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Four Mistakes Physicians Make With Their Personal Finances

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Despite raking in higher compensation than most other Americans, more and more physicians say they lack the financial means to retire today. Why?

Despite raking in higher compensation than most other Americans, more and more physicians say they lack the financial means to retire today. Why?

Declining reimbursements, rising operating costs, and increasing threat of litigation surely play a significant role. But something else may contribute to the problem: Physicians may be making mistakes when determining who to hire to handle their money, and how to manage those they choose to hire.

Here are four related mistakes physicians may be making, along with tips for how to avoid such errors. 

Mistake #1: Hiring Investment Advisors Who Are Not Your Advocate
Ninety-nine percent of advisors are not held to the fiduciary standard, according to a report recently released by the Abernathy Group II Physician Family Office, which identified six reasons physicians fail to create generational wealth.

That means only 1 percent of advisors are obligated to do what’s in your best interest and not what’s in their firm’s best interest.

“It is important for the medical community to either learn to become better stewards of their wealth, or hire someone they can trust to provide advice,” Steven Abernathy, founder and chairman of The Abernathy Group, said in an e-mail to Physicians Practice.

To find an advisor held to the fiduciary standard, Abernathy suggests contacting the National Association of Personal Financial Advisors, as its members must be fiduciaries.

A good advisor should be honest with you (held to the fiduciary standard) and smart, cautions Abernathy. “A fiduciary with good intentions without proven experience and wisdom, is as dangerous as a loaded gun in the hands of an inexperienced marksman.”

Check to ensure your advisor, or potential advisor, has a 10-year track record (at least) audited by an independent accounting firm, he says. 

Mistake #2: Confusing Salespeople with Experts
Another key misstep, according to the Abernathy Report, is failing to consider how your advisor is paid. If he is paid through commissions, it’s likely he’s not always working with your best interest at heart.

“When money is involved, most people will say whatever is necessary to make the sale,” Abernathy says.

Practice Notes blogger and attorney Ike Devji, who speaks and writes on wealth preservation and asset protection nationally, agrees that commission-based advisors may not always be smart to rely on. They “typically are not on the same side of the table as the client,” he told Physicians Practice.

On the other hand, Devji says, when an advisor is fee-based, he may not have as much access to information as a commission-based advisor. For that reason, a “hybrid model,” in which the advisor’s compensation is primarily fee-based but also commission-based, is also a good option, he says.

To ensure your advisor is not swaying you toward a decision for the wrong reasons, Abernathy suggests gathering information and research on buying decisions from independent sources so that you can look at both the good and the bad side of the data.

Mistake #3: Neglecting to Integrate Your Advisors
You should approach your financial security the same way you approach your medical practice, says Abernathy. Your staff needs to communicate and work together to keep things functioning properly.

Make sure your advisors communicate before making recommendations to you. That’s what produces “wealth optimization,” Abernathy says.

Mistake #4: Prioritizing Growth
Many advisors are focused “more on growth than preservation” and that’s a mistake, says Devji.

You and your advisor should focus more on staying wealthy than on increasing your wealth. He suggests asking your advisor questions like, “if a plunge in the market occurs, how will it affect me?”

Today’s market is “fragile,” says Devji. “…Preservation has to come first.” 

 

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