Thinking Outside the Box: Insurance Solutions for Families

Fernando Pou is the Founder and a Managing Partner of Passerelle Partners, a boutique wealth advisory firm catering to entrepreneurial families, assisting them with their investments, estate planning and business-succession solutions. Fernando leads Passerelle’s Private Client segment and holds a leadership role in all firm activities.

Fernando is a seasoned private banker with more than 20 years of experience, specializing in premium finance life insurance solutions. He has worked with various private banks, catering to both U.S. and international families.

Given his expertise in insurance, banking, and international client management, Fernando spearheads all complex structuring matters at Passerelle. Fernando is fluent in English and Spanish.

Rino Schena is a Partner at Passerelle Partners, where he manages the firm’s family office practice, advising clients with complex balance sheets and significant asset levels on investment, contingency planning, and wealth preservation solutions.

Prior to joining Passerelle Partners, Rino spent more than 20 years in the financial industry, serving in various management positions at JP Morgan, UBS, Credit Suisse, Invesco Global Asset Management and Royal Bank of Canada. In January of 2015, Rino started a single family office for the chairman of a NYSE listed company and founder of a private equity firm, and was responsible for managing the family office for 5 years.

Rino earned his MBA from Emory University in Atlanta and is fluent in English, Spanish, Italian, German and French.

Kirby Rosplock

Welcome to the Tamarind Learning Podcast. I'm your host, Dr. Kirby Rosplock, and today we're talking insurance. I have Fernando Pou and his partner Reno Schena from Pasarelle Partners. And we're going to be talking about sort of the nuanced aspects of wealth planning as it relates to insurance. We are lucky to have these two gentlemen as they have more than 25 years spanning the family advisory, wealth management, family office space. And I think today we're going to unpack why complex insurance planning goes far beyond the basic and how there's a lot to understand about its opportunities to solve for some pretty complicated situations. So welcome, gentlemen.

Fernando Pou

Thank you. Kirby

Kirby Rosplock

Well, let's just jump right in and get a lay of the land about what are some of the triggers, what are some of the reasons why a family may need to think differently about how they approach risk management and insurance solutions.

Fernando Pou

Kirby, thank you for hosting us today. Really excited to be part of the you know, it's really interesting the trends and themes that we have seen arise over the past couple of months. And just as the overall environment that we see globally have clients gravitating to insurance based solutions to complement their wealth management holding structures and interestingly enough, also diversify their investment portfolios. So we've seen really three areas where these solutions have become relevant and where we've seen the demand increase over the past couple of years. And the first one really is how do you address and balance sheet holdings and how do you diversify them. So as operating businesses, portfolio positions and even jurisdictional exposures of maybe where we have tax, residency or assets is how do you diversify and hedge your portfolios. So using an insurance based solution brings some tax efficiencies and some asset protection features that we traditionally wouldn't think about in gravitating to an insurance based solution as we otherwise would have gone into planning structures with trusts or other type of vehicles.

Kirby Rosplock

Now, Rino, you have worked in the family office environment a long time. I mean, maybe you can share with us your experiences, too. Where a complicated business owning family in looking at their business succession and continuity and estate planning needs? Have you seen it up close and personal, how these types of plans can come into fruition? And why it's different than maybe sort of the retail market that most people might associate insurance products with?

Rino Schena

Well, that's a great question, Kirby. From my personal experience, what I have learned is that often families procrastinate or they don't have a contingency plan in place. And often also there is a misunderstanding about liabilities and contingencies that the family may have in the future if something happens to the principal. So one thing that I have learned when I was managing a family office in New York is basically that even though a family may have different structures and trusts and have you typically you also have still estate tax liabilities, you have capital commitments that need to be covered. And so these type of solutions are an excellent way for a family to protect in case of a risk event where you have plenty of liquidity to pay for estate taxes to cover contingencies family liabilities and also future capital commitments.

Fernando Pou

Yeah, I would add to that when you start thinking about liabilities, a lot of our families view a liability almost as an asset accelerator, right? So we're going to banks to ask for loans and leverage to deploy into other assets. So the management of those liabilities and the protection of the value that we're investing in is also a way to mitigate these contingencies. And even though on a personal financial statement it may show up as a liability, the question is, well, how do you use that to ensure that you retain the value in the succession of the business of the asset and most importantly, the family legacy that you're creating and protecting that asset? So that contingency and liability management, as Rino points out, really is tax, corporate, family investment and succession all in one.

Kirby Rosplock

So when does an individual or family say, gosh, we need to tackle this head on? What might be a trigger or a situation where you would say, boy, this would be an opportune time to unpack or explore?

Fernando Pou

I would say, Kirby, that every family needs some sort of contingency plan. And the reality is that it's always better to do it as soon as possible. Because as you probably know, the older the principal advances in age, the more expensive these type of solutions become. Therefore, it always makes sense to early on, as part of an overall strategy, to look at liabilities or estate and tax planning. This should be an integral part of any family's estate and tax plan.

