The Hierarchy of Wealth Part 1: Building a Financial Foundation

About this Episode

In part one of this special four-part series, we introduce the Hierarchy of Wealth, a simple way to structure assets and build a balanced financial portfolio. In this episode, Patrick Donohoe and wealth strategist William Street do an overview of The Hierarchy of Wealth, as well as an in-depth discussion of the characteristics and benefits of Tier 1 assets.

Key Takeaway Timeline

  • 2:20 Introduction to Will Street
  • 5:00 How diversification plays a role in strategic wealth management
  • 7:00 The creation of The Hierarchy of Wealth
  • 8:30 What is Tier 1 of The Hierarchy of Wealth?
  • 9:35 Characteristics of a Tier 1 asset and how a Wealth Maximization Account fits in
  • 13:50 Ways that The Heirarchy of Wealth can help with long-term and short-term financial planning
  • 15:00 How a cash value insurance policy fits into Tier 1
  • 18:30 Standard practices for establishing a financial foundation
  • 20:00 How Tier 1 can help you build emergency savings, get out of debt, or grow your wealth
  • 24:45 The “Opportunity Fund” and how it differs from typical financial strategy
  • 31:15 Creating a game plan for the average person to get started building a balanced portfolio
  • 33:15 Where you can find resources for this episode and contact our team

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The Hierarchy Of Wealth Part 1: Building A Financial Foundation With William Street

I’m excited about the next few episodes because we’re going to get into the Hierarchy of Wealth. It was something that was the result of me asking the question, “What’s a simple way to assess an asset?” For some people, an asset is risky but that same asset could be a safe asset for somebody else. That’s where the Hierarchy of Wealth came from. Since then, we’ve been able to use it as the foundation of Paradigm Life and how we help clients to assess their assets, their balance sheet and understand what they should invest more into and invest less into. It quickly became that foundation.

It helps clients structure their wealth to build a solid financial foundation, ultimately, earn an income for life, and then pass on generational wealth. My guest is a good friend of mine. His name is Will Street. He’s one of the wealth strategists here at Paradigm Life. Together, we’re going to outline the Hierarchy of Wealth and then we focus on Tier 1 assets, that foundational Tier, which ultimately makes up a large portion of your overall finances. If you read only one blog, I guaranteed that this one is going to be beneficial to you. We are passionate about the overall idea of how this has helped us as well as multiple clients. We’re excited to have you join us.

I’m with a good friend of mine. He is one of the wealth strategists here at Paradigm Life, Will Street. Why don’t you take a second and introduce yourself before we get going? You’re no stranger to the show, but for those that may have not heard you before, let’s give an overview.

I love being on the show, especially this series that we do and the topics that we cover. I’ve been here at the Paradigm since March 1st of 2014. I’ll always remember, which is incredible because I’ve been here at a Paradigm for as long as I was practicing law at the firm that I was with before. I was in partnership for years at the firm that I was with when I chose to step away and join the team at Paradigm. I’ve been here ever since. That’s crazy because as I’m explaining that, I’m realizing I’ve been here for as long as I was there.

Life has never been the same.

Paradigm will forever be a better place. I love what we do and I’m passionate about it. It’s a lot of fun.

Let’s dive into our topic. You felt that this would be good to address given what’s going on in the economy and at the same time, these are times that can be identified in the past. You look at the typical financial planning approach to managing wealth. I believe it was an intention to create some diversification because markets would be volatile and things would change. Having your different asset classes, industries, sectors, even countries, they play a role in that diversification but we started to see that there’s a correlation where you have that type of risk associated with market volatility. Even though it may be a different asset class or industry, there are variables that regardless of success and failure, the equities typically as well as other securities tend to go in similar waves and direction.

We felt it was important to highlight how we look at risk and how we look at diversification. It’s a little bit different than how most financial advisors manage risk and help clients to analyze and then manage risks. It’s an important and fundamental thing to talk to because we want to make the Hierarchy of Wealth simple. We wanted to make it easy for a person to understand, at the same time, we realized that every person isn’t the same. We wanted to also have it so that it’s not so objective. It’s subjective, depending on the individual. Speak to how you have used the Hierarchy of Wealth, it’s relevance in how you do advice strategy with clients, and then we’ll get into the background and how we came up with the idea.

True diversification means diversification across asset classes. Click To Tweet

You touched on an important point. If you talk to the average person, even somebody who says, “I’m diversified. I’m good. I’ve got it all figured out.” As you peel back the layers a little bit, diversification to them means they’ve got some utility stocks, telecom stocks, tech stocks, and that type of thing but at the end of the day, they’re all equities. If the market is getting hammered, everything is getting hammered. In other words, true diversification means diversification across asset classes. Meaning outside of the equity space. For us, when we talk about a financial foundation or Tier 1 capital, what we’re talking about there, in terms of the Hierarchy of Wealth that’s the foundational layer, that layer is not correlated to the market.

In simple the words, that’s that pool of capital that you have, where even if you’ve got some equities and the equities are getting hammered, you know that the foundational layer or Tier 1 capital in that lowest, most basic space is not getting hammered. It’s not impacted in any way, shape, or form by the volatility that the market experiences. In our experiences, we meet with people who are learning about us and what we do for the first time, there’s this false perception that they’re diversified when in reality, we go through an experience that we’ve gone through and they realized, “I’m not diversified. I need to do some things to clearly draw a line and create some separation between this capital and what the market’s doing.”

That’s a great explanation of Tier 1. Let’s unpack the genesis of the Hierarchy of Wealth because that’s important so that individuals understand we’re talking about that may have not I read the book or have some business with us and the majority of people have. They’re reading this but the Hierarchy of Wealth came about as the convergence of a few different ideas. The first one being Maslow’s Hierarchy of Needs where Maslow who’s a famous psychologist. Most people understand that model because it’s in pyramid form and it’s simple to understand but you have foundational needs that must be met before you go into other types of needs. You have these physiological needs which are food, shelter, clothing, and survival needs. You get into safety, relationship, self-esteem, and self-actualization needs. These are the sequence of steps people take when it comes to what they seek in life.

We looked at that and at the time I was studying and intrigued with the order and sequence of things. We were also heavily involved with the Rich Dad Organization and getting into the Robert Kiyosaki, Rich Dad, Poor Dad philosophy. They talk about the idea of risk being a function of control and control being a function of financial education as we looked at where Tier 1 is, which is where you would have the most control. You’ve had the most education around but then also it has the least amount of risk. That’s where you start to look for assets that perform the best but also have the track record, the history, the certainty so that it sits as your foundation. You progress to the 2nd Tier, 3rd Tier, then to the 4th Tier. Typically, you’re able to classify assets, not based on sector or risk profile, but based on control and control being a function of the level of education that you have.

That’s why it’s somewhat subjective. We’re going to focus on that Tier 1, that foundational capital and you hit on a couple of things that I wanted to emphasize. First, you hit on the fact that there’s an emotional feeling that comes from having something to possess such a degree of certainty. That is if there is volatility, whether it’s market volatility or life volatility. There are elements that you can count on that helped you emotionally to navigate the rough waters which are inevitable in life. That’s where we have categorized what we specialize in, which is the Wealth Maximization Account because it possesses certain characteristics that other assets simply don’t possess. Number one, it’s not correlated but there are other features and benefits whether it’s the track record, the privacy that it has, the tax benefits that it has, as well as the access through a policy loan for the use of other things, whether it be lifestyle-related or investment-related. Speak to the idea of Tier 1. Where Tier 1 comes from? A few more of the benefits of using a Wealth Maximization Account is that foundational asset.

Tier 1 is a term that exists beyond this space like organizations, corporations, or banks. Tier 1 capital is a term that’s commonly used. It’s used to describe that pool of capital that exists as a buffer that it’s not leveraged and subject to tremendous amounts of risk. It’s designed to be this, “We’re liquid and you should feel reassured and safe about investing with us for placing your money here.” That’s how the general term is commonly used externally. W adopt the use of that same term because as a corporation can have Tier 1 capital, it’s a rainy day fund and so on. Individually, we should adopt the same practice. We should have our individualized personalized Tier 1 capital. There are certain characteristics and qualities that we want that Tier 1 capital possesses that you rattled off several non-market correlated.

Those who know a little bit more about us and know what the Wealth Maximization Account is, they know that that’s a life insurance policy that’s designed primarily around the emphasis of the equity or the cash value in the policy. We build using a mutual insurance company, which tends to be far more stable. It has a track record that’s far more lengthy than a stock-based insurance company because if we’re positioning our capital somewhere, we want it to be safe. We also want it to be productive. We want it to earn a return. That’s where you plug into dividends and guaranteed growth that you find with the mutual insurance company.

As a corporation or bank uses Tier 1 capital to create safety, security, and to have a buffer against life as you said, we’re doing the same thing in our personal lives. The Wealth Maximization Account is ideally suited for that because of the fact that you earned guaranteed returns, you’ll plug into a dividend that’s been paid in many cases for 150 plus years. It’s non-market correlated. Its tax advantage. In many cases, it’s completely protected from creditors. You could rattle off this list of desirable qualities to have in your bulletproof pool of capital that you want as your foundational layer. All of the boxes are checked In the Wealth Maximization Account. That’s why it’s ideally suited for that base layer that we can then build on top of using the loan provision, which is yet another feature that gives us the ability to do so many other things with.

I’ll highlight a couple of things from what you said. If there was another asset out there that had what Wealth Maximization Account has with a specifically structured life insurance policy with a mutual company, that’s something that we would seek out and reduce. Looking at how mutuality works where you receive more or less a profit share from these successful and stable insurance companies, it rivals the returns of risk-based assets when you factor in the long-term aspect of things as well as the tax benefits. You then add on a lot of other things. One of the realizations I’ve had over the years is that we all have these short-term needs whether it’s relating to our family obligations. I don’t think any parent recognizes until they experience it.

Hierarchy Of Wealth: We all have short-term needs relating to our family obligations.

Both from the responsibility of raising children, but then the financial responsibility of having to pay for braces, school, and activities. It seems it gets more expensive and there’s more of it. I look at the short-term, whether it’s that or whether it’s debt that’s tied to school, which is common. You also look at getting into the workplace or transitioning from one career to the next. There are some short-term emotionally driven aspects of life that the Wealth Maximization Account is ideal for it because there are liquidity and flexibility. There’s also the use of policy loans and so forth in which you can access with no penalty, which is not the same as other types of assets but then you have the medium-term of your life, which relates more to what we value as our desired lifestyle.

Us being able to use policy loans, as opposed to a credit card or a home equity line credit which may have higher interest rates, but then also it may apply to your business, enhance your career, or going to the family. There are some long-term aspects as well which is hard to convey those long-term benefits that are built into the beginning because insurance is one of the ideal legacy assets so that as you’re evaluating how to transfer an estate and the most efficient way to do that, it plays a role there. It’s not just the return. It’s the other elements and the different roles that this type of asset plays throughout the different stages of your life. Would you want to add anything to that?

The only thought that came to my mind was if we could find all of these qualities somewhere else outside of an insurance policy, we’d explore that and we use that in many ways. I chuckled to myself because I don’t know how many times I’ve said to clients. I almost wish there was something else other than an insurance policy because of all the misinformation, inaccuracies, misperceptions, stereotypes, and stigmas that exist about insurance. If you didn’t have to overcome some of that stuff and correct a lot of those things and say, “What so-and-so has said about this is not accurate.” We’re having to correct and change perceptions. That’s a battle that you have to fight, but the reality is in terms of all of the various and the combination of these different elements that the policy possesses, you don’t find it anywhere else. As much as we might wish for it to be somewhere other than the insurance policy, that’s not how it is.

