[00:00:00] Intro: Welcome to Private Banking Strategies Podcast with Vance Lowe and Seth Hicks, your secret weapon to protect your assets and never have to start over financially again. Vance and Seth help high net worth individuals, families, business owners, and investors structure and asset protected fortress for their families.
[00:00:21] Intro: Learn how to keep what you earn and use the velocity of money. To create your own private banking system. Join us on this journey as we explore the secret strategies of the rich and political elite and help you take total control of your financial security now onto the show.
[00:00:38] Seth Hicks Esq.: Hello and welcome to Private Banking Strategies Podcast, with Vance Lowe and Seth Hicks.
[00:00:42] Seth Hicks Esq.: Vance, how are you today?
[00:00:44] Vance Lowe: Today’s a great day. It’s a great day to be talking about private banking.
[00:00:48] Seth Hicks Esq.: Absolutely. Well, today we’re gonna get into a topic that confronts every private banking family, and we like to call smart risk framework. How do [00:01:00] families make wise decisions with the deployment of their banking capital?
[00:01:04] Seth Hicks Esq.: That’s what we’re gonna address. We’re gonna address some dos and some don’ts, how to succeed and what not to do. If you wanna succeed.
[00:01:12] Vance Lowe: Yeah. I think, you know, to get, maybe get this started off, the word that comes to mind every time we think about this or talk about this is discipline. This is something that has to be well thought out.
[00:01:23] Vance Lowe: It’s not a spur of the moment reaction to crisis or a opportunity. If we fall prey to that and we don’t adhere to. Strict procedures, our bank becomes at risk. So tell us a little bit about the structure of that, Seth.
[00:01:42] Seth Hicks Esq.: Well, one of the key phrases that has always been a mantra is banks always get the money back.
[00:01:49] Seth Hicks Esq.: And sometimes people go, huh, banks always get the money. How do banks always get the money back? Well, they create collateralized debt. And they lean assets and create [00:02:00] cash flow. And when they’re lending money, they don’t typically make bad loans. And we say in the infinite banking concept world, think like a banker.
[00:02:10] Seth Hicks Esq.: We tell clients to think like a banker and they, and so they go, okay, okay, think like a banker. But there’s moments where the light bulb comes on. How do you think like a banker.
[00:02:20] Vance Lowe: People don’t normally go into that depth about money. We all think we know a lot about money, but in actuality, when you start drilling down to it, the banks are the best at getting the money back.
[00:02:32] Vance Lowe: It’s art. It’s a practice, it’s a discipline. And when you think about it. I ask that question to everyone. I talk to the banks always get the money back, and that’s the strategy we’re gonna help teach and employ for you. So how do you think the banks get the money back? Well, they have to tie it up in order to get it back.
[00:02:49] Vance Lowe: They always have to control the money that they let loose because it’s not their money. They’re letting loose of, it’s ours. It’s, it’s the depositors. So they have to have some [00:03:00] contractual agreement that ties that money to the loan. And in addition, in case there’s risk of forfeiture of that loan, then there is collateral.
[00:03:10] Vance Lowe: So smart risk is what they practice. They’re very, very good at it. Even when a loan does default in the banking industry, the banks still get their money, and that’s because of the collateral. So everything is well. Documented, well thought out. The problem with the banking is they don’t wanna stop on the collateral.
[00:03:30] Vance Lowe: You do a hundred thousand dollars loan, they want all your collateral. And if you have a million dollars worth of collateral, they’re gonna want you to commit the whole thing. And I’ve always found that amazing. Why not just enough to cover the loan? No, they want what’s called control and they go after it.
[00:03:49] Vance Lowe: So how are we gonna fit that into our advantage? In private banking, how would we structure that, Seth, so that we can practice this smart risk, [00:04:00] but get our money out and get our money to work and then get it back so that we can reuse it.
[00:04:05] Seth Hicks Esq.: Yeah. Smart risk framework, that’s pretty much e Every homeowner will understand that the bank implements in their home.
[00:04:13] Seth Hicks Esq.: Lending is generally an 80 20. Percent loan to value, 80% they will loan 20%. The homeowner has to come up with in a down payment, and that’s called loan to value ratio, and I believe that that 20% is the cushion in the event that the lender has to. Take the property back, make it ready for sale and resell it, or whatever their exit strategy is, if they have to take it back.
[00:04:42] Seth Hicks Esq.: And so that 20% skin in the game, so to speak, of the homeowner, is a smart risk framework. So let’s take that same concept and apply it to private banking strategies. And you’re thinking like a banker. You’re thinking of, how do I get the money back in this transaction? [00:05:00] And one of the ways is to use appropriate loan to value leverage.
[00:05:04] Seth Hicks Esq.: Another way is to make sure that your collateral is actually solid collateral and that you don’t get off into speculative places and high risk speculative types of ventures. Endeavors. And even when you, you know, are betting on yourself, sometimes people bet on themselves thinking that they can do something that they can’t.
[00:05:26] Seth Hicks Esq.: And so having rules in place in a guardrail system that says, we’re not going to deploy any more than X percentage out of our banking capital at any, for any one opportunity. And we’re going to require certain types of security and collateralization and to actually maintain a cash flow that comes back to the bank.
[00:05:48] Seth Hicks Esq.: And that becomes increasingly more important the more generations you have in your family bank, and the more layers you have to it. And the more people that are in your private family banking system, [00:06:00] there have to be guardrails and systems where smart money, a smart risk framework is implemented.
[00:06:06] Vance Lowe: Let me share with our listeners a little bit of history with Nelson Nash and the 60 40 rule.
[00:06:12] Vance Lowe: The 60 40 rule comes to play in many different areas that we talk about. Back in the day when I was young and getting my first car loans, banks required 40% down and they would finance 60%. And that was true for a very long period of time. And it’s more of a recent factor. I say recent, last 30 years, maybe 35 years, that they’ve started increasing that to what you, modern day now is the 80 20 law.
[00:06:43] Vance Lowe: And they’ll still bounce back and forth, but banks get very, very tight and they demand a whole lot more because that spread is so thin. The 64 rule should be the mark that we try to hit in almost all [00:07:00] of our lending assessments. For instance, when we bought all of our own personal debt, now we have the, the monthly payments coming into us.
[00:07:08] Vance Lowe: Instead of going out to someone else, our money is accumulating and we want to put that money to work. So we’ll go out to our extended family and we’ll talk about maybe purchasing existing car loans that are in their last half of the loan timeframe. Thus, we get close or very close to that 60 40 rule, and we can finance, we can take over, we can buy that debt.
[00:07:32] Vance Lowe: It doesn’t change the commitment or the payment to the person who owes the money on the car, but the family bank normally gets up into the double digit returns. And can make a good profit on putting the money to work that way. But again, we go after those types of loans that have much more skin in the game, and we purchase that debt at a much smaller amount so that the money we have at work is producing a much [00:08:00] higher payment or what we call a volume of return.
[00:08:03] Seth Hicks Esq.: Right. So the deployment of capital isn’t speculative. It’s planned, it’s structured, it’s disciplined. It makes every loan, every investment, a deployment of capital. You have to think like a banker and make sure that that’s coming back and those healthy leverage deployment of capital is one of the main cornerstone to keep your long-term wealth.
[00:08:25] Vance Lowe: Let’s go back to the car for just a a minute. If we wait until the back half on a five year loan or six year loan, we’re at two and a half or three years. There is now good equity in the car so that equity is there and can be used as collateral. The blessing and benefit in a family bank is that the family bank will work with a borrower or brother or sister, aunt, uncle, nephews, whatever.
[00:08:52] Vance Lowe: If something happens, they can’t make the payment on the loan. If it’s. Not their fault. If it was, you [00:09:00] know, a loss of job or an accident or something, the family bank can work with that person. They can postpone payments, they can refinance the whole thing to make it a lot lower. They just don’t stop it. Or people make a mistake as the, oh, they will forgive the loan or they’ll stop the loan.
[00:09:18] Vance Lowe: No, we don’t do that. We wait for that person to get back on their feet. They finish paying off the loan and it’s like they’ve never left, and there’s a lot of equity back in the family bank and that nothing is jeopardized. However, if we have a loan out there and it is the person’s fault, the borrower’s fault, you know, they get caulking, they lose their job, they go on drugs, or they do something really stupid.
[00:09:39] Vance Lowe: We’re gonna have to repossess the car, sell it, make sure the family bank’s okay when they can have the rest. So you can’t do that on a new car ’cause on a brand new car, unless we, you know, we have a huge bank and we’re willing to take that risk. The depreciation is a minimum of 20%. A lot of times it’s 30 or 40% [00:10:00] right when you drive it off to try to turn around and, and resell that thing.
[00:10:04] Vance Lowe: So that’s what I’m talking about. For a bad risk, sometimes our clients might make a mistake and buy a car, finance a car for. One of their children and it’s a brand new vehicle, and now the money is at risk because there is no proper collateral.
[00:10:19] Midroll: Did that story feel like it was about you? Do you feel like you are generating a lot of revenue but are not moving forward as fast as you would like?
