How do the banks invest their money? Video 2 of 4 of this banking series.
My name is Ben Y. Thomasian and I offer in the wealth modules the financial education not shared anywhere. In this video, I will break down how the banks invest money.
Please watch “How Banks Work” YouTube Video if you haven’t yet as it’s the first video in this series also linked here below. So the question then comes up, wait, Ben, how do banks invest money? Even a licensed banker wasn’t able to speak to their high earning and high balance customers about the investments the banks put their cash into. It was all about the assets under management. I challenge you to go to your banker and ask them, “Hey, where do the banks invest?” You will hear the crickets.
Banks invest in accounts the average Joe and Jane like you and I can invest into as well, but you need to talk to a licensed Financial Professional like myself to learn about those options. Read the book, “Money, Wealth, Life, and Life Insurance” by Jake Thompson for more information on this subject if you like doing your own research. Reach out to me and I am happy to share this material as well. Banks also invest in real estate, they own the offices they work out of, JP Morgan Chase for a real-world example owns 343 million dollars in real estate holdings. But they also have 11.3 billion dollars in accounts that are backed by life insurance to take advantage of the IRS tax codes that saves them from having to pay on those fantastic and guaranteed safe earnings on those investments. You can look up this information on FDIC.gov website as well. So, when are the banks going to die? Well, they never will, so why do they invest the lion’s share of all the cash of their coffers into life insurance backed policies? Some things are easier to show with examples and if you set up time with me, I’m happy to explore these options for you as well and provide additional, valuable knowledge on the subject.
“Banks, when it comes to investing their own money do NOT follow conventional wisdom and put their cash into mutual funds, stocks, hedge funds, term life insurance, or risky real estate deals, no they don’t. Instead, they place a large portion of their vital reserves, into high cash value life insurance or permanent insurance…. Banks invest billions into high cash value life insurance. Surprisingly, for many banks, life insurance is their largest asset class.” For it to qualify as an asset, they have to be able to withdraw it if they need to do so, it’s called keeping it liquid. And by the way, if you ask the banker what they are invested in, they would lose their job if they didn’t tow the company line and maintain the script and sell only the products that the bank offers. Tellers and bankers don’t need a license to sell credit and put Americans in debt.
So what does the Wealth Management Department at the bank offer to their high cash flow earners when you meet with a broker licensed and working for the bank? What do the one or two clients out of the hundred who walk through the door get offered because they qualify? Well, first, what does it take to qualify?
One million or above to qualify, is what you need to have as the main focus on investing and saving. You would then be talking with bankers who are licensed. Not a single banker in this department can offer these options in this private and exclusive section of the bank. The other 95% of clients haven’t even heard of this and there are no exceptions for them to meet with this department. So what are the different types of advisors do the banks have? Well, they have two.
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The typical financial advisor has a series 7 and 66 licenses and is trained on passive management of assets. What does that mean, passive management of assets? Well, it means they pass off the management of your assets to someone else for a 1% fee, and it will get invested and focused 100% into various mutual funds. The accounts are transactional which means anytime there is a trade, buy, or sell transaction, it triggers another commission for the bank. The other type is an investment advisor and is structured not as transactional but instead works on a fee-based commission and these folks are required to carry a series 65 license. These have higher requirements or qualifications to make an appointment with, to be a part of their department and so it’s a little cheaper because it’s based on the size of the portfolio and not on each transaction. They are also a little more active in managing the money for their clients and will not pass it off, but these guys are working out of larger firms like Merrill Lynch and Edward Jones if the client meets the higher qualifications.
Feel free to comment below or send me a message from the healthwealthandrealestate.com website on the “Get in Touch” link at the top of that web page and please like and subscribe to the channel so that you don’t miss any future educational videos. I hope you found this informative and I look forward to chatting in depth about it with you. Look for video 3 of this series and have a wonderful day.