There are other types of insurance policies that are out there. It has cash value but they’re more geared to investment and growth. That’s where we draw the line because we understand that there’s some value to those types of policies, at the same time, they don’t have the same characteristics. That’s where the potentially marginal difference in overall return. It doesn’t justify all the other aspects of what that degree of certainty does. That’s where we also look at it if the role of another type of growth-related insurance policy, whether it’s an indexed, universal life policy or a variable universal life policy, they play roles of growth and investment which is the Tier 2, Tier 3, and Tier 4 assets.

At the same time, the amount of return that those types of vehicles get is not justifiable for the risk you take by not getting the underlying guarantees as well as dividends from the overall success of the insurance company that a Tier 1 whole life policy provides. Wealth Maximization Account is not something that we advocate as your sole asset. We advocated it as a primary financial foundation but not necessarily the exclusive asset that you use. We advocate other investments and assets. This essentially is the first domino.

The second domino is being able to either use a policy loan to acquire other types of assets or use other savings to acquire those assets. We’re focusing on Tier 1 but what other elements go into establishing that? Everyone comes to us with a different financial situation. Some have a ton of cash and good income. Some come to us who don’t have debts. They have not much emergency savings but a big retirement account. What are some standard practices do you use to identify what is the proper sequence of establishing this foundation?

You touched on it right there as you were asking the question. From my observation, and I would put myself in this category pre-Paradigm before I had the knowledge and before I knew better. The average person doesn’t have nearly as much Tier 1 capital as they should. They maybe use common vernacular. What I mean by Tier 1 capital is emergency savings. A buffer against the loss of your income, various financial emergencies, your car breaks down, your home repairs, or your child needs braces, those types of things.

The average person doesn’t have the buffer to be able to account for those financial issues that come up. The result is they tend to lean on a credit card and then they’ve got consumer debt that starts to build up. In terms of the proper sequence, having this conversation around Hierarchy of Wealth, this is one of the first conversations that I’ll have with a client who is starting to learn about us because that’s where you start to dig into that foundational piece. Many people want to immediately jump into Tier 3 or Tier 4 because they can’t wait to invest.

Foundational needs must be met before you go into other types of needs. Click To Tweet

What you have to temper the emotion a little bit and say, “How’s your emergency fund? If you were to lose your job, how security do you feel that your income is? If that income were to go away, how long could you sustain yourself without that income?” When you start to peel back those layers, Maslow’s Hierarchy kicks in and they’re like, “It would be rough for us and our family.” In terms of proper sequence, that emergency long-term savings, and having an adequate buffer built-up is huge. It starts with that and then that pool of capital reaches certain thresholds, you start to get through that, then starting to look at that as an opportunity fund that you can then scale into other investment opportunities like real estate, a business, or that sort of thing. Starting with an emergency buffer against chaos life, that’s number one.

We talked to plenty of clients who have some debt and they say, “I’m trying to wrap my head around. How does it make any sense if I’m investing over here, but I’m paying 20% on my credit cards?” That’s a losing proposition right there but I don’t know the timeframe in which where the sequence in which to dig myself out of that consumer debt. That’s the beauty again of that Tier 1 capital, whether it’s building the emergency fund, it’s eliminating personal debt, or it’s doing both of those and starting to scale into other types of investment opportunities like real estate, owning a business, or so on. The beauty of the policy is regardless of who you are, that can be tailored to the individual. The sequence in which those things happen is specific to the individual. Regardless of where you are, that’s the beauty of having that Tier 1 asset. That can be adjusted, you can pivot, and tackle those various needs all along the way in the proper sequence.

One of the things that I feel is important to point out is when it comes to debt. Debt has become a necessity for people as far as using that to be a part of their lifestyle because sometimes income doesn’t come in the right way or there’s some need for supplemental this or that. People are mostly taught to put money away into something that is not liquid. It puts them in the position of having to use that. What’s awesome about using the Wealth Maximization Account, as you start to pay off debt but also establish this foundational asset, you are able to position yourself, so you’re not going to have to use that type of debt in the future. The policy loan can act as that pool of capital for your lifestyle expenses whether it’s going on vacation, buying a car, or getting a second home. As opposed to having to use debt through banks where sometimes you have control, sometimes you don’t. Here is a low rate, flexible loan that will always be available against your savings.

