William Hutchings, who is not old enough to retire in the traditional sense, works two days a week and enjoys spending the other five days any way he wants to.
Tom and Roberta Standen are in their 70s and continue to work their cash flow business while enjoying the fruits of their labors. They’ve brought their children into the family business and don’t have to be there day after day unless they want to.
Shorty Williams sends postcards to his friends from all over the world as he takes fascinating journeys, but he will tell you (as he does in this issue) that at 73, he is not retired and has no intention of becoming retired.
Jeff Armstrong has been talking about his retirement plan for years at Cash Flow conventions. He calls it “Terrific Tail Ends: How to Keep a Piece of the Action,” and it is his way of earning a great deal more than commission from the private mortgage deals he does.
So, do any cash flow professionals retire? Are retirement and cash flow concepts that simply cannot coexist?
Entrepreneurialism and Retirement
When most people talk about retirement, they are referring to a time when a person stops working at the nine to five job he’s had for years and starts living the rest of his life. All of the governmental approaches to retirement work toward providing income and benefits to people whose primary source of income and benefits no longer exists. Social Security, Medicare, even the federally sanctioned retirement plans like IRAs and 401(k) programs are designed to provide people with income and benefits to supplant those no longer provided by an individual’s employer.
Entrepreneurs don’t come from that place. They are more likely to be self-employed and not have their length of employment tied to clock or calendar. The retirement ages of 55 or 62 or 65 mean nothing to them. If they choose to scale back their business at the age of 40, they will. If they choose to continue working well into their 70’s, they’ll do that, too. One entrepreneur started his business at the age of 33. At the age of 45, he had three businesses and a staff of fully commissioned sales people. One day, he suffered a serious heart attack. Following the attack, he hired a Chief Operating Officer. After that, he only went to work one or two days a week. Today, at the age of 77, he is still the CEO of the company, but he meets the COO for lunch one day a week and spends that afternoon at his office. He is worth many millions of dollars and continues to bring home a paycheck every week.
Is he retired? Technically, no. Realistically, the COO runs the company and just keeps the owner informed – and it’s been that way for 30 years.
As self-employed, independent contractors, cash flow professionals are entrepreneurs. Shorty Williams points out in his article that he doesn’t need to be at an office or anywhere else except when closings are being held on the properties he purchases, manages, or sells. That allows him to spend a lot of time traveling. He may look retired, but he isn’t.
Williams and the Standen’s have found that they can leave the day-to-day operations of their business to employees who may or may not be family members. That’s another benefit of cash flow.
In many cases, cash flow income is residual; if set up correctly, it will come in on a regular basis without any further involvement from the cash flow consultant. William Hutchings is a small factor. He manages his work time by managing the number of clients he has. Hutchings also has decided that he does not need to make tons of money. He would rather make enough to live comfortably and enjoy more of his family than work harder and make more.
Does that mean cash flow consultants don’t need to think about IRAs and other retirement plans? Not at all! As we get older, we need more time to relax. It is not likely that you’ll want to maintain the same pace at 65 that you have at 45 or 35. A self-directed IRA affords you an opportunity to create a pool of investment funds that you control. Self-directed IRAs are a perfect vehicle for generating income from successfully investing in cash flows now, but they also create a pool of money that you can use after you are 65 to continue investing as a funding source. The primary goal of any cash flow professional considering life after 65 is to develop a business that can keep going, keep supplying needed income, but with less and less involvement from the consultant. Your post-65 life is a good time to slow down and enjoy everything around you, including your adult children and the grandchildren they take home with them when they leave.
The Business of Retirement Plans
If you are already investing in debt instruments and feel comfortable enough with your understanding of the cash flow business, you could offer your services as a consultant to people who are looking for investments with a better return. Keep this in mind, however. You may not offer advice to your clients concerning the quality of any investment nor can you tell them that your investments are better than someone else’s. You can tell them what cash flows are and that people invest in them and that anyone who wanted to invest in them could use you as a finder of these investments. The beneficiary of a self-directed IRA will have to do his own due diligence or seek the advice of a licensed financial advisor before deciding whether to invest in any deal you would bring to him at his request. Of course, you can help gather information, but you cannot express an opinion regarding the viability of the deal. The investor, the beneficiary of the self-directed IRA, has to decide for himself. Even if he or she asks you if you think it is a good investment, you can only remind him or her that your responsibility is to find prospective investments, not determine their quality.
This is a licensing issue. Michael Scott of Pensco says that even the term you use in describing your responsibility, whether it is broker or consultant, is significant. Scott thinks the term “broker” may be more descriptive of what your role is and, therefore, safer, but if there is concern that you might be mistaken by state regulators for a stock broker, consultant would be a better term. Definitely do not use the term “advisor.” To call yourself an investment advisor, you will need a license.
You must approach your client in the same way as you approach your funding sources – only don’t try to convince the client that purchasing a particular investment is a good deal. He has to figure that out for himself.
Real estate is a popular investment alternative when using funds from a self-directed IRA; however, just as notes are less of a hassle than real estate for the owner of an income-producing property, they create fewer problems for investors who like the security of real estate but don’t want to be landlords.
All collateral-based debt instruments are suitable for investment, but so are what you might consider non-collateralized deals. So says Rich Desich of Equity Trust. For instance, an IRA holder could purchase accounts receivable. The receivables become the collateral for the investment. Keep in mind, however, that factoring is a complicated process that may require chasing after payors who don’t pay their bills. Investors might feel more comfortable providing funds to a small factor for the factor to use to purchase receivables. Desich says that is allowed. Let the factor manage the invoices (for a fee) while the investor collects the profits in his IRA. Again, the investor must make the ultimate investment decision. Factors have to be wary of offering advice as well.
Some small factors accept private investment dollars and pay a percentage interest. However, these funds are considered unsecured. Federal law does not allow IRA funds to be used in unsecured investments.
Of interest to cash flow consultants exploring the possibility of assisting a client who wants to invest in debt instruments are the fees you will charge for your services. Again, you must be careful about how you characterize what you do. If finding something for someone to invest in is what you do, you may want to charge a finder’s fee. Don’t call it a referral fee. Again, you must avoid any type of terminology or activity that suggests you are offering your client investment advice. Determine what services you are charging for and how much you will charge. Develop a fee structure.
Be careful about violating securities laws as well as other laws that pertain to licensing. That’s the key to staying safe. Rely on the companies you are working with who administer the self-directed IRAs. They know what is safe and what is not safe. At least until you are comfortable working with clients who are using their self-directed IRAs to invest in cash flow, rely heavily on the administrators of the accounts to let you know what you can and cannot do legally. As an alternative, seek advice from a lawyer who understands the legal complexities of legislated retirement funds.
Retirement in the cash flow industry means two things. First, the industry and your work in it can provide you with a source of income for the rest of your life. If you want to continue working, you can do it. If you want to hire others to run your business, you can do that, too. And, the promise of residual income makes cash flow very attractive as an investment for retirement. Second, you can work with clients who want to invest in cash flows through a self-directed IRA but need your expertise at finding cash flows to do that. Just be careful to stay within the law.
You can now look forward to a happy, healthy, and hopefully profitable retirement