In an environment of rising health-care costs and declining reimbursement, many physicians often find themselves having to see twice the amount of patients to earn the same amount of money. The burden on physicians to navigate the cost of doing business while remaining cash-flow positive results in less than 20-20 vision when it comes to managing their finances. Sworn into practice by taking a vow to prescribe treatments that are good for their patients, most physicians simply don't have the time to focus their efforts on a regimen of financial fitness. Ultimately, it takes a dose of reality, such as poor budgeting that projects a delayed retirement, that propels physicians to seek financial advice.
Physicians begin with a life in training, one in which debt, double shifts and a salary equivalent in earning power to a graphic designer puts them behind the financial planning curve. It can take years for a doctor to establish a practice and generate income, though burdened by debt and falling into higher tax brackets often pushes financial planning back further. When the payday finally arrives, many physicians take that money and purchase a home, a car or invest that money back into their business.
As a financial advisor with a background in behavioral finance and a deep bench of understanding the physician practice, I have found that planning early is often the best medicine. Protecting their wealth, which seems to have taken a lifetime to build, is paramount. In addition to budgeting, creating a meaningful financial plan that takes into account the lack of time the physician will have to focus on that plan is the first step. Given their ongoing time constraints, our meetings to discuss financial planning are not as frequent as I would desire. When we do meet, I often recommend taking a complete inventory of their financial health. It's not uncommon to find missing pieces that can be common destroyers of wealth.
Disability insurance is often considered a physician's most valuable asset, as it protects their ability to earn an income, similar to preserving purchasing power in an inflationary environment. When I query my clients on what their plan is for retirement, they often say they plan to keep working, certainly not a viable option in the case of disability.
Medical malpractice insurance is another large component of their financial plan. It's a must-have in protecting their assets in the case of a claim. As the cost of medical care for injured patients is rising, so is the cost of litigation. It's the uncertainty of the physician's liability, however, that can take a far greater toll.
After a complete financial physical, you may note that the plan lacks an updated will or carries a large tax liability. It's good practice to coordinate with other advisors that physicians rely on or to recommend another advisor should there be a void in a specific area of planning.
These days, many physicians benefit from a coordinated effort on their behalf. A financial advisor who acts as a busy physician's personal CFO by managing her estate planning attorney, accountant, insurance agent, real estate agent and employee benefits provider will be an invaluable resource.
Nadene Salzman is a vice president of wealth management for Alexandra & James Advisory Services LLC in New York City.