That right there is powerful for people because for those that end up paying off all debt, they can’t do anything unless they save up again. Using the Wealth Maximization Account allows you to do both at the same time. Let’s end with a couple of things. First off, let’s give everyone a good idea of what’s Tier 1 asset is and the role that it plays in a personal financial situation. As we transitioned to Tier 2, you have said something about the opportunity fund. Hopefully, everyone can recognize that during volatile times, emotions instinctively are in high alert in a sense. People have a lot of emotion as it relates to money.

Having savings and dry powder in cash value that’s protected from the downside of loss and also liquid to use, one of those times where the heightened levels of emotions are probably not the best time to make investments on the positive side of things. However, where emotions are in that despondent fear-based state, oftentimes, that’s one of the best times to make an investment and it requires liquidity. That’s what you had mentioned as an opportunity fund. Unpack that a moment because that’d be a great transition into the next episode where we get into Tier 2 assets.

Generalizing a little bit, people that we interact with or who come to us, let’s say that the bulk of their capital is in a retirement account or something like that. When the market is going well, people feel great about the fact that their money is sitting in a retirement account like 401(k). When the market is not going well, that’s when the anxiety levels go through the roof. One of my close friends who I grew up with, we’ve had some conversations where he experienced that volatility and nausea-inducing roller coaster ride and watching your account values go up and down within that retirement account. There’s not a lot of opportunities in that. It’s too late for you. You’ve strapped into the roller coaster. The bar has come down and it’s moving. You’re riding the ride, there’s no getting off, and you’re hearing the click.

If you want to take some risk within equities, that’s okay to do but that’s not Tier 1. What a lot of people fall into is they start with an equities position like a retirement account or something like that, yet for some reason they still have these perceptions or these expectations that, “Isn’t that Tier 1 capital. I thought the market only went up?” That’s not the reality. You’re riding that ride, so you’ve got to let that capital do its thing, especially if you’re younger. There’s not a whole lot of option there in terms of actively contributing to an employer-sponsored retirement account. You’re letting that thing do its thing. If you’ve got your Tier 1 base, when we’re experiencing some of the turbulence that we’re experiencing with uncertainty and the things that we’re going through, there’s an opportunity that comes along with that. That maybe comes in the form of real estate or a business opportunity that if you had access to capital, you could acquire the property or you’ve got a great business idea that you could get off the ground.

Having the Tier 1 capital means that you have the opportunity and ability and dry powder refers to the ability to get a gun or musket loaded and to get a shot off. That dry powder is the capital that exists in your Wealth Maximization Account. The Tier 1 capital is there, teed up, and ready to go. When the opportunity presents itself, you can move on that opportunity to take advantage of it. Whereas, if you don’t have that, your ability to take advantage of opportunities is dramatically limited because you’re either having to dip into the cash that you had set aside for savings, but do you feel good about depleting your emergency fund for that business? Probably not. Having the Tier 1 capital means that you’ve got your boxes checked and emergency fund position but you’ve got the ability, you’ve got the green light to take advantage of opportunities when they come along because you did things in the top of order.

Hierarchy Of Wealth: The average person doesn’t have nearly as much tier 1 capital as they should, that is, emergency savings.

If you think about it, go back to the early COVID signs when we were being recommended to social distance, shut offices, shut businesses, and don’t go out. There were big companies and corporations that were like, “I’m not going to make it.” That spawned the stimulus packages and what it has done is temporarily put a Band-Aid over some significant wounds only to prolong the inevitable. Whether it’s homes, cars, businesses, you name it. When people don’t have cash, that’s when they have to start selling things off. Usually, if they’re in that position, they’re not going to get market value. That’s where those that understand the asymmetric risk-reward ratio where you want to take little risks with the big upsides. This is where having a good opportunity fund allows you to capitalize on these types of opportunities.

