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YOUR MONEY: Avoiding Your Biggest Mistake, Part II


Here's how to get the most out of your financial advisers.

Last month I noted the staggering number of physicians who get substandard advice from their CPAs, attorneys, and financial advisers, and I outlined the first two of the four biggest reasons for this - the flawed way in which most physicians choose advisers, and physicians’ common failure to understand subspecialties in tax, law, and finance. If you missed the column, read it free by searching “Mandell.”

This month I’ll described the third and fourth types of flaws I see in physician-adviser relationships, and suggest ways to recognize and remedy such problems.

3.Physicians fail to get a second financial opinion. I believe this is the most damaging mistake physicians make with their financial planning - and, unfortunately, it is the most common. If you get a second opinion your chance of identifying planning mistakes or omissions skyrockets. Put another way, most physicians have not changed advisers because they have an “if it ain’t broke, don’t fix it” mentality. Getting a second opinion is the only way to know if the planning is “broken.”

You encourage your patients to get a second opinion, yet your advisers discourage you from doing the same. This is the only way for you to adequately judge an adviser’s performance. You are no more qualified to look at a trust document or tax return and see flaws as I am to examine a report on a chest CT and see a misdiagnosis. With your entire financial future banking on the success of your professional advisers, it amazes me how few of you have had another professional review your existing adviser’s work. If your life were in jeopardy, wouldn’t you get a second opinion? Isn’t your financial life important as well?

Consider this true story: In 2000, my prior law firm was retained to perform a self-audit by a long-term client. The client, an extremely successful businessman, was concerned when one of his business colleagues was found liable for back taxes and penalties because of some mistakes by his accounting firm. Nervous that he also might become an IRS target, our client hired us to do an audit of his personal and businesses’ income tax returns for the prior five years.

What we found was shocking.

Even though this client had used 4 different accounting firms for his various returns (including a well-known 500+ person firm), the taxes he had paid were far from what he owed. Luckily for him, it was an overpayment - in the ballpark of $5 million.

Yup, you read that right. Because of the self-imposed audit that our firm oversaw, the client filed for a seven-figure refund from the IRS and state tax agency.

Have you ever paid an outside adviser to review your attorney’s work? Your CPA’s work? Your investment adviser’s work? If not, why not?

4. Physicians fail to insist on adviser coordination. Even if you have a team of highly experienced advisers in the fields of tax, law, insurance, and investments working for you, your plan can still be in complete disarray. If the advisers are not collaborating to utilize their collective expertise to implement a comprehensive, multidisciplinary plan for your benefit, your planning will suffer significantly.

All too often, I see the effects of such a lack of coordination. A common scenario: A physician comes to my office having paid a technically sound attorney to create a very comprehensive living trust … but the family’s assets have not yet been titled to the trust (perhaps making the document useless).

I see life insurance policies and life insurance trusts, but the proper steps were not taken to combine the two (so the death benefit of the insurance may unnecessarily taxed at rates of 50 percent).

I notice investment accounts that are managed like they are in a pension (with no regard for taxation) - and the end result is often 30 percent to 45 percent reduction in the gain of the investments. Conflicting advice from professionals in different areas or a lack of respect for what the other professionals do typically lead to planning inertia or just plain bad planning.

Like the radiologist, surgeon, and anesthesiologist, your CPA, attorney, and financial advisers must work together. If the surgeon never saw the films or charts and the anesthesiologist and surgeon didn’t speak, it would be pretty difficult to successfully treat a surgical patient.

How often do your CPA, attorney, financial, and insurance advisers discuss and coordinate your planning? Once per quarter? Once a year? Never?

Warning Signs

Do any of these warning signs seem familiar? If so, you are likely suffering from flawed professional advisory relationships:

  • You have had the same advisers for years - and never interviewed prospective replacements.

  • You stay with your present adviser(s) out of lethargy, guilt, or because you think “if it ain’t broke, don’t fix it.”

  • Your advisers don’t bring you detailed analyses of your practice and personal situation, complete with helpful suggestions, annually.

  • You have no idea what the true subspecialties of your advisers’ professions are.

  • Your present advisers reject ideas you bring her without detailed written explanations of why they don’t make sense for you.

  • Your present advisers have never told you that a certain idea required further research for which they would need to charge you.

  • You rarely, if ever, have paid for second opinions from other professionals.

  • You have trusts, partnerships or other legal entities that may not be funded.

  • Your CPA, attorney, and financial advisers do not meet periodically to coordinate your planning.

Get the Right Advice

At this point you may see trouble lurking in the professional relationships you have developed. While you are right to be concerned, all is not lost. The good news is that you are the client and you have the right to do what is best for yourself. To that end, consider the following as first steps:

  • Ask questions, talk to colleagues, and explore options.

  • Get second opinions on existing planning you’ve done. Get third opinions.

  • Force your advisers to explain decisions they make - in writing - regarding your planning.

  • Force your advisers to meet together - yes, you’ll have to pay - to coordinate your planning. If someone won’t make the time, replace him.

Take responsibility to dedicate time and money to your planning - it’s truly in your best interest.

I have seen numerous physicians have significantly different qualities of life and sizeable differences in the sizes of their estates despite being about the same age and having had similar incomes over their careers. Often, a significant factor in this wide divergence is the quality of professional advice they received during their careers. If you have any desire to retire when you can still enjoy it, take the advice in this article very seriously and, more importantly, act on it. You will be glad you did.

David B. Mandell, JD, MBA is an attorney, lecturer, and author of the book Wealth Protection: Build and Preserve Your Financial Fortress. He is also a cofounder of The Wealth Protection Alliance, a network of financial advisory firms whose goal is to help clients build and preserve their wealth. Also contributing this article is Beryl N. (Sandy) Stokes, III, CPA, MBA, who has been serving the financial needs of physicians for over 20 years, and is a charter member of the Wealth Protection Alliance. Both David and Sandy can be reached at 800 554 7233, or via editor@physicianspractice.com.
This article originally appeared in the February 2006 issue of
Physicians Practice.

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