bill gates has one, and Oprah Winfrey has one, and all the billionaires, and the ultra-wealthy have family offices. So, I thought, you know, I went home to Mimi, I said, "Gosh, we would like that selfishly for ourselves but it cost too much. Well, what if we could create what we'll call on what we've trademarked the Entrepreneur's Virtual Family Office, a virtual family office that gets similar benefits without all that payroll cost and all the setup cost?”

 

And so, our idea was and the way we do it so I guess I should differentiate some people will use multifamily offices where you'll have, let's say, several families using the same team of professionals. So, maybe you have ten families and they all have the same CPA or the same attorney, right? And they're all kind of focused. So, then it gets those professionals more focused on a very small number of clients. But what our idea was is every entrepreneur I've ever met over their lifetime, they pick up an accountant, an attorney, an insurance agent. They get all these different professionals.

 

And if you picture those like spokes on a wheel, like the wheel hanging behind me, we call that the financial flat tire because as I said, no coordination. They all are not A players. They're not all excellent. There's no accountability. And the worst part is the entrepreneur is in the middle of that wheel, managing that team, whether they know it or not, even though they don't have the time and they don't speak the language of tax, legal, insurance, and investment. So, our idea was since most entrepreneurs I've met, they have at least one professional on the wheel who's an A player, sometimes they don't even know who the A player is. Maybe the one they like is a D player because of that person's personality they get along with, and maybe the A player they don't like because they have friction.

 

But for whatever reason, there are between usually one to maybe several on the wheel who are really excellent but the structure is not cohesive to actually get the outcomes that the entrepreneur wants. So, our idea was, well, shoot, why don't we go in and evaluate all of that current team, replace anyone who's not A player with A player, and then coordinate and run that team so we put our firm in the middle when we're running the virtual family office, and then we coordinate all those professionals, holding them accountable, make sure that the entrepreneur isn't wasting time or money and then get the outcomes that they want. So, that's our structure is simply taking the current team they have.

 

On rare occasions, they're all excellent and it's just a mess because there's no coordination, and no one who can speak those languages is in the middle of the wheel. But usually, they're not all A players. And now, over the last couple of decades, we have an extensive Rolodex of attorneys, accountants, insurance agents, personal and business, and all those types of things. We have clients in 40 states, advisors in 14 states. So, that way we can plug in the right professional to complete that wheel. And then it's the management of the wheel afterwards.

 

Justin Donald: Yeah. You know, I think it's really important that people evaluate their team. I think it's really easy to be comfortable with the status quo, whoever you have in place. But the reality is, and I've experienced this in my life several times, where my business is at one level and early on, the team that I had was just right for that business. But as the business grew, as my wealth grew, I outgrew some of those professionals. At one point, I think it was probably an ego thing to be like, "Yeah, I'm my CPA's biggest client.” And then the more I thought about it, I was like, "Wait a minute. That's not good.” I actually don't want to be like… The situations I'm dealing with, I want someone that deals with that every single day of the week. I need to get into a place where I'm a small fish.

 

And so, several times in my career, I've found myself having outgrown. And by the way, maybe they were A players at that time in life but the other thing that I see a lot in our Lifestyle Investor Mastermind community is people that have enlisted family, friends to do things, and they're not A players. Sometimes they realize it, sometimes they don't, but it's like, how do you break up with that family friend who's been doing it for all these years managing your family's money, your parent's money, your money like you just have years of relationship? And so, I think it's great that you guys actually evaluate everyone and say, "Hey, this person is or this person is not an A player.”

 

Jim Dew: Yeah. That's great. And by the way, just kudos to you, Justin, because you really do have a good team and do a great job of that piece of it. You know, when I think about evaluating these different professionals. And the other reason you have the structure, too, is then you have a go-between where someone can actually go to your brother-in-law and say, "Hey, you've been the insurance agent for the last ten years.” But, even though your brother-in-law wants to keep you, you have to up your game. So, we're going to give you a chance but if you don't up your game, we're going to replace you. So, he saved you this one time. He's not going to save you going forward. So, then the entrepreneur doesn't have to be the bad guy in those scenarios.

 

But I can give you the real quick five areas we look at when we're evaluating professionals. This should help your listeners. The first thing we do is look at regulatory background and regulatory history. This is a step that gets missed so often because what a lot of entrepreneurs do is they google the person, right? And I knew a guy who lost his license to sell securities because he was in a Ponzi scheme but I knew the guy and he told me that he paid some SEO expert thousands of dollars a year to get him on like page 8. So, unless you went to the regulatory website where you'd see he lost his license and moved to a different state to get relicensed, you wouldn't know about that because if you google search the guy, no one's going to go to page 8, right? No one goes hardly to page 2.

 

So, regulatory history on the regulatory websites is critical. It's an easy way to see if there's a problem there. Second, education and credentials. It's always good to know how much information and knowledge that person has spent learning over the years. Third is specialty. We like specialists on the wheel as a general rule because specialists know things that generalists don't know. Then experience. So, someone has been doing if you're getting a surgery, you don't want the doctor that's doing their fifth of those surgeries, right? You want that doctor that's done 10 or 20, a thousand of that same surgery. So, you want to make sure there's a lot of experience. And the fifth is personality and follow-through.

 

And I caution entrepreneurs on personality is I don't mean the personality that you like that fits into your personality. You have to have a working relationship. So, you have to be able to work with that personality but it's good to have tension on your wheel of professionals. If everyone's just like, "Yeah, Justin, whatever you say. Yeah, Justin.” If they’re just checking the box, you're going to have problems. You want people to push back. You want people to have opinions, especially the experts. You want them to go, "Hey, this is an issue I don't feel comfortable with. And here's the mistake I think you're making. I think we should go a different direction.”