Sometimes there’ll be Tier 2 or Tier 3 but it is the time to step back and start to identify when is a good time to act and when is a good opportunity presented? How do I assess that? How do I analyze that? That’s some of the stuff we’re going to get into in Tier 2, Tier 3, and Tier 4 because there’s a lot of that coming. As much as a lot of people got good deals on investments in 2010 and 2011, I know a lot of people that made some bad decisions as well. It’s not a bulletproof strategy to say, “That thing is on sale therefore I should buy it.” There has to be a way in which you assess it. I hope that the Hierarchy of Wealth is going to help you guys do that. You’ve been amazing. Any final words before we sign off and call this first episode of our season two?

On the other thing that I’ll mention and this is something that I talk about commonly with clients is again, it’s not to disparage the average person because, in a lot of ways, the average person is the average person because of the limited information that they’re exposed to. The saddest most frustrating part about all this is the information that is disseminated in terms of what’s a financially savvy thing to do, it can be so spun and incorrect. I’ve had clients say this to me, I don’t know how many times that the beauty about the Hierarchy of Wealth is it’s a game plan. It’s a strategy but the average person, when it comes to finances, I call it the buffet line approach. What you take a scoop of is a function of, where you entered the line, and what happens to be in front of you?

You may not be looking twenty feet down the buffet line, you’re taking a scoop of this and that but there’s generally not a lot of thought given to, why did I take a scoop of that? Does that fit well on my plate next to that? In other words, there’s not a lot thought as to sequence as to amounts relative to other amounts. The beauty, in my opinion, of the Hierarchy of Wealth, is it’s telling us where to start and what to start with. We’ve got blue sky opportunity in terms of what we choose to build on top of that foundational layer according to what we’re interested in, what our objectives are, and going back to your this idea of control being a function of knowledge. What do we know about it? What we’re familiar with? That’s the beauty of the hierarchy is. It’s a game plan. It tells us the order in which we should take certain actions. That’s the most powerful part of all of it. It eliminates the guesswork.

This is a show where we do have a lot of resources that we’ve created that will be available on our website, There’s a whole section for our show. There are some visuals there. We also have an app that’s in the process which will help you do it even more pinpointed. You guys have been awesome. Thank you for the support and I hope you guys learned something from this topic. Make sure you read the next episode because we’re going to get into some cool stuff, Tier 2, Tier 3, and Tier 4. Thanks again, Will, for being on.

Thank you.

Thanks for joining us on this episode. It’s the 1st of 4 that were doing dedicating all the focus to the Hierarchy of Wealth. Be sure to check out the webpage, which is on It’s going to have an infographic that explain the Hierarchy of Wealth visually. If you’re ready to move on to Tier 2 assets, all of these shows are available on-demand. You can check that out on the player that you’re in or go head over to and on the page, there is a player there too. We’ll see you next time.

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About Will Street

PatrickWill earned his Bachelor of Arts degree from Brigham Young University in 2005. After graduating from BYU, Will attended the University of Iowa College of Law and received his Juris Doctor in May of 2008. Will began practicing law with the law firm of VanCott, Bagley, Cornwall & McCarthy the oldest and one of the most well-respected law firms in the State of Utah. Will’s practice focused primarily on consumer finance-related litigation, consumer finance transactions, sale and purchase agreements, NDA’s, RFP’s, teaming agreements, security agreements, creditor’s rights in bankruptcy, and estate planning. Working directly with clients to analyze a problem, develop a solution, and working to ensure a successful resolution are what Will enjoyed most about being an attorney. Will comes to Paradigm after nearly six years in the private practice of law.

After his exposure to the Infinite Banking concept and seeing that his legal training would be directly relevant to his role at Paradigm, Will made the decision to leave his practice. Paradigm allows Will to continue to do what he enjoys most – develop client relationships, dissect problems, create solutions and work collaboratively with the client towards a successful resolution. Originally from the Tri-Cities area of Eastern Washington, Will currently resides in Salt Lake City with his wife, Sunny, and their three children. Outside of the office, Will is an avid sports fan and is particularly passionate about the Seattle Mariners who break his heart every single season. He also loves college sports and plays golf as often as possible.

A Wealth Maximization Account is the backbone of The Perpetual Wealth Strategy™