Fernando Pou

Yeah, just like you manage the asset side of the portfolio and you are rebalancing the assets, you're looking at them. Whether you have portfolio managers or you have business consultants or CFOs assisting you doing that, you should also manage the liability side. And typically that plan should be revisited frequently, almost just as frequently as managing the asset side of the balance sheet. But we tend to find clients gravitate to looking at these solutions or this type of planning when there are life events. So whether those are liquidity events or mergers or marriages, divorces, unfortunately, and sometimes deaths, maybe when inheritances are about to take place, change of tax residency. We've also seen clients look at it as pre immigration or exit planning. So typically that's when clients are looking at the liability side and that's when they're seeing changes in the cash flow or changes in the asset base, or changes in lifestyle.

Kirby Rosplock

Well, certainly we've lived through a lot of extreme times and I'm sure partially the pandemic has changed people's views on protection, downside protection, asset protection and even continuity planning with respect to businesses and their assets. Tell us some more, maybe about some specific structures that you think are really working. I know, of course, we can't give guidance over this podcast, but I'm sure you're confronted with similar themes, right? Similar operating businesses. I know I have a family I'm working with that's going through a massive liquidity event. What would you sort of initially start to scope out and what's your process when you are working with families?

Fernando Pou

Excellent question. When engaging with entrepreneurial families during these life changes or life events or allocation adjustments, let's call it, is something that first takes place on the structural side and that's typically engaging with state tax attorneys, transactional attorneys, and CPAs and structuring the transaction or that transition properly. Typically when we come in, we are almost an overlay to those solutions and complementing those solutions, whether it's a liquidity event or a divestiture of an asset or a relationship, let's call it. Right. So we like to really look at the different elements that are the inputs in the equation, which are where are the assets located, what is the goal of the family? Is this more of a wealth enhancement solution or a hedge solution or both? And how to incorporate that into their existing plan and that's put together by the attorneys and the CPAs? And how do we overlay it with the asset holdings? And that can be whether it's real economy assets like private equity and real estate and venture and operating businesses, or whether it's more passive investments in the relative return space. So your liquid portfolios that are in public capital markets. But I would say every solution is customized and every driver of every family is customized.

Fernando Pou

What's interesting about these solutions, Kirby, is that we can structure them in a way where they're extremely efficient from a holding structure perspective, from a tax perspective, but that they also evolve at the different stages of wealth. So whether you're creating wealth, enhancing wealth, maintaining wealth, or getting ready to distribute wealth, these solutions are relevant and have an applicable aspect to it that you can use it not only in life, but in that transition to the next generation.

Kirby Rosplock

So it sounds like you are really working in the ecosystem, right, of advisors, tax advisors, estate planning attorneys, business advisors. As you're kind of looking in concert, what are the planning considerations, what are the assumptions that we're making about what the goals are for whatever solution and then the timeframe? And then I'm also hearing you say, Fernando, how important it is to actually revisit know regularly to see if it's on point, if it needs to be dialed up or maybe we don't need as extensive a solution if things sort of work their way out in other time frames. And I'm just curious, if you were to say one thing you're really excited about as it relates to the work you're doing today with families, what do you see? Some of the trends or things that are becoming really present. I know you said contingency planning, but maybe dig in a little bit more.

Fernando Pou

Yeah, I would say front and center right now and it's always front and center for our families. It's really how do you manage tax planning? Right? So that's income tax planning and estate tax planning and that's something that's been relevant for centuries. So the question is, how do you use this vehicle to help manage that contingency today and in the future? And there's a lot of flexibilities and a lot of benefits that the vehicles bring to families to help confront different environments and different situations.

Rino Schena

Just to add what Fernando explained, Kirby, let's also not forget that insurance has incredible tax benefits. The investment account, for example, grows on a tax-deferred basis. And once, let's say there's a risk event, the payment goes to the family completely tax free. We then are specialists in making sure that the proceeds are paid to the beneficiaries in a way that they are excluded from any estate taxes by keeping life insurance in a separate vehicle, typically in an irrevocable life insurance trust.

Kirby Rosplock

Well, I can imagine that it can also maybe derisk conflict. Right. So being able to have some of these known, how are we going to pay for the death tax if someone is to pass away? This could probably reduce a lot of stress in families, having these kinds of plans in place and creating a lot more harmony in families so no one has headaches of, oh my goodness, what are we going to do? I can't pay the estate tax burden or the business. We can't cough up the tax for business transition. So I see that this is not just a financial solution. This can really help families dramatically mitigate some very difficult times.

Rino Schena

Absolutely. This is an excellent way to raise equity or capital for a future capital call on the family balance sheet. And that capital call can be a tax capital call or in certain scenarios you insinuated. We use it for almost interfamily buy sell arrangements. So, excellent way to interchange assets between family members or partners and create a liquidity kicker or equity kicker into the family balance sheet to resolve those solutions.

Kirby Rosplock

That's excellent, that's excellent. Well, Fernando and Reno, thank you so much for being here today on the Tamron Learning podcast. I think we've definitely got more insights to how insurance planning can aid risk management and really give an extra level of protection to families and individuals as they're going through jurisdictional changes, business planning changes, potentially lifestyle or general planning for your what's beyond what's next. So I'm so thrilled to have you all here. I know you'll share some more information that we can put on our podcast page on how to find you with more questions. Because I think the one thing I've learned so much over the years is that no two families are alike. So you can't just read up about it and think you can do this on your own. You really need the experts like yourself to come in, assess and give you best in class advice.

Rino Schena

Excellent. Thank you, Kirby.

Fernando Pou

Thank you so much, Kirby.