 

So, when I say personality, a personality that you can work with but not a wheel of all your personality. And then obviously follow through. You know, I mean, one thing that will replace professionals off a wheel of advisors if they just don't follow up and follow through and you can't get them to do the work done. We've all known a professional who does excellent work but you can't get them to do the work, you can't get them to respond to you, and that's not good either. So, those are kind of our quick five that we look at when we're reviewing each of the professionals on the wheel.

 

Justin Donald: Yeah, I love that. And I love how systematic you are. You know, you have a process. You follow that process. That process has worked really well. And I think that's so important. And when you look at the different areas, so that's kind of like your blueprint for evaluating the professionals but you also have your framework for all the different areas that you guys dive into, whether it be tax strategy, estate planning, investments, running all the insurances and all that. And so, I'd love for you to talk about some of those that you do.

 

Jim Dew: Yeah. And really the three main areas are protect, manage, and grow. Every entrepreneur needs to protect, to manage, and to grow their wealth. And then under each of those categories, there's specific kind of sleeves that you look at. So, under protect, a couple to think about would be asset protection and that to have a plan so your assets are protected in case you get in a lawsuit. That's everything from the right kind of personal and business insurance all the way up to advanced entity and trust design. Wealth transfer, so if you have kids like I know you have amazing kids, thanks to Jennifer more than you, but, at any rate, if you have kids, you want to make sure that you have thought through how that money is going to be transferred to them, if at all, and when they have control of that money.

 

Because most parents I talked to, in fact, I haven't met anyone who wouldn't agree with this. They want their kids to have opportunity in the future but they don't want their kids to have problems or get into trouble because of too much money at the wrong time. And that's things like incentive trust. That's things like apprenticeship programs. So, they actually have some guidance before they have any ability to make decisions around money so that education process. And then also passing on the things other than money and stuff, which is your wisdom. And you're lucky because you have all these podcasts. But even so, doing videos specifically for your kids about not just things about money and investing, which you're an expert in but also things might be your wisdom about how to be married, how to have relationships with friends, how to set boundaries, how to think about the growth and the hobbies and the things that you do or health or any of those things. But anyway, just videos about your wisdom that you can put in a digital lockbox for the kids. So, that's kind of under the protect piece.

 

Justin Donald: By the way, protection is really important because the more wealth you have, the more of a target you have on your back. So, you've got to be careful. And I heard the stat, and I don't know if this is true or not but I have heard the stat of two different ways that once you have a net worth of 3 million and also once you have a net worth of 5 million, that there's an 80% likelihood that you're going to get sued. And so, I do think it's important to make sure that you're buttoned up here, that your assets are protected. So, some of this is for while you're living, some of this is for whenever you do pass away and creating a clean estate and easy transition for your family, your spouse, those that survive you. But some of this and a lot of this is how do we protect it today so that you can enjoy it and you can live a good life.

 

Jim Dew: It's so true. It's a good point. And kind of like what you talked about how you graduated from different professionals. Your asset protection plan should graduate as well. You know, everyone starts out, and if you have any kind of income or assets you want to have an umbrella liability policy on your home in your auto. Right? So, that might be one of the very first building blocks that you start until you grow. But as you grow, the complexity and the different tools that you're going to put into that plan are going to vary, and the complexity is going to increase. And I see these two different divergent mistakes that entrepreneurs make on asset protection. So, one is they don't do things that they need at their level, right?

 

So, they still might have $1 million umbrella when they need a $10 million umbrella. They might have an entity structure that's just one entity and maybe they need more than one entity. So, those types of things where they're just negligent and not paying attention to the mass wealth that they're creating. And then how do you need to make more complexity to protect that in whatever level that you're comfortable as far as the complexity? The other mistake I see, and I see this quite a bit too, entrepreneurs will come to us and they have this like rat's nest of entity structures that are so far beyond their wealth status that it just creates headaches and problems. And then trying to unwind those things is a mess.

 

So, that's one reason why the family office structure is so important is that you need like a central command, people who know everything who represent you and don't have incentives. Because if someone comes to you with this maze of trusts and entities and it's going to cost you $50,000, I'm just making a number up, they have an incentive for you to do that than a very simple thing that might cost $5,000. So, you got to be very careful. So, we see that a lot. We're going, "My goodness.” This is kind of a strategy we might see for someone who's worth $50 million than this person's worth $3 million. This makes absolutely no sense. So, be careful on the asset protection about making too much complexity too soon for your level of where you are.

 

Justin Donald: Yeah, I love it. And then so your next bucket you said is manage. And then after that, grow, right? Let's tackle those.

 

Jim Dew: Yeah. Manage, the first thing is your team of professionals that wealth wheel that we talked about but also, your business value. You’re managing your business value. As I said, a majority of seriously wealthy people in America and I think the last time I looked at the stat was 95% of Americans with more than $20 million of liquid net worth owned a small business. So, you can also be a CEO of a Fortune 500 company. You could be a professional athlete but most people who get seriously wealthy, they owned a small business. So, culturing and taking care of nurturing that value of the business is really important.

 

Reinvesting in the business, making sure that you're doing the smart things like keeping good books and records, not having the business too dependent on you, trying to get recurring revenue rather than one-time revenue, all the kind of check-the-boxes to increase value in that company because I believe you should run a company like you're going to sell it whether you sell it or not because it just will make for a better-run company. And if you want to take time off and make more money and that's your lifestyle company, you do it much better if you're running it like a company and not kind of winging it. So, running it like a company is really important. That's part of the manage.

 

And then when you move to a point where we often say that you start either as an ostrich, ignoring and avoiding all this stuff, or a juggler where you’re just trying to handle it all on your own to an air traffic controller. And this is where you have an excellent team of professionals and you've got things pretty dialed in but it's all dependent on you. And then you still want to look for guidance to help you be a better air traffic controller. But then the step above that is the family office structure. If you're going to have a virtual family office, the person or the team in the middle of that wheel for you really typically is a firm in wealth planning but a firm with three distinct characteristics, and I'll just cover those real quickly.

 

First, a firm that specializes in working with entrepreneurs because most firms are generalists. They'll work with anybody who has money and there's a big difference in the problems and opportunities of an entrepreneur. The second is experience. You do not want to put a firm in the middle of your wheel who hasn't been doing this for years and years. I know in our firm, we made a lot of mistakes in the early years, and we learned from that, and that creates wisdom. And then the third, and this might be the most important, is a fiduciary standard of care, which is a fancy legal term that as you know, Justin, says that the firm has to put your interests ahead of their own.

 

But this is where it gets tricky. A fiduciary can still take hidden commissions, referral fees, kickbacks, revenue sharing. They just have to disclose it in a big document that nobody reads. So, I know for us, years ago, we put our flag in the ground and we said we're only getting paid directly by the entrepreneur. We're only representing the entrepreneur. We're not an asset-gathering firm. We're not trying to say, "Hey, put all your money in this portfolio. We’ll charge you 1%.” We're a retainer firm, so we get paid a retainer, and we're taking out all those incentives. When we bring private deals to our clients, we're not getting spiffed, we're not getting paid on the side.

 

And I just think that that's the model where you get true representation, where you take away all those incentives. And I've heard a lot of people who take the incentives that say, "We always do the best thing for the client,” but in practice, it doesn't work that way because we're human beings and people who are incentivized a strong way, you know, even in my marriage, right? I mean, Mimi and I don't always have the same incentives for the same things, right? And so, I have to work with her to try to get our incentives aligned to get what I want and also for her to get what she wants.

 

Justin Donald: Yeah. And that's a huge point. I think you've got to be careful in the world of financial services and careful in the world of Wall Street and money managers because most of them are compensated in a way that is misaligned or incongruent with the investor, and they don't even know it most of the time, or with the client, right? So, that is so important to me and I love that you guys don't do that. And I love that you have your stance and it is a fee-based platform that you guys operate under. And for me, with Lifestyle Investor, I wanted the same thing. If Wall Street is all about making money on other people's money, then I want to be the furthest thing from that. And that's why even in our model, in Lifestyle Investor, we don't take any kickbacks.

 

I don't personally make any money. Lifestyle Investor doesn't make any money on people's money. They make their own returns. And I only make returns if my money is in it. And I think that is how can you have any semblance of an unbiased opinion if there is some sort of kickback that exists?

 

Jim Dew: Yeah, 100% true. And, yeah, I mean, when Mimi and I built this model we said, "How would we build it for ourselves?” We said, "We just want to pay someone what we know we're paying them to represent us.” We don't want them trying to get us to move all our money to them or try to put us in their investments that they think are great. Like, we just want someone to represent us in all these areas that are so important. And that's what we did. That's why we created that model. And in fact, in the beginning days, we had other very smart financial people that said that it was a terrible mistake because we're giving up too much revenue and all these things. And we said, "Hey, we're making so much more money that when I was a teacher making $20,000. Let's just do it because it feels right.”

 

And it turns out that you can actually build a business. You know, we've had a waiting list the last couple of years, and that's I think a tribute to the hard work of our great team. And then also just the fact that what we do is hard to find out that there aren't, I mean, I don't know another company that's doing what we do that's not getting paid in a variety of ways that I don't think are good for the relationship with the client.

 

Justin Donald: Yeah, I love it. I just think it's incredible. And the reality is there are very few people and firms out there that are willing to do that. So, you really separate yourself from the pack. And like you, people say all the time, you should be making a carry-on everything. You should have a fund. And I'm like, yeah, if the goal was true, wealth maximization or profit like if I'm trying to optimize profit and maximize profit, then yeah, maybe that is the way to go but that's not the overall goal. And because of that, you'll notice in both of our organizations that we have very high retention. We have very high clients and customer satisfaction or member satisfaction. And so, I think that's way more important than earning whatever else you're going to earn.

 

Jim Dew: Yeah, I agree completely. And I know because we help a lot of companies pre and post-exit. And we've helped with sales in the tens of millions, hundreds of millions. And the largest was four business partners. They've been clients for 25 years. And they sold to Blackstone in 2021 for 1.6 billion. So, we've seen a lot. But I've had other entrepreneurs say, "You should be taking a percentage of their company. Like, just think of the amount of money you could make as a firm.” But to me, it crosses that line of that incentives align because if we're in there working with the investment banker and the M&A attorney and the deal terms and all that, and we know that we own 10% of the company, we would want that exit, right?

 

But because we don't get paid that way, we don't care whether they do the exit or not. We want to make sure it's right for the entrepreneur. And it doesn't impact us either way whether they sell or don't sell. And that's what's in my heart. I love to be in a position where we feel aligned and on the same side of the table with our clients. And it's funny how cliche that is in financial services and wealth management, where I hear that all the time from people at these big firms. And I know secretly that, you know what, they say they're aligned but they're really not aligned because of the incentives and how those are mismatched. And when you have incentives mismatch, then you don't have alignment with that other person.

 

Justin Donald: That's right. Yeah. You need someone in your corner that is looking out for your best interests. You're going to sell a company. Whoever is selling your company for you, they have an incentive to do well. And by the way, they should do well. They have that incentive. But you also need someone else to let you know that, yes, this group is a good group and this is trending in the right direction. And we need some people that are truly looking out for your best interests. So, we talked a little bit about asset protection. We've talked about teams and making sure that you've got A players. Let's talk about tech strategy.

 

And by the way, you and I did like a little bonus segment in the tax masterclass that we've had tons of people that have purchased that but that's something that I highly recommend. If you have not checked out the tax masterclass, one of the bonuses is Jim and I riff in here for probably about 30 minutes on all kinds of tax strategies. But for this podcast, we should at least talk a little bit about it. Tax strategy, I think, is one of the most important things, one of the most overlooked areas of wealth creation and opportunity.

 

Jim Dew: Yeah. And we covered protect. We talked about manage. And this is under grow because your biggest expense as an entrepreneur business owner is going to be taxes. And how you manage those is critically important. And of course, there's tax avoidance and there's tax evasion. Just to be clear, tax avoidance is encouraged. The tax code was built for tax avoidance especially for business owners. Tax evasion, that puts you in an orange jumpsuit. You don't want to do that. So, it's really important to think about tax planning from that perspective.

 

But here's the challenge that entrepreneurs have. In general, I see them getting advice from different professionals or different people in their lives that aren't always the right people to get advice from. So, the first one is other entrepreneurs, other friends of theirs, right, who have all these ideas. And of course, the magic in tax planning is really looking at the opportunities that apply to the uniqueness of your situation. So, you can't talk to your friend who has a different business, a different financial life, and they say, "Oh, do this strategy. You're going to save a bunch of taxes, right?” So, you want to be careful because I know as entrepreneurs, we all want to give advice to everyone.

 

Entrepreneurs are experts in every area, even though that they think they are. I fall victim to that sometimes too but you really want to be careful at taking advice from your friends. So, where do they go as far as professional advice? Their CPA. And a majority of CPAs in my experience are tax historians. So, they file all the forms. They tell you what your estimated taxes are going to be. Hopefully, they get that right. They keep you in compliance but they don't really proactively look at your situation and bring you tax strategy from the tax code. So, often they end up missing legal opportunities because they're getting that counsel from the CPA.

 

The other group I see they go to is something that I see called a tax strategist. And these are so-called experts that know a lot of tax strategies but the problem is they're getting paid on whatever strategy the entrepreneur chooses. So, often they may be pushing private insurance company or R&D tax credit or something where they're getting spiffed. So, the selection of not only who is the provider but the strategy itself, they have an incentive of what strategy to choose and also what provider to choose so that they get paid the best. And often those tax strategists are also trying to make big life insurance sales. And we can digress about life insurance sometime. But life insurance to me as a tool, I get asked all the time, “Jim, do you like live insurance? Do you not like life insurance?”

 

And I said, "It's just a tool.” There are times when it's the right tool as there are times it's the wrong tool. There are times it's the right tool but the implementation is terrible. Commissions are too high. The structure is benefiting the agent and the insurance company and not the entrepreneur. But it's a tool and you just want to be aware of that. But you want to be careful about anyone who's trying to give you advice and then they're also selling an insurance product. To me, you want to have someone in between because billionaires will buy retail life insurance too. But guess what? They never buy it without representation, someone on their team that works for them that knows the life insurance as well as the person selling it, and then make sure they can evaluate it. So, be careful about those traps when you're trying to get advice on tax planning.

 

Justin Donald: Yeah, that's so powerful and so good to know. I think that what we're covering is so relevant to our audience, and just more people need to know about it. So, thank you for sharing this. What are some strategies you think are great ones for people to take advantage of that maybe they haven't yet? I know paying your kids is a great strategy. And the amount that you can pay them is going up, right? And it continues to go up each year.

 

Jim Dew: It does, most definitely. And by the way, CPAs are important. You want to have a CPA in your team, someone who checks the boxes and signs off on the compliance for tax strategy. So, I don't want to say you don't go to your CPA, don't go rogue and do something without your CPA knowing you want your CPA to check the box. But let's talk about some tax strategy that's out there in the current environment that you can utilize. So, there's the very basic, simple stuff that a lot of people still aren't doing. Like you said, hire your kids. You can hire your kids depending on state laws. Sometimes you can hire your baby. And as you might have heard me say before, what would you hire your baby for? Modeling?

 

You can actually find out what you would pay to have a baby model for pictures. Use it on your website. Use it in your marketing. There's only one way that doesn't work. If it's legal by state law, it just doesn't work if you have an ugly baby. So, if you have an ugly baby, get rid of that plan. But you can hire your kids at usually very young ages, depending on your state, and you can pay them up to the standard deduction, which for 2024 is $14,600. So, if you pay your child $14,600 at a 40% tax bracket because the 0% bracket is much lower than your bracket, so that 40% saves you $5,840 per kid. The other thing that you can do now, they have earned income of 14,600 or whatever the number is, you can put $7,000 in 2024 into a Roth IRA for the kid.

 

So, watch how this math works. If you did that for your kid from age 8 to 18, ten years, 7,000 a year into a Roth IRA at a 10% rate of return, that's $111,000 at age 18. If you never put in another penny, your kid never puts in another penny, and that grows at 10%, at age 58, that kid has over $5 million in that Roth IRA. You also can take money out of Roth IRAs for education cost, $10,000 for a first home purchase, and stuff like that. So, it's not like it's locked up. Sometimes people think it's all locked up until you're 59 and half but that's a cool little thing that you can do is hire your kids.

 

Another one and I think I'm going to do a giveaway on your call today, the Augusta Rule, which I know you've talked about on your call, which is Section 288 of the tax code. It's where you can rent your home to anybody for up to 14 days a year, your primary residence or your vacation home. It's tax free income to you. But since you own a business, you can actually rent your home to your business for up to 14 days a year. It's tax-deductible to the business and tax-free income to you. So, if you're renting your home for $4,000 a day for 14 days, that's $56,000 at a 40% tax bracket. You just saved $22,400 in taxes. So, that's cool. And the problem I see with the Augusta rules, people don't do it right.

 

I mean, people all the time they go, "Oh yeah, I'm doing the Augusta rule.” And I'll say, "Oh, great, how are you documenting that?” They go, “What do you mean? How are you documenting that? I'm supposed to document that?” Yeah, you're supposed to document that. And sometimes they’ll say, "Well, talk to my CPA.” We'll talk to the CPA, and the CPA goes, "Well, they're supposed to document that.” “Well, they think you're documenting it, right?” So, you come into these problems. And in fact, there was a court case last year where most of the deduction was denied in tax court. And the reason why? They didn't have a good comp to show why they were charging the rent.

 

I mean, there's a bunch of things you have to do, right? You have to have a reason, business reason. You have to have who attended. You’re supposed to file a 1099 the following tax year. You also, as I said, you want to make sure what you're pricing is appropriate. So, anyway, we have a complete digital package that walks you through every step. You still want to run it by your CPA or your legal counsel to make sure you're doing it right. But we've kind of checked all the boxes for you, and that's a digital giveaway we're going to give away, I think, at the end of the call today.

 

Justin Donald: I love it. Yeah, these are some great strategies and there are tons of strategies. The biggest thing to recognize and I share this often when I keynote is that if you can just figure out a way to save, let's just call it $30,000 a year in taxes and you do that over ten years, you're talking about $300,000. That's exciting. That's awesome. That's big. But what if you could get 10%, maybe 15% return on those dollars? And what if you did it in a tax-free vacuum? You know, there's tons of vehicles out there that I shouldn't say tons. There are several vehicles out there that you could do that. But let's just say that this money is saved, and then it's compounded. Well, over those ten years, you're going to be talking about closer to $1 million to $3 million, depending on what your return was. Was it 10% to 15%?

 

But let's draw that out further and say, hey, what if you save 30,000 a year for 30 years? Well, that's $900,000 but the compounding on that ends up being $13 million. I mean, it is very significant. And imagine if you can save more than $30,000? The people in our community that are paying 55K a year to be part of it, they're saving way more than that. I mean, one of the early I guess hurdles that people have to clear is how do I save at least 55K in taxes? So, most people are saving hundreds of thousands of dollars and this just snowballs. It's incredible.

 

Jim Dew: Yeah, I love that. So, a couple of other simple things. You know HSAs. If you have a high deductible health plan, you can put 4,150 into an HSA in 2024 or the family plan 8,300. So, let's say you put 8,300 into an HSA every year, if you invest that and you don't spend it because a lot of people just spend it on their medical and dental expenses. Don't. Spend out-of-pocket if you have the money. Keep the receipts because years later you can take those receipts, reach back, and pull the money out tax-free. So, if you did that for 20 years at a 10% rate of return, you'd have $475,000 in a tax-free bucket sitting there for you. So, HSAs are a really cool thing. 529 to Roth, this was a tax law change last year. A lot of entrepreneurs don't like 529s because they don't like traditional education. I totally understand that. But you still want to do one today.

 

If you put just $1,100 a year into a 529 plan from, say, the kid’s age 3 to 18, so over 15 years at a 10% rate of return, you're going to have just under 35,000 at that kid’s age 18. Don't put another penny in there because you can actually convert up to 35,000 from a 529 into a Roth IRA. You'll have to do it over a few years. But if you did that for that kid and the kid never touched it, got a 10% rate of return, that kid would have 1.5 million in a Roth IRA at age 58. So, those are a couple of really simple, cool things you can do. And we can go into some more advanced things if you want as well.

 

Justin Donald: Oh, I love it. Well, yeah. We've got some time. Let's talk advanced and then I'd love to get into some asset allocation. And I'd love to talk about the unique structure that you guys utilized when you had an exit of your company too.

 

Jim Dew: Let's do it.

 

Justin Donald: Yeah. Let's pick a couple more strategies we can talk about and then we'll pivot.

 

Jim Dew: Yeah. One that I still see missed is the qualified business income deduction, the 199A.

 

Justin Donald: That's a big one.

Jim Dew: The 20% deduction. And a lot of times, we’ll see mistakes on the tax returns by the account. And part of that is maybe they classify you as an SSTB, a specified service and/or trade business, which if you make too much money, that kind of knocks you out of getting the 20% deduction. So, that’s a problem if they do that incorrectly. And then sometimes they actually don’t understand how the law works. So, right now, if you’re not an SSTB, you get phased out for 2024 if you’re a single taxpayer at $241,950. If you’re married, filing jointly for 2024, you get phased out at $483,900. Beyond that, it becomes one of two tests, either a 50% of W-2 wages paid for the company or 25% of W-2 wages paid, plus 2.5% of the value of unadjusted basis property in your company.

 

So, if we just take the– and it’s whatever is larger that you get the deduction of those two, most entrepreneurs, the 50% income deduction is what would apply. So, let’s say, for example, company has $2 million of qualified business income, they have $300,000 of W-2 wages. Well, 50% of 300,000 is 150,000 at a 40% bracket, that puts $60,000 in the entrepreneur’s pocket. Well, if they knew how the law worked, what they would do is they would bonus themselves at the end of the year, $271,400. That would make their total payroll 571,000, 50% of that is $285,000, which compared to $150,000 is $135,000 more deduction. At a 40% bracket, that’s a $54,000 tax savings in their pocket, right?

 

Now, I didn’t just pull those numbers out in my head. It’s actually a calculation, a formula. It’s 28.57% of the qualified business income is the perfect number of wages to pay to maximize the QBI deduction because as you increase wages, you decrease qualified business income. And as you decrease wages, the other happens. So, it’s like a teeter-totter where you got to find that perfect mix. So, that’s one that I still see missed that isn’t being maximized. And it’s really a pretty simple one. And the way you can find out, just look at your 1040 on line 13. It actually says qualified business income deduction and you can see what that is. And then compare to your qualified business income and see is that 20%. If not, go to your accountant and ask why it’s not.

 

Justin Donald: Yeah, I mean this is something that has been able to save hundreds of thousands to millions of dollars for many people in our community. And it’s easy. This is an easy ad you just need. And this is where you got to make sure your CPA is not just a historian, not just someone who files taxes. I think it’s really important to have a CPA, to have a tax strategist. Ideally, they know each other, they work together. Maybe they’re under the same roof, but that is so important. And then to have some sort of checks and balances in place to make sure that it’s all working out.

 

Jim Dew: Yeah, that’s so smart. And another one is, there was a law passed by the House a couple of months ago, has not gotten through the Senate. It’s been sitting for a couple of months. And it’s called the Tax Relief for American Families and Workers Act 2024. At any rate, they always name things, so they sound great. But in that Act, which hasn’t passed yet, is kind of a back to the 100% bonus depreciation that’s in that law, which would be great for real estate investors, which we could talk about that, qualified real estate professionals that I know a lot of your listeners are.

 

But back to that 100% bonus depreciation that’s in the Act. Also in the Act is a fix for the R&D tax credit. So, the R&D tax credit is really one of the best tax credits in the tax code. So, as you probably know, of course, the difference between a tax credit and a tax deduction, if I get $100,000 tax credit, I get $100,000 in my pocket of money I didn’t have to pay in taxes. $100,000 deduction, if I’m in a 40% bracket, that only saves me $40,000. So, credit is always better.

 

So, in the R&D tax credit, which has been around for decades, you have these things called these qualified research expenditures, QREs, and whatever those are for your company, usually about 8% to 12% federal, and then plus whatever you get in the state is a tax credit, dollar for dollar. So, let’s say you got a $300,000 QRE and you got a 10% federal tax credit, that would be $30,000 in your pocket. Well, because of what expired a couple of years ago in the tax code, you now have to amortize that $300,000 over five years. So, even though you get $30,000 in your pocket, you only get to write off the normal $60,000 of the 300,000, and you pay ordinary income tax on $240,000, which in a 40% tax bracket is $96,000. So, you got 30,000 in one hand and you’ve lost 96,000 in the other. So, that’s been a big problem.

 

And unfortunately, you can’t really flip back and forth depending on the tax code. The IRS frowns on that. So, in this new Act that passed the House, has not passed the Senate, just keep your eyes open for that because there was a fix for the R&D tax credit because it’s a great part of the tax code. So, just be aware of that. That’s Section 174 expenses. A couple others that are out there, private insurance companies, those have different flavors, 831(b) micro-captives, they’re segregated asset plans through the Puerto Rico laws. There’s a lot of ways to do that. Those are under IRS scrutiny. IRS doesn’t like those. However, it’s in the tax law, it’s in the code. So, you just want to be careful if you’re using a provider to make sure that they know what they’re doing, and they’re dotting the i’s and crossing the t’s and that you’re comfortable doing something that you know the IRS doesn’t like.

 

Now, I always say just because the IRS doesn’t like it doesn’t mean you shouldn’t do it. But it does mean that if you are someone who doesn’t like to deal with the IRS, maybe you’re better off not doing those types of things. So, there’s a couple, what else would I say? Advanced charitable and donations, which these used to be the land easements under Section 178 of the code. Those got wiped out for pulling structures, not for individuals like Ted Turner. They can still do it, but for pulling structures, those got wiped out because now it’s a two-and-a-half times limit on the deduction, which pretty much wipes out the tax benefit.

 

But now, there is something called fee simple under 170(a) of the tax code, deeper part of the tax code. There’s some very smart people that feel comfortable with that. But again, those are a couple that are in that area that the IRS doesn’t like them. So, you just need to make sure you have the right professionals where you feel comfortable and you’re using the right provider, where you feel like they’re doing a good job. And a lot of that is a personal decision. That’s why I say, don’t take advice from your friends just because they’re doing something that may not fit your personality or your situation.

 

Justin Donald: That’s right. Yeah, the IRS doesn’t like when you take something that is good and you abuse it based on creating too big of a multiple and distorting the actual purpose that it was there for. And so, we got to play the game and make sure that we’re doing it the right way and have the right professionals. Now, something I definitely want to get into is asset allocation because I feel like most people, and I’ve talked about this a ton, but most people don’t realize that the wealthiest people in the world, and specifically in the US, because we have more US data, but there’s tons of data around the world for family offices and private clients of all these big banks, where you can gather, how are they allocated?

 

And my experience has been most people think that it’s heavily the stock market and the reality is it’s not. It is a portion of it. It is a component of it. It is important to have that aspect of it, but there’s a lot more that goes into it. And so, I’d love you to share some of the stats that you found from UMB and many of the other banks and groups that you have dove into. You and I geek out on this data because whenever it comes out, I can’t wait for the new annual report to tell us about what’s going on and what the wealthiest people are doing.

 

Jim Dew: Yeah, that’s so true, Justin. The big picture is you want to have a strategy and, like in The Art of War, a famous quote is “Tactics without strategy is the noise before defeat.” And one of the biggest mistakes I see entrepreneurs make with their investing is this is just like, oh, I like that, I’ll put my money there. Oh, I like that, I’ll put my money there. And there’s no overall strategy about how much they should have in different areas.

