Why You May Not Be Getting the Advice You Need

I n our experience, fewer than 5% of physicians are properly advised by a professional team. To be honest, it is rare when we meet a physician who is financially savvy or is properly advised by a team of professional advisors. We are making this observation after having consulted with thousands of doctors in all types of specialties during the last decade. From this experience, we have become intimately familiar with the mistakes physicians make when working with C.P.A.s, attorneys, and other financial advisors. Whether it is in the area of taxes, asset protection, retirement planning or other areas, the result is almost always the same. We often leave meetings or conference calls asking ourselves, How could this doctor get such poor, uncreative, or just plain wrong advice? To help you avoid this same situation, we’ll highlight some of the common flaws we see in physician-advisor relationships in this article, which is the first part of a two-part series. Then, in the second part of this series, we’ll explain how to remedy these problems so that you can move toward your goals of minimum lawsuit and tax exposure and maximum piece of mind. Four Flaws of Physician-Advisor Relationships Flaw #1: How the Choosing Process Takes Place. 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 choosing a C.P.A., investment professional or attorney, many physicians make poor choices 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 — the time when most doctors begin to make money or begin a family. At this time, doctors may need some life or disability insurance, an official will, and someone to prepare and file tax returns. Working long hours and without any financial training or the means to evaluate an advisor, doctors typically do what other busy people do and take the path of least resistance (and least amount of time commitment) — they use the advisor that older residents they know use, or they find someone the local medical society recommends, or they hire a friend or family member. Although this un-scientific approach is obviously flawed, it serves its purpose when bigger challenges are at hand (such as 20-hour workdays, graduation, and finding a job). Life is so hectic that they just need to “get it done fast.” The advisor they choose at this point simply has to be decent and cheap — and that is good enough. What is so alarming to us is not this initial choice of advisor, but rather the fact that most physicians actually stay with the same advisors who handled their “triage” planning in residency for the rest of their careers. The typical justification for this is rarely anything concrete. Answers such as, “We have been together so long that I’d hate to change now,” or “If it ain’t broke, don’t fix it” are unpersuasive reasons. Furthermore, this thinking begs the question — how do you know it “ain’t broke” if you don’t get a second opinion? Most alarming to me 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, is an orthopedic surgeon living in Nevada. While his income was more than $1 million per year and he was part of an extremely successful practice, he used the same New York-based lawyer who he had create his wills 10 years ago when Oscar was a resident. After meeting with Oscar’s lawyer, we found out that not only was this attorney not licensed in Nevada, 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, this attorney had no concept of advanced techniques that a physician making more than $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 implement for high-income physicians. While this gentleman may have been an acceptable choice for the doctor when he was a resident, it was a total disservice to this surgeon at this point to continue to use this attorney as his main 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 per year in taxes. Oscar’s desire to “not hurt his attorney’s feelings” has potentially cost him more than $1 million 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 he or she becomes an adult. Yet, for some inexplicable reason, this surgeon continued to use his attorney as his lead advisor. 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 and your career has progressed? Flaw #2: Failing to understand “subspecialties” in tax, law and finance. If you needed a stent put in your aortic valve, you would not go to a general practitioner. Moreover, you would not consult with any specialists outside cardiology. In fact, you would not 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 highly specialized. If you have a specific issue, you want a physician properly trained and experienced with this particular issue. To seek a specialist to help you with your health concerns may be obvious. However, we can attest that in the areas of law, taxation and finance, doctors completely ignore the lesson they should take from their own field. To illustrate this, we should consider the area of taxation. The ever-changing U.S. 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. Internal Revenue Service revenue rulings, private letter rulings, tax memoranda, announcements, circulars, as well as tax court and federal court cases, only make the field all the more difficult to understand. If you step foot in any law library, you may see an entire floor dedicated to tax materials. Suffice it to say, no one person can possibly be an expert in all areas of tax law. Nevertheless, each physician will typically rely on one C.P.A. to serve as tax advisor in all areas of tax. The taxation issues that require guidance typically are varied and include the following areas, for example: • retirement planning • income structuring (salary vs. bonus) • payroll tax • whether to be an “S” or “C” corporation • whether or not to implement a deferred compensation plan • estate tax planning • taxation on sales of real estate • individual tax returns • corporate tax returns • buying or selling the practice. All of these areas are actually particular subspecialties that require a unique knowledge base. Yet, despite not realizing that a subspecialist may be necessary, many physicians ask their tax advisor to guide them in areas that are far outside of tax altogether — such as asset protection or investing. Because the advisor is so fearful of bringing in another advisor who may “steal” the client, the attorney or C.P.A. will not admit his or her shortcomings to the physician and recommend another specialist. One reasonable alternative would be for the advisor to admit his or 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 wary of doing this. Possibly, they are concerned that the client might consider them “inadequate.” Instead, the advisor will tell the client the idea doesn’t work without giving any substantial reason. In the end, the doctor is left with a problem that is not solved. Self-Test: Ask your C.P.A. or attorney which tax areas noted above are his or her expertise? Ask him or her how they would handle an issue for you beyond this area. Self-Test: Ask your tax advisor if he or she does asset protection planning. If the answer is “yes,” then ask a follow-up question: “Have you ever created a self-settled foreign asset protection trust?” Taking the First Step Selecting advisors to help you most economically perform your practice and personal affairs is often a fluid process that changes as your financial needs change. Recognizing this is often the first step in choosing advisors that can best help you. In the second part of this article, we will cover two other flaws that we commonly see in physician-advisor relationships. In addition, we will suggest ways to recognize and remedy such flaws in your professional relationships.