Salt Lake City’s John Homer is not an advisor you’ll find at seminars entertaining audiences with a dazzling light show or bombastic monologues better served at a comedy improv. That’s not his style. Homer is a thoughtful, analytical man, a quiet man, as far as advisors go — a listener as much as he is a talker. You have to lean in a little when he speaks and what he says is worth hearing.
“I have a strategy and it’s the only one I know where the client’s cash flow is greater after buying a policy than when they put it in.”
What? I must have heard him wrong. I’m thinking that doesn’t pass the smell test. If that’s the case, why isn’t everyone taking advantage?
We’re in Homer’s Downtown Salt Lake City office. On the conference table between us is a bronze statue. The image is of the grandfather of the scultptor, about to leave town on a horse. It looks like it weighs a ton. I want to pick it up, but am fairly certain I couldn’t without help or great effort. The statue isn’t the only western art in the room.
Growing up, more than anything, Homer wanted to be a cowboy. But didn’t we all? I mean, I have childhood pictures of myself in a blue suede fringe vest holding a cap gun at the camera. The difference is, Homer was a real cowboy.
Homer takes a photo from a desktop. It’s faded but the gist of the image is not lost on me. It’s a rodeo, a real one with fences and people in the stands, and a cowboy is roping a calf. The cowboy is John Homer. And to think, I’d almost told him about the photo of me in my blue suede vest.
I realize Homer and I could spend the rest of the day telling cowboy tales. He could tell me about riding on the range and rustling cattle; I could tell him about my cowboy and Indian-themed fifth birthday party, where, feeling adventurous, I’d worn a red suede vest instead of the signature blue.
But we have to get back to the topic of money, of other people’s money, of saving and growing it. We have to get back to what he’d said, that he’d found a “strategy where the client’s cash flow is greater after buying a policy than when they put it in.”
The following conversation is taken from communication between Homer and me via phone, email and in-person in his office, the one with the pictures of a real cowboy. And the conversation hinges, not on cowboys, but of all things, a glass slipper.
DANIEL WILLIAMS: In our earlier conversations, you talked about the Cinderella Slipper strategy. What is that?
JOHN HOMER: The Cinderella Slipper strategies are a group of related strategies that take advantage of the natural leverage that exists between the payout from a Guaranteed Income Annuity and the cost (premium) of a Guaranteed Life Insurance policy in order to achieve a specific economic objective.
WILLIAMS: Why Cinderella?
HOMER: Because they only fit certain feet. The appropriate candidate is someone between the ages of 70 and 90 who is in good enough health to obtain life insurance at standard, or better, rates. In addition, they will have specific economic needs. Among those could be guaranteed cash flow, removing liquid assets from a taxable estate, creating an economic cash flow for a charitable trust, washing the accumulated income tax liability from a tax deferred annuity, or avoiding a double taxation from Estate and IRD taxes on qualified retirement plan monies.
WILLIAMS: How does it work?
HOMER: The candidate transfers a lump sum of cash into the Guaranteed Income Annuity and elects the “life only” income option. That will provide cash flow for as long as they live, guaranteed. The older they are, the greater the payout rate will be. But, this annuity has a major downfall. Since the cash flow is paid only for the length of the annuitant’s life, upon death the annuity ends with no refund. It simply stops. All the money put into the annuity is gone. If the annuitant dies three months after purchasing the annuity, and has only received three monthly payments from it, he or she will have lost everything else except those three payments that they received before dying.
WILLIAMS: That sounds like a deal killer.
HOMER: It would be, but to overcome that huge problem the candidate purchases a life insurance policy equal to the amount they are putting into the Guaranteed Income Annuity.
[Editor’s Note: at this point, Homer steps to a dry erase board and provides the following case study as an example.]