[00:10:30] Midroll: Do you feel you should be making more progress toward your financial goals? Do you feel stuck? Let us help you get unstuck. Are you ready to take action and get your own private bank? Please visit us at www.privatebankingstrategies.com.
[00:10:50] Vance Lowe: Seth, I’m sure you’ve got other examples of clients out there who have risked their money and it has come back to bite them.
[00:10:57] Vance Lowe: The art of banking though is [00:11:00] not accepting those risks to mitigate every possible reason that a family bank might lose asset at work.
[00:11:08] Seth Hicks Esq.: That’s the purpose of smart risk is to avoid the speculation and prevent emotional decision making, and those are two of the main reasons people will make mistakes. We told you about, Hey, these are mistakes to avoid with your private banking deployment of Capital One is.
[00:11:26] Seth Hicks Esq.: Avoid speculation, and two is avoid emotional decision making. If you’ve got structures and disciplines in place, you’re gonna be able to protect the capital and make sure that it remains strong generation after generation that safeguards your bank from imploding on itself, from having more capital deployed than the return on the deployment.
[00:11:48] Seth Hicks Esq.: It’s all about return on the investment and securing cash flow for the deployment of your capital. Any business person’s mindset or entrepreneur’s mindset that that is their [00:12:00] intuition. But this turns it into a structure that guarantees your success when you follow the structure.
[00:12:07] Vance Lowe: That’s right. There’s a lot of balances that you’ve gotta make, and we help teach this, set this up, and literally walk people through getting all this organized and set up.
[00:12:17] Vance Lowe: It sounds complicated sometimes ’cause we have to talk about it. But once everything’s organized and moving forward, this is very, very pleasant to be able to run successfully. One of the things we have to worry on our checklist is that we have enough liquid assets, you know, remaining assets in there in case another emergency comes up, or juggling of money because these are living, breathing content tracks that provide.
[00:12:43] Vance Lowe: New capital contributions every year, and we wanna make sure we have enough liquidity to take advantage of getting additional capital into these contracts every year. ’cause after the fifth year, these contracts are so efficient, they go well [00:13:00] over a hundred percent. So we wanna make sure that that’s aligned.
[00:13:03] Vance Lowe: And then another one is we have to have a futuristic goal. Where are we in this process? What are we trying to obtain? Are we trying to put enough money to work to accumulate enough assets so that we can start self financing the next level? I think the ultimate level that we want to get to is financing our own homes, but we can get there by financing all the little things to get up to there.
[00:13:26] Seth Hicks Esq.: Let’s talk about smart risk filters. What are some of the checklists when a family makes a decision? We’ve talked about cashflow support, capital protection. Let’s drill down on some of those things. What does that mean? Cashflow support for the deployment of your capital, and what does capital protection mean?
[00:13:46] Seth Hicks Esq.: These are things that are critical. When you deploy your capital, that is incumbent. When you think like a banker, think like a bank, think like a banker. Well, you have to have, um, a cash flow. If [00:14:00] they’re gonna make a loan on a home, the person that they’re making the loan to has to demonstrate that they can pay a mortgage of this amount per month, and the property taxes, and the insurance and the utilities, and that it’s only a portion of their total income.
[00:14:17] Seth Hicks Esq.: That’s called cash flow support. They’re creating a loan that has a reliable, seemingly clear and predictable repayment. The borrower, and if they’re wrong. Or if they fail, then they’ve got 20% equity in the home, hopefully, unless it’s a depreciating market and they can take it back and be made whole. So that’s a little bit on cash flow support, but let’s drill down on those filters on what the smart risk filters are when you deploy your capital.
[00:14:45] Vance Lowe: We really like to teach this on a family level, and we have a free book that Seth will mentioned. I put a story in there about financing a bicycle for my grandson, and it teaches about these filters. You’ve got to have a system set [00:15:00] up to where if you lend money out, that payment can come in on a regular basis.
[00:15:05] Vance Lowe: The banking that we set up is flexible enough to have payments coming in every week, biweekly, bimonthly, once a month, once a year, whatever the circumstance might be to fit the needs of the person, but the means to be able to repay that loan need to be rock solid. So that filter is, can the person pay this back?
[00:15:26] Vance Lowe: If we can’t pay it back, where’s the collateral so that we can be sold, we can make ourself whole again. So the cashflow needs to come in on a regular basis because that cashflow is also a commitment for future events. So without that, another event might happen as well. So I think that’s important. The asset certainly has to be protected if we invest in a car or like a bicycle again and get stolen, you know, if we don’t have adequate insurance or something like that, is are [00:16:00] things that have to be looked at to make sure that the money’s coming back on a regular basis.
