David B. Mandell, JD, MBA and Jason M. O’Dell, CWM
, we have consulted with thousands of doctors of all specialties during the last decade. From this experience, we have become intimately familiar with the mistakes physicians make when working with their CPAs, attorneys, and other financial advisors. Whether it is in the area of tax, asset protection, retirement planning, or other areas, the result is almost always the same. We leave the meetings or conference calls asking ourselves, “How could this doctor get such [poor, uncreative, or just plain wrong] advice?” It would be laughable if it weren’t so troubling.It is not surprising that physicians do not get the value they should out of their professional advisors. While the typical specialty physician has nearly 25,000 hours of training in his/her profession, there is a grand total of zero hours of training in business or financial issues related to the “business” of being a doctor. After learning how to utilize specialists in other areas of medicine, doctors receive no training in how to choose or evaluate the advisors whose advice and experience will be the backbone of the doctor’s financial plan for his entire career.
Doctors lack the spare time and training to do their own planning and have literally no training on how to find and evaluate the right specialists to assist them, so it is no wonder that most are ill-served by their professional advisors. To be honest, it is actually surprising when we meet a physician who is financially savvy or is properly advised by a team of professional advisors. In our experience, fewer than 5% of physicians are properly advised by a professional team.
The Two Fatal Flaws Of Physician-Advisor Relationships
Flaw #1: How Physicians Choose Their Advisors
The first mistake the overwhelming majority of physicians make in the financial, legal, or tax aspect of their careers is how they initially choose their professional advisor. Whether it is their CPA, investment professional, or attorney, many physicians make a poor choice because their method of choosing an advisor is flawed.
When you consider the typical pattern, this is not surprising. Most doctors choose their advisors when they are in residency or fellowship, as this is the time when most doctors begin to make money or start a family. The doctors may need some life or disability insurance, a Will, and someone to prepare and file tax returns. Working long hours without financial training or the means by which to evaluate an advisor, doctors typically do what other busy people do and take the path of least resistance (and minimum time commitment). They use the advisor the older residents use, find someone the local medical society recommends, or hire a friend or family member.
Though this unscientific approach is obviously flawed, it serves its purpose when there are bigger challenges at hand (like 20 hour work days, graduation, and finding a job). Your life is so hectic, you just need to “get it done fast.” The advisor you choose at this point simply has to be decent and cheap – and that is good enough. Like a triage nurse in an emergency room, a top-trained specialist is unnecessary when all you need are a few basic stitches.
What is alarming to us is not this initial choice of advisor, but, rather, the fact that most physicians actually stay with these same advisors who handled their triage planning in residency for the rest of their careers. The typical justification for this is, in our opinion, rarely anything concrete or acceptable. Doctors give us explanations like, “We have been together so long, I’d hate to change now,” or, “If it ain’t broke, don’t fix it.” This begs the question: how do you know “it ain’t broke?” if you don’t get a second opinion?
Most alarming to us (and something we see every day) is when a physician stays with an advisor when the doctor has clearly outgrown the expertise of the advisor. Consider the following real-life example:
Case Study: Oscar the Orthopedic Surgeon
Oscar, an orthopedic surgeon living in Nevada, contacted us after reading one of our books. While his income was over $1 million per year and he was part of an extremely successful practice, he used the same New York-based lawyer he retained to create his wills 10 years before when he was a resident. When David relocated from California to New York, he had a meeting with this attorney.
Not only was this attorney not licensed in Nevada, but he continued to advise Oscar in areas that were clearly beyond his expertise. While he was certainly a nice gentleman, and perhaps was competent for doing basic planning for someone with minimal tax or estate planning concerns, he had no concept of advanced techniques that a physician making over $1 million per year should be considering. He had no knowledge of non-qualified plans, asset protection planning, or other fairly routine planning that we routinely implement for high-income physicians. While this gentleman may have been an acceptable choice for Oscar when he was a resident, it was a total disservice to the surgeon at this point to continue to use this attorney as his primary advisor.
Doctors advise patients to get a second opinion before opting for surgery or chemotherapy, but they don’t get their own “second opinion” before agreeing to pay hundreds of thousands of dollars EACH YEAR in taxes. Oscar’s desire to “not hurt his attorney’s feelings” had potentially cost him over $1,000,000 so far.
The idea that you can outgrow an advisor may seem obvious to you in the medical arena – you would no longer send your child to a pediatrician when the child becomes an adult. Yet, for some inexplicable reason, this surgeon continued to use his attorney as his lead advisor, despite our numerous recommendations that someone else (not necessarily us) may be more appropriate.
Self Test:
How did you choose the professional advisors you work with today? How many other professionals did you interview prior to choosing one? Have you periodically interviewed others as your needs have changed?
Flaw #2: How Physicians Fail To Understand ‘Sub-Specialties’ In Tax, Law, & Finance
If you needed a stent put into your aortic valve, you would not go to a general practitioner. Moreover, you would not consult with any specialists outside of cardiology. In fact, you wouldn’t even settle with seeing the standard cardiologist. You would only seek the help of an interventional cardiologist to handle this procedure. The point is that medicine is a highly specialized discipline. If you have a specific issue, you will seek out a physician properly trained and experienced with that particular issue.
Utilizing a specialist to assist you with your heath concerns seems obvious. However, our experience has shown that, in the areas of law, taxation, and finance, doctors completely fail to apply this same concept. To illustrate this, let’s consider the area of taxation. The ever-changing United States tax law is the most complex set of rules ever created by one society. The lengthy and confusing Internal Revenue Code is only the beginning. IRS revenue rulings, private letter rulings, tax memoranda, announcements, and circulars – as well as tax court and federal court cases – only serve to make the field that much more difficult to understand. The quantity of information is so vast that many law libraries devote an entire floor to tax materials. No single person can possibly be an expert in all areas of tax law.
Nevertheless, each physician will typically rely on one CPA to serve as their “tax advisor” in all areas of tax. The taxation issues that require guidance typically include retirement planning, income structuring (salary vs. bonus), payroll tax, corporate structure (whether to be an “S” or “C” corporation), compensation (whether to implement a deferred compensation plan), estate tax planning, taxation on sales of real estate, individual tax returns, corporate tax returns, and buying or selling of the practice. While these issues all fall within the scope of “tax,” each exists as a discrete sub-specialty with its own unique knowledge base. As if the generic “tax advisor” wasn’t yet over-extended, we have seen many physicians ask their tax advisor to provide guidance in areas far outside of tax altogether, such as asset protection or investing.
We have continually encountered this scenario, trying to work with a physician’s CPA or attorney to implement a particular strategy (i.e., a non-qualified deferred compensation plan) and running into roadblocks. In most of these cases, it is patently obvious that the advisor has little experience in the doctor’s area of concern. Ninety nine percent of the time this situation occurs, the physician client suffers needlessly.
Because the advisor is so fearful of bringing in another advisor who may “steal” the client, the attorney or CPA will not admit his/her shortcomings to the physician and recommend another specialist. One reasonable alternative would be for the advisor to admit his/her lack of experience in the area and agree to review the area in question – and charge the client for the time needed to “get up to speed.” Most advisors are afraid to do this. Perhaps they are afraid of the client seeing them as “inadequate.” So, instead, the advisor will tell the client that the idea “doesn’t work,” without providing any substantiation (see the “warning signs” below). In the end, the doctor is clueless as to what is really going on – and the problem is not solved.
TEST: Ask your CPA or attorney which tax areas noted above are his/her expertise. Ask him/her how they would handle an issue for you beyond this area.
TEST: Ask your tax advisor if he/she does asset protection planning. If the answer is yes, ask a follow up question: Which is best from an asset protection perspective, an exempt cash value life insurance policy, a charging order protected entity or a self-settled trust?
Conclusion
Physicians need to begin taking their own advice. You encourage your patients to seek second opinions and rely on specialists to address their complex medical needs. Your financial needs are similarly complex, and getting a second opinion and utilizing specialized advisors is critical to your long-term financial well-being.
MORE INFORMATION: David Mandell, JD, MBA is an attorney, lecturer, and author of five books for physicians. Jason O’Dell, CWM is a financial consultant, lecturer and author of two books for physicians. They are both principals of the financial consulting firm OJM Group. The authors welcome your questions. You can contact them at (877) 656-4362 or through their website, www.ojmgroup.com
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Disclosure:This article contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized legal or tax advice. There is no guarantee that the views and opinions expressed in this article will be appropriate for your particular circumstances. Tax law changes frequently, accordingly information presented herein is subject to change without notice. You should seek professional tax and legal advice before implementing any strategy discussed herein. For additional information about the OJM Group, including fees and services, send for our disclosure statement as set forth on Form ADV using the contact information herein.
Are You Making the #1 Physician Financial Mistake?
