No investor is an island, build the right Financial Team

Physician's Money Digest, October 2005, Volume 12, Issue 14

Teamwork can be found at the heart of almostevery successful enterprise. Consider an automotiveassembly plant. There is no one person building anautomobile. There are, in fact, hundreds of workers,each doing their part to realize a completed project. Iftheir efforts are not coordinated, just imagine whatthat finished automobile might look like.

Teamwork is also the kind of synergy that's necessarywhen assembling your financial team. From accountantsand attorneys to financial advisors andinsurance brokers, all the members of a physician'sfinancial team need to work in a coordinated fashion.

Appoint Your Team Captain

One of the most important reasons for building afinancial team is that you can leverage each professionalmore effectively. "In the medical world, youhave a general practitioner who is your referral networkso that you're not going blindly out to find aspecialist if your eyes are bothering you,"explainsKathy Boyle, CFP®, president of Chapin HillAdvisors, Inc. "We're the financial planner, so fromour perspective we're the umbrella. If I can make surethat all the pieces of a client's financial house are gettingput in order by a trusted professional, it servesthe client better."

As a financial planner, Boyle admits she's biased inher belief that a financial planner practitioner is thebest person to mastermind your finances because oftheir macro view. "We follow the seven tenets of planning,"Boyle says. "We look at those areas from amacro level and then make recommendations in orderof urgency, in order of importance."Those financialcreeds are education, retirement, cash flow and debtmanagement, taxation, estate planning, investments,and risk management.

Brian Greenberg, CPA and financial planner, agreeson the importance of having a captain for your financialteam, but suggests that the individual should be aCPA. His reasoning is that as a CPA, he sees a client'sfinancial information year in and year out, and preparingtax returns can help him immediately identify aphysician's needs. "I can identify issues, lay out theissues that should be addressed, and ask the client whatit is they're trying to accomplish," Greenberg says.

Regardless of whom you select to captain yourfinancial team, don't underestimate the importanceof their role. If you instead seek advice from a variety of financial professionals, the overall big picturecould be fuzzy if that advice is not integratedinto one effective game plan.

Form Your Game Plan

Walter Zweifler, ASA, head of the Nutmet BenefitGroup, suggests that the first step in the formation ofa financial team is to define the problem areas. Herelates a true story that happened to him several yearsago. "I was referred to a cardiologist for an angiogram," Zweifler recalls. "In the course of the examination,we began to talk about two issues: the doctor'sneed to create a financial team to reorganize hisbusiness, and whether or not I would survive myupcoming operation. We agreed that if I made itthrough the procedure, I would help him form afinancial team to transition his practice from poor collections,mismanaged facilities, high overhead, andlack of succession planning to a high bill of health." Zweifler, fortunately, survived the procedure, and wasable to resuscitate his cardiologist's medical practiceby defining its problem areas.

Next, he suggests, it's the physician's turn to definewhat is expected from the team of professional advisors.For example, a physician may feel that collectionsneed to be improved, the practice is paying too muchin rent, or malpractice insurance is too high and needsto be contained. These clarifications help financialprofessionals understand the physician's expectations.

However, many doctors often struggle to articulatetheir goals. Gray Tuttle of The Rehmann Group—Healthcare Management Advisors says in order tohelp physicians in this area, his firm has developedself-professed objectives that it encourages clientsmove toward. Tuttle refers to the objectives as financialindependence in a generic sense, where physicianscould choose to retire by their mid-50s or continuetheir career because they enjoy their work, notbecause they have yet to meet financial goals.

Why set mid-50s as a goal? "If you point towardthe mid-50s and don't exactly hit the mark, there'sstill some time to make up for lost ground," Tuttleexplains. "I've personally found that if circumstancesprevent physicians who tend to shoot toward age 62or 65 from attaining those goals, there's little time tomake up for mistakes."

A good place to start, Tuttle says, is with adetailed personal financial statement that enablesthe physician to identify their financial needs. Fromthere, Tuttle is able to identify risks that can be coveredwith insurance and work to systematicallyretire nondeductible interest debt. Then he's able tointroduce simple plans to start them on their pathtoward financial independence.

Recruit Key Players

Every physician's financial situation is different. Assuch, financial teams can take on many different looks.Most teams, however, will consist of five key professionals:accountant or business consultant, banker,insurance specialist, attorney, and investment advisor.

A good accounting firm or CPA will handle taxmanagement, tax compliance, and generating financialstatements for a physician's practice. The firmshould also have a good understanding of tax codesand business procedure.

Physicians who own or are partners in a practiceshould have a primary relationship with a banker toensure they are aligned with all the proper resources.Also, a good insurance advisor is critical to properlyinsure liability risks with life insurance, disabilityincome insurance, and business insurance.

Attorneys are directly involved in a physician'sbusiness for a variety of reasons, including entity creationand setting up of retirement plans. In the case ofa multiphysician practice, these overlooked membersof your financial team develop many types of employmentagreements and documents. In addition, attorneysalso help with estate planning. "We had a youngcouple with three children and, believe it or not, theyhad no will," Boyle says. "They have a sizable estate,including a $2.5-million house with no mortgage, butlike a good portion of people in the United States,they didn't have a will."

Overlooking a will can become problematic, especiallyin the case of a family-owned medical practice."If one of the partners in a family business dies, andthere's no will, the state now becomes a partner," Greenberg explains. "Not having a basic will could becrippling to this business."

Physicians also need to find a good investment advisor,one who will help to define financial goals whilerespecting risk comfort level. A good advisor considersall aspects of your life, such as career and relationships,and suggests an appropriate diversified mix toachieve your goals. More importantly, they communicatewith you and do not offer biased investment opinionsor push you into making an investment decision.

Maximize Team Players

If you choose to select one professional as the captainand rely on them to pick the rest of your financialteam, remember to exercise care in the selectionof the captain, especially if that professional is yourfinancial advisor. "A lot of doctors fall into the trap ofnot necessarily understanding the value of a goodadvisor, and they'll pick somebody who's cheap," explains Ralph Heffelman, president of InternationalCapital Management Corporation. "You pretty muchget what you pay for."

You also want to make sure the members of yourfinancial team are sensitive to your situation. Forexample, Boyle explains that the reason one coupledidn't have a will was because the week after thewife's parents planned their estate, her mother wasdiagnosed with cancer and died a year later. "She hasthis psychological hang-up that if she actually does sitdown and draft a will, something bad is going to happen," Boyle says. "You have to be sensitive to a person'semotional or anxiety level."

Tuttle emphasizes that once you and your financialteam put a plan in motion, it's important to follow upon a regular basis—either monthly, quarterly, or annually—to revisit the plan. He believes that insurancecoverage should be revisited every 2 to 3 years andasset management should be reviewed every 6months, particularly as physicians amass more moneyin qualified retirement plans.

"We've found that physicians often stumble by notmaking midcourse adjustments as the environment ortheir needs change," Tuttle says. "Too often theymake changes on their own and have a lot of duplicateasset classifications in the retirement plan."

To monitor results achieved by your financialteam, Zweifler suggests establishing appropriate efficiencybenchmarks. Is your practice more profitable?Has your tax status changed? "You've got to constantlyreview the condition and performance of yourpractice," Zweifler says.

Greenberg says the easiest option is to do nothing."By not taking an action, you are pursuing a differentpath, and you need to understand the ramifications ofeach option," Greenberg says. "The overall goal isthat the physician's needs are met accordingly. Youwant to make sure plans work out and, if they don'twork out, you make adjustments. Should an eventoccur—good, bad, or otherwise—things are in placeto address it. That way, you just hit a speed bumprather than a wall."