[00:16:05] Seth Hicks Esq.: I think one of the fundamental principles that in the deployment of capital that has to be a guidepost is don’t lose money with speculative and emotional investment. You’ve gotta protect the principle and that comes through the right loan to value ratios like we talked about. You mentioned 60 to 40 in prior decades, and now it’s.
[00:16:26] Seth Hicks Esq.: Pretty standard 80 20. And in the last mortgage crisis bust, they were making like a hundred percent loan because the market was appreciating so much. That’s that they made a lot of bad decisions. That wasn’t a smart risk framework lending a hundred percent to borrowers that couldn’t pay it back. So opportunities must protect the principal and not gamble it.
[00:16:48] Vance Lowe: Yeah. I remember years ago, actually, before I got into private family banking, running a money management firm. A client came in and had a [00:17:00] great idea. It was fish farming, and I’m talking about this because this is more than 25, close to 30 years ago. It’s when fish marking was introduced here in the United States, especially here in the state of Texas, they had these troughs that were acres long and they’d have three or four troughs and you’d start the fish out at babies and they would start working down and get to the end.
[00:17:22] Vance Lowe: And then they would move from trough to trough, especially fish like tilapia or something, and they would be harvested in a very quick order, but you would have. I don’t know what the percentage of loss is from the eggs that come in, but he was talked into doing that and supporting that with his son, and he would come in almost every month and withdraw more money and more money and more money.
[00:17:46] Vance Lowe: And we saw wealth disappear. Over about a year’s period of time and we ended up losing the client. We don’t really know, but I think the farming fell flat on its face ’cause they, they couldn’t take it where they thought they [00:18:00] could. And there was no collateral, there was nothing else. So the family’s wealth just literally disappeared.
[00:18:06] Vance Lowe: Bring that to the banking. Seth, you’re just so spot on that you cannot be, speculative banking is not speculative. They don’t do that. They may not regulate what you do with the money, but they probably will do that too. But they want assurance that that money’s coming back in collateral or some format, and we have to do that too no matter what.
[00:18:29] Vance Lowe: When we’re talking about. Risk, smart risk.
[00:18:32] Seth Hicks Esq.: Well, that’s a great place to let you guys know about our book that Vance and I prepared with you in mind. It’s called The Secrets the Banks Don’t Want You to Know That will help you get wealthy, and you can access that book on our website by putting in your name and your email address.
[00:18:49] Seth Hicks Esq.: That’ll become available to you in A PDF and an audio version. And if you like what we’re talking about, you like what we’re teaching you in our book and our [00:19:00] podcast resonate with you, you’re gonna have a very good opportunity, which is to set up an exploratory call with Vance and the calendar link comes through the emails.
[00:19:09] Seth Hicks Esq.: So that’s the only place you’re gonna be able to access his calendar. You’re resonating with our content, our podcast, our book schedule, an exploratory call with Vance. What happens on the exploratory call Vance.
[00:19:20] Vance Lowe: We’re gonna just discuss timeline. We’re going to set it up hopefully, and offer you to take it for a test drive, you know, on our dime, so to speak.
[00:19:31] Vance Lowe: We’re gonna ask for your numbers, your monthly expenses, some of your assets. We’re kind of loose with the numbers right now coming in so that we can. Literally show you month by month analysis and show you where you could be if you switch from spending your assets to using them and getting them back.
[00:19:50] Vance Lowe: That’s what banking is all about. It’s amazing. It’s all about math. There’s no projections, there’s no assumptions, and we encourage people to take us up [00:20:00] on that. Because it’s fun and it is definitely eye-opening.
[00:20:04] Seth Hicks Esq.: Absolutely. So schedule an exploratory call advance and you can take the entire system on an eight year analysis where step by step it shows you exactly what to do.
[00:20:15] Seth Hicks Esq.: Folks, we appreciate you joining us and we hope to have you join us again on our next episode. And until then, any closing remarks, Vince?
[00:20:23] Vance Lowe: No, just hang in there. Learn something new about your money and try to keep most of it instead of spending it.
[00:20:29] Seth Hicks Esq.: Awesome. All right, see you on the next one, folks.
[00:20:31] Vance Lowe: Bye-bye.
[00:20:32] Outro: Did that story feel like it was about you? Do you feel you should be making more progress toward your financial goals? Do you feel stuck? Let us help you get unstuck. Are you ready to take action and get your own private bank? Please visit us at www.privatebankingstrategies.com.
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