 

This really came to a head when Bitcoin was first getting popular, and I know it’s had a resurgence, but I had entrepreneur friends of mine saying, “I’m going to buy Bitcoin and Ethereum and all this stuff.” And I said, “Okay, what’s your strategy?” And they go, “What do you mean?” I said, “Well, do you have a strategy?” “I don’t know what you mean.” I’ll give you a strategy. So, let’s say you say, I’m going to take 3% of my investable portfolio, I’m going to put it in crypto, and I’m going to hold it long term. That’s a strategy. Or you might say, I’m going to put 1% of my allocation in crypto with the goal of 3%, and I’m going to add 1% every time Bitcoin drops more than 25%. There’s a strategy.

 

But a strategy of just it’s going to go up, I’m going to buy a bunch of it is not a strategy. And that’s where people got into trouble and own too much crypto in their portfolio. And then when things, they got crushed, right? And that’s not good. So, you want to make sure that you have an overall allocation strategy. And the other thing to your point is a lot of people think when they deal with traditional banks and financial advisors, that everybody should be in on a 60/40 stock bond split. The more money people get, the more they realize that that’s really stupid, that you should have your money in these different opportunities that have diversification qualities, but also risk-return qualities that make an overall portfolio much stronger.

 

So, back to your original question, the most recent UBS survey of family offices, they showed that right now, the average family office has 31% stocks, 15% bonds, 9% cash, 19% private equity, 2% private debt, 13% real estate, 7% hedge funds, 2% precious metals, 1% commodities, and 1% infrastructure. And if I did that right, that adds up to 100. A couple of changes over the last couple of years, more cash, which is waiting for opportunities, which makes some sense, and especially cash is paying more than it used to pay. Although I will say, I have a lot of friends that are like, “I’m making more money than inflation.” I go, “Are you really?” You’re making 5% on your cash, and if you’re in a 40% bracket, you’re really netting 3%. And that’s about where inflation is right now. So, I don’t know that you’re making much money. At least you’re not losing money in cash the way you used to. And just to digress, I hear people say, “Is cash trash? Or is cash king?” And I always say, “I depends on the reason why you have the cash.”

 

If you have a lot of cash because you don’t know what you’re doing and you’re like, “Well, I’m just going to sit here in cash and wait for the skies to open up,” that’s not a good strategy. If you have a lot of cash because you know what you’re doing and know what you’re looking for, that can be a great strategy, right? And of course, when you sell your company, it’s better to wait than to do something stupid, but you also want to make sure that you create a plan and start investing because I’ve seen entrepreneurs sit on cash for years and years and years waiting for their opportunity, and ultimately, cash is not a great long-term investment.

 

But anyway, a couple of other changes, we’ve seen an increase in hedge funds by billionaires, which kind of makes sense in the current environment. But the point is having things like private equity and private debt in your portfolio, once you’re an accredited investor and they’re looking at changing the laws to allow a lot more people to be accredited, but if you are accredited, as most of you on this call are, I would implore you to learn about private equity and private debt. That’s why you’re with Justin is to learn about those things.

 

Now, the opposite can be true, where I see entrepreneurs that they hate all the traditional stuff, so they’ve got 98% of their money split between venture capital and private equity. And I just go, “Hey, you know what? I don’t think that’s smart either. There’s liquidity issues.” And it’s harder to evaluate private equity and private debt than it is publicly traded securities over time. It’s just you don’t have as much information, so you got to be careful that you don’t fall into one of the mental heuristics or the biases that we’re all susceptible to.

 

Justin Donald: Yeah, I think you just have to be careful to not be a maximalist in any of them, an absolutist, right? You have the Peter Schiffs of the world that are so gung-ho gold that they’re missing out on all these other opportunities. You’ve got these Bitcoin maximalists that if you’re all in Bitcoin, you are riding some very big peaks and valleys. And the answer is, like, most people become wealthy via concentration, but they maintain and grow their wealth via diversification. And so, even for entrepreneurs, they need to be careful because most of them have the majority of their net worth in their primary business. And it does make sense to where you can take some chips off the table and to not have such a 90%, 95% concentration there, right?

 

Jim Dew: Yeah, just recently, I think of my friends who are heavy multifamily, right? I mean, greatest investment in the world. I mean, great track record up until a couple of years ago. And now, all of a sudden, there’s a lot of stress in multifamily. And same thing I said to those guys, like, if you’re trying to get rich, being concentrated makes sense. If you’re trying to stay rich, you don’t want to be concentrated. And my point to this, one friend of mine was, “Are you rich enough?” And at the time, I think, he’s worth $60 million. I said, “Is that enough?” If that’s enough, you should diversify, as much as you think, multifamily is the best thing in the world. If you want to be worth 500 million, maybe you’re right, maybe being concentrated in multifamilies. And the same thing with crypto, if you’re going to try to get rich off crypto, maybe you should be concentrated in one coin or something like that. But ultimately, as people get wealthier and wealthier, they realize that it’s nice to get rich, but once you’re rich, you want to stay rich. It’s the fall that nobody wants to take that, unfortunately, some take through just a sloppiness with their investing.

 

Justin Donald: That’s right. Well, let’s wrap up. We’ve already gone over time, which is great because it’s just flying by. But why don’t we wrap up with the story of your company and the unique structure that you guys use with an ESOP and what an ESOP is and how you can remain the owner of your company.

 

Jim Dew: Yeah. Well, this was a lot of thought and consternation with me and Mimi because, like I said, you build your baby from scratch, and then it’s an ugly baby for a long time, back to my former comment, but then like becomes…

 

Justin Donald: It’s like the Seinfeld episode.

 

Jim Dew: Right. Ugly baby and the Seinfeld. And it turns into a new baby we’re very proud of and doing a lot of great things. So, we really look, we start getting a lot of interest from private equity. And what we realize from any of those meetings we had is they were going to completely blow up our model once they took control. The first thing, like we said earlier, they’d go, why aren’t you taking hidden commissions? Why aren’t you out there trying to gather assets and do all these things? So, we just knew that what we created, and Mimi and I don’t have kids, so one of our legacies is we feel like this model makes a difference for entrepreneurs in a way that they’re not getting that outcome in other places. So, our kind of legacy, we thought we would love to have this continue beyond us.

 

But on the other hand, to your point, very concentrated in our business that we built for 25 years, and even though we siphoned money off, we thought, “Hey, we should probably de-risk.” So, how are we going to do that? And we started looking at all the options. And of course, we’ve helped clients do ESOPs when they’re the right fit. So, what was the circumstances that led us to choose the ESOP? It was a couple of things. So, one, it was, we wanted to maintain control. And when you sold to the ESOP, you still control your board of directors, you still operate the company how you want to. You can still hire and fire people. You can decide what strategic direction the company goes. So, you, in essence, still have a lot of control over the company. And you can get money off the table. So, that was also a good thing.

 

And then also, you make your employees owners over time. And that was one thing we were looking at. First of all, we had employees that we really thought, “Boy, these people are working so hard to build this thing with us. We’d love for them to get a little bite of the apple.” In addition to the fact, hiring and retaining people and the expertise we need is hard, and we thought that would also be a good attraction. It’s turned out to be true that people do like to work for an ESOP because through no cost, no money of their own, no risk of their own, they own shares of the company over time. So, that was kind of the impetus.

 

And then the structure of how these typically work and everyone can be different. I mean, ESOPs can be done a multitude of different ways. But I’ll tell you kind of the basic concept and that is, you sell your company to the ESOP in exchange for a note. So, the ESOP owes you the full value of the company. So, the good news is you get the full arm’s length valuation value of your company. Now, I tell entrepreneurs, sometimes if you can get a strategic buyer to pay you some ridiculous multiple that’s worth, that’s way higher than any valuation company would say your company’s worth, then you might be better just taking the money and running, right?

 

On the other hand, I’ve seen a lot of PE firms beat up entrepreneurs and they end up getting less than a third-party valuation would say is a fair market value of their company. So, that’s both pros and cons in that. And then you can take bank funds. So, once you sell to the ESOP, a note is owed back to you. So, we did our ESOP at a $31 million valuation. Our recent valuation is 33, a $31 million valuation. Who’s counting over a couple million dollars, right? That’s owed back to the owners in a note. And you can take bank financing. Banks like ESOPs, typically, they’ll bite off about 35% of the value that would be paid out to the owners upfront, meaning I chose not to do that, both because we believe in our company and because we don’t like covenants with banks and dealing with banks, right. So, that’s what happens.

 

We get paid back now as we get paid out on our note that’s treated as capital gains. So, immediately we’re arbitraging the difference between ordinary income rates that we would pay on normal distributions from our S Corp to capital gains rate. So, that’s a nice difference right there as well. And then once that transaction happens, the company becomes a tax-free entity in perpetuity, so Dew Wealth Management never pay state or federal taxes again.

 

And a listener might say, that sounds crazy. But if you think about it, this is why this is one of the few very complex tax strategies that both Republicans and Democrats support. Why? Democrats support it because they go all these employees that would never get ownership in the company. They get ownership over time with no risk and no money. And Republicans like it because you’ve got these business owners that can get cash out at a tax-preferred rate and the company becomes a tax-free entity in perpetuity. So, that’s kind of the overall viewpoint.

 

Now, we also own 48% of the future value of the company. And that’s kind of a big part because not only do we get our full valuation paid out to us, but then we own half of the future value of the company. Why do the government and IRS and the Department of Labor allow that? Because they don’t want Mimi and I as soon as we get paid out to go sayonara, it’s been nice. We’re out of here. They want us to be heavily involved, to continue to make sure that this is an ongoing concern and that this company grows so that all these employees can get paid out, and then we can sell our shares back over time. And eventually, obviously, we’re going to be totally out and it’s going to be run by our employees completely.

 

Justin Donald: I love it. Well, it’s such a creative strategy, and I like that you’re getting everyone involved and giving your team, your employees opportunities that they otherwise likely would not have. So well done. What a great episode. Where can our listeners and those watching learn more about you and learn more about Dew Wealth?

 

Jim Dew: Yeah, well, the first thing is we’re going to give away a couple digital gifts to your audience, so The Augusta Rule. So, make sure you download that. It gives you all the different specifics of how you do that right. And the second thing is our tax guide for 2024. So, some of these numbers I’m throwing out, like let’s say you wanted to gift shares of stock to an adult child or to a parent, you’re in the 0% tax bracket at $47,025 or married filing jointly is $94,050, or with the standard deduction, $61,625 or married filing jointly is $123,250, right? So, those numbers all are on our tax guide, which you kind of want to look at to understand how these different strategies or tactics work. So, that’s the first thing. Download that and that will give you an opportunity if you want to learn more about us.

 

But another great way is just go to our website. I know that people have all their Instagram and all that stuff, but our website is pretty good, DewWealth.com, a lot of information about Mimi and how I– we together started the business and our team members and testimonials from clients and all that kind of stuff. So, that’d be a good way to learn about us. And then, I’m out there occasionally doing stuff like this, too.

 

Justin Donald: I love it. Well, this has been an awesome session. And I just love your knowledge, your insight. You’re just so well-rounded. And I like wrapping up every episode with a question to our audience. And that question is this, what is one step that you can take today to move towards financial freedom and move towards really the life that you desire, one that’s on your terms, not a life by default like most people, but a life by design? And how can Dew Wealth help you there? What’s one thing that you learned from Jim today that can move you in that direction? So, I highly encourage you to check out Jim, Dew Wealth, the team. I’m very impressed with them and all that they’ve done and highly recommend and endorse them. So, thanks for coming on the show, and we’ll catch you all next week.

 

Jim Dew: Thanks, Justin.