By David B. Mandell, JD, MBA and Jason M. O’Dell, CWM
As authors of 4 books for physicians, including our latest, For Doctors Only: A Guide to Working Less & Building More, we have consulted with thousands of doctors of all specialties during the last decade. From this experience, we have become intimately familiar with the mistakes physicians make when working with their CPAs, attorneys, and other financial advisors. Whether it is in the area of tax, asset protection, retirement planning, or other areas, the result is almost always the same. We leave the meetings or conference calls asking ourselves, “How could this doctor get such [poor, uncreative, or just plain wrong] advice?” It would be laughable if it weren’t so troubling.
It is not surprising that physicians do not get the value they should out of their professional advisors. While the typical specialty physician has nearly 25,000 hours of training in his/her profession, there is a grand total of zero hours of training in business or financial issues related to the “business” of being a doctor. After learning how to utilize specialists in other areas of medicine, doctors receive no training in how to choose or evaluate the advisors whose advice and experience will be the backbone of the doctor’s financial plan for his entire career.
Doctors lack the spare time and training to do their own planning and have literally no training on how to find and evaluate the right specialists to assist them, so it is no wonder that most are ill-served by their professional advisors. To be honest, it is actually surprising when we meet a physician who is financially savvy or is properly advised by a team of professional advisors. In our experience, fewer than 5% of physicians are properly advised by a professional team.
The Two Fatal Flaws Of Physician-Advisor Relationships
Flaw #1: How Physicians Choose Their Advisors
The first mistake the overwhelming majority of physicians make in the financial, legal, or tax aspect of their careers is how they initially choose their professional advisor. Whether it is their CPA, investment professional, or attorney, many physicians make a poor choice because their method of choosing an advisor is flawed.
When you consider the typical pattern, this is not surprising. Most doctors choose their advisors when they are in residency or fellowship, as this is the time when most doctors begin to make money or start a family. The doctors may need some life or disability insurance, a Will, and someone to prepare and file tax returns. Working long hours without financial training or the means by which to evaluate an advisor, doctors typically do what other busy people do and take the path of least resistance (and minimum time commitment). They use the advisor the older residents use, find someone the local medical society recommends, or hire a friend or family member.
Though this unscientific approach is obviously flawed, it serves its purpose when there are bigger challenges at hand (like 20 hour work days, graduation, and finding a job). Your life is so hectic, you just need to “get it done fast.” The advisor you choose at this point simply has to be decent and cheap – and that is good enough. Like a triage nurse in an emergency room, a top-trained specialist is unnecessary when all you need are a few basic stitches.
What is alarming to us is not this initial choice of advisor, but, rather, the fact that most physicians actually stay with these same advisors who handled their triage planning in residency for the rest of their careers. The typical justification for this is, in our opinion, rarely anything concrete or acceptable. Doctors give us explanations like, “We have been together so long, I’d hate to change now,” or, “If it ain’t broke, don’t fix it.” This begs the question: how do you know “it ain’t broke?” if you don’t get a second opinion?
Most alarming to us (and something we see every day) is when a physician stays with an advisor when the doctor has clearly outgrown the expertise of the advisor. Consider the following real-life example:
Case Study: Oscar the Orthopedic Surgeon
Oscar, an orthopedic surgeon living in Nevada, contacted us after reading one of our books. While his income was over $1 million per year and he was part of an extremely successful practice, he used the same New York-based lawyer he retained to create his wills 10 years before when he was a resident. When David relocated from California to New York, he had a meeting with this attorney.
Not only was this attorney not licensed in Nevada, but he continued to advise Oscar in areas that were clearly beyond his expertise. While he was certainly a nice gentleman, and perhaps was competent for doing basic planning for someone with minimal tax or estate planning concerns, he had no concept of advanced techniques that a physician making over $1 million per year should be considering. He had no knowledge of non-qualified plans, asset protection planning, or other fairly routine planning that we routinely implement for high-income physicians. While this gentleman may have been an acceptable choice for Oscar when he was a resident, it was a total disservice to the surgeon at this point to continue to use this attorney as his primary advisor.
Doctors advise patients to get a second opinion before opting for surgery or chemotherapy, but they don’t get their own “second opinion” before agreeing to pay hundreds of thousands of dollars EACH YEAR in taxes. Oscar’s desire to “not hurt his attorney’s feelings” had potentially cost him over $1,000,000 so far.
The idea that you can outgrow an advisor may seem obvious to you in the medical arena – you would no longer send your child to a pediatrician when the child becomes an adult. Yet, for some inexplicable reason, this surgeon continued to use his attorney as his lead advisor, despite our numerous recommendations that someone else (not necessarily us) may be more appropriate.
Self Test:
How did you choose the professional advisors you work with today? How many other professionals did you interview prior to choosing one? Have you periodically interviewed others as your needs have changed?
Flaw #2: How Physicians Fail To Understand ‘Sub-Specialties’ In Tax, Law, & Finance
If you needed a stent put into your aortic valve, you would not go to a general practitioner. Moreover, you would not consult with any specialists outside of cardiology. In fact, you wouldn’t even settle with seeing the standard cardiologist. You would only seek the help of an interventional cardiologist to handle this procedure. The point is that medicine is a highly specialized discipline. If you have a specific issue, you will seek out a physician properly trained and experienced with that particular issue.
Utilizing a specialist to assist you with your heath concerns seems obvious. However, our experience has shown that, in the areas of law, taxation, and finance, doctors completely fail to apply this same concept. To illustrate this, let’s consider the area of taxation. The ever-changing United States tax law is the most complex set of rules ever created by one society. The lengthy and confusing Internal Revenue Code is only the beginning. IRS revenue rulings, private letter rulings, tax memoranda, announcements, and circulars – as well as tax court and federal court cases – only serve to make the field that much more difficult to understand. The quantity of information is so vast that many law libraries devote an entire floor to tax materials. No single person can possibly be an expert in all areas of tax law.
Nevertheless, each physician will typically rely on one CPA to serve as their “tax advisor” in all areas of tax. The taxation issues that require guidance typically include retirement planning, income structuring (salary vs. bonus), payroll tax, corporate structure (whether to be an “S” or “C” corporation), compensation (whether to implement a deferred compensation plan), estate tax planning, taxation on sales of real estate, individual tax returns, corporate tax returns, and buying or selling of the practice. While these issues all fall within the scope of “tax,” each exists as a discrete sub-specialty with its own unique knowledge base. As if the generic “tax advisor” wasn’t yet over-extended, we have seen many physicians ask their tax advisor to provide guidance in areas far outside of tax altogether, such as asset protection or investing.
We have continually encountered this scenario, trying to work with a physician’s CPA or attorney to implement a particular strategy (i.e., a non-qualified deferred compensation plan) and running into roadblocks. In most of these cases, it is patently obvious that the advisor has little experience in the doctor’s area of concern. Ninety nine percent of the time this situation occurs, the physician client suffers needlessly.
Because the advisor is so fearful of bringing in another advisor who may “steal” the client, the attorney or CPA will not admit his/her shortcomings to the physician and recommend another specialist. One reasonable alternative would be for the advisor to admit his/her lack of experience in the area and agree to review the area in question – and charge the client for the time needed to “get up to speed.” Most advisors are afraid to do this. Perhaps they are afraid of the client seeing them as “inadequate.” So, instead, the advisor will tell the client that the idea “doesn’t work,” without providing any substantiation (see the “warning signs” below). In the end, the doctor is clueless as to what is really going on – and the problem is not solved.
TEST: Ask your CPA or attorney which tax areas noted above are his/her expertise. Ask him/her how they would handle an issue for you beyond this area.
TEST: Ask your tax advisor if he/she does asset protection planning. If the answer is yes, ask a follow up question: Which is best from an asset protection perspective, an exempt cash value life insurance policy, a charging order protected entity or a self-settled trust?
Conclusion
Physicians need to begin taking their own advice. You encourage your patients to seek second opinions and rely on specialists to address their complex medical needs. Your financial needs are similarly complex, and getting a second opinion and utilizing specialized advisors is critical to your long-term financial well-being.
David Mandell, JD, MBA is an attorney, lecturer, and author of five books for physicians. Jason O’Dell, CWM is a financial consultant, lecturer and author of two books for physicians. They are both principals of the financial consulting firm OJM Group. The authors welcome your questions. You can contact them at (877) 656-4362 or through their website, www.ojmgroup.com
Disclosure:
This article contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized legal or tax advice. There is no guarantee that the views and opinions expressed in this article will be appropriate for your particular circumstances. Tax law changes frequently, accordingly information presented herein is subject to change without notice. You should seek professional tax and legal advice before implementing any strategy discussed herein. For additional information about the OJM Group, including fees and services, send for our disclosure statement as set forth on Form ADV using the contact information herein.
