It is not surprising that physicians do not get the value they should out of their professional advisors. While the typical specialty physician has nearly 25,000 hours of training in his/her profession, there is a grand total of zero hours of training in business or financial issues related to the "business" of being a doctor. After learning how to utilize specialists in other areas of medicine, doctors receive no training in how to choose or evaluate the advisors whose advice and experience will be the backbone of the doctor's financial plan for his entire career.

The Two Common Errors Of Physician-Advisor Relationships

Error #1: How Physicians Choose Their Advisors

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 it is their CPA, investment professional, or attorney, many physicians make a poor choice 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, as this is the time when most doctors begin to make money or start a family. The doctors may need some life or disability insurance, a Will, and someone to prepare and file tax returns. Working long hours without financial training or the means by which to evaluate an advisor, doctors typically do what other busy people do and take the path of least resistance (and minimum time commitment).  They use the advisor the older residents use, find someone the local medical society recommends, or hire a friend or family member.

Though this unscientific approach is obviously flawed, it serves its purpose when there are bigger challenges at hand (like 20 hour work days, graduation, and finding a job). Your life is so hectic, you just need to "get it done fast." The advisor you choose at this point simply has to be decent and cheap - and that is good enough. Like a triage nurse in an emergency room, a top-trained specialist is unnecessary when all you need are a few basic stitches.

What is alarming to us is not this initial choice of advisor, but, rather, the fact that most physicians actually stay with these same advisors who handled their triage planning in residency for the rest of their careers. The typical justification for this is, in our opinion, rarely anything concrete or acceptable. Doctors give us explanations like, "We have been together so long, I'd hate to change now," or, "If it ain't broke, don't fix it." This begs the question: how do you know "it ain't broke?" if you don't get a second opinion?

Most alarming to us (and something we see every day) is when a physician stays with an advisor when the doctor has clearly outgrown the expertise of the advisor.

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 the child becomes an adult. Yet, for some inexplicable reason, this surgeon continued to use his attorney as his lead advisor, despite our numerous recommendations that someone else (not necessarily us) may be more appropriate.

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? 

Error #2: How Physicians Fail To Understand 'Sub-Specialties' In Tax, Law, & Finance

If you needed a stent put into your aortic valve, you would not go to a general practitioner. Moreover, you would not consult with any specialists outside of cardiology. In fact, you wouldn’t 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 a highly specialized discipline. If you have a specific issue, you will seek out a physician properly trained and experienced with that particular issue.

Utilizing a specialist to assist you with your heath concerns seems obvious. However, our experience has shown that, in the areas of law, taxation, and finance, doctors completely fail to apply this same concept. To illustrate this, let’s consider the area of taxation. The ever-changing United States 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. IRS revenue rulings, private letter rulings, tax memoranda, announcements, and circulars - as well as tax court and federal court cases - only serve to make the field that much more difficult to understand. The quantity of information is so vast that many law libraries devote an entire floor to tax materials. No single person can possibly be an expert in all areas of tax law.

Nevertheless, each physician will typically rely on one CPA to serve as their “tax advisor” in all areas of tax. The taxation issues that require guidance typically include retirement planning, income structuring (salary vs. bonus), payroll tax, corporate structure (whether to be an "S" or "C" corporation), compensation (whether to implement a deferred compensation plan), estate tax planning, taxation on sales of real estate, individual tax returns, corporate tax returns, and buying or selling of the practice. While these issues all fall within the scope of “tax,” each exists as a discrete sub-specialty with its own unique knowledge base. As if the generic “tax advisor” wasn’t yet over-extended, we have seen many physicians ask their tax advisor to provide guidance in areas far outside of tax altogether, such as asset protection or investing. 

We have continually encountered this scenario, trying to work with a physician's CPA or attorney to implement a particular strategy (i.e., a non-qualified deferred compensation plan) and running into roadblocks. In most of these cases, it is patently obvious that the advisor has little experience in the doctor's area of concern. Ninety nine percent of the time this situation occurs, the physician client suffers needlessly. 

Because the advisor is so fearful of bringing in another advisor who may "steal" the client, the attorney or CPA will not admit his/her shortcomings to the physician and recommend another specialist. One reasonable alternative would be for the advisor to admit his/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 afraid to do this. Perhaps they are afraid of the client seeing them as "inadequate." So, instead, the advisor will tell the client that the idea “doesn't work,” without providing any substantiation (see the “warning signs” below). In the end, the doctor is clueless as to what is really going on - and the problem is not solved. 

Conclusion

Physicians need to begin taking their own advice.  You encourage your patients to seek second opinions and rely on specialists to address their complex medical needs.  Your financial needs are similarly complex, and getting a second opinion and utilizing specialized advisors is critical to your long-term financial well-being.

Disclosure: