Physicians are notorious for being bad with money. Today we’re going to assign some blame for that phenomenon. Physician finances have three enemies, and we’re going to expose them today.
1. Financial professionals
Enemy number one consists of many members of the financial industry. These “helpers” are often part of the problem. One of the biggest problems is commissioned salesmen masquerading as financial advisors. Although some of the these “advisors” are purposely trying to milk doctors for all they’re worth (viewing them as whales to be harpooned) the vast majority are simply incompetent in any sort of advisory role. Their training, what little they have had, is in sales. It is relatively easy to determine whether someone is an advisor or a salesman– you simply determine how they are paid. If they are paid on commission for selling products, they are a salesman. If they are paid for their time and services, they are an advisor. Sometimes they wear both hats, so tread carefully to determine which hat they are wearing at any given time (or avoid those who wear both hats when seeking advice.)
This isn’t to say that commissioned salesmen are bad people. Sales is a noble and difficult job. Every item in your house had to be sold by someone at some point. But when you go to the car dealership to buy a car and a salesman comes out, you know what he is, what he is there for, and how he is paid. He can provide you useful information about the product and help you buy it. But you shouldn’t trust his advice on questions like, “Should I buy your car or that of your competitor?” or “Do I really need to replace my car?” This is obvious when you are buying a car, but not so obvious when seeking advice, and they do all they can to keep it that way.
There are other problems among financial professionals. Even advisors giving good advice sometimes charge too much and do what they are legally allowed to do in order to keep the fees you are paying far from your view. That often means an Asset Under Management (AUM) fee that is subtracted directly from your investments. When seeking advice, get good advice a fair price. Good advice is fee-only, bias-free, personalized to you, and academically informed. A fair price is a four-figure amount. If you are paying more than $10,000 per year, you almost surely can get similarly high-quality advice elsewhere. Don’t be afraid to negotiate.
There are many other issues in the financial industry beyond advice. Much of the financial information out there on TV, radio, newspapers, magazines, newsletters, books, and the internet is useless at best, and downright calculated to get you to make the wrong moves at worst.
Investment firms, banks, and insurance companies are still coming up with products made to be sold, not bought, designed to separate you from your hard-earned money. The vast majority of insurance policies, mutual funds, derivatives, collectibles, and real estate deals should never be purchased. William Bernstein, MD, famously said:
“You are engaged in a life-and-death struggle with the financial services industry. … If you act on the assumption that every broker, insurance salesman … and financial advisor you encounter is a hardened criminal, you will do just fine.”
Doctors are their own financial enemies. They think they’re special little snowflakes and that the rules of math and finance don’t apply to them. Guess what? You don’t get a pass on math. If you want to acquire wealth, you have to spend much less than you earn, insure appropriately, and invest wisely. Your high income will bail you out of a lot of mistakes, but not all mistakes. If you don’t spend any time on your business and your finances, you will have the level of financial success that you deserve. You have a second job as a pension fund manager in our 401(k) world, whether you want it or not. Even if you hire help, they’re just a consultant. The buck stops with you.
Your ignorance, overconfidence, lack of discipline, lack of attention to detail, and trusting nature are your biggest enemies. Conquer them if you hope to find financial success.
3. Medical culture and leadership
There is a third culprit at play here and it involves our medical culture and leadership. Money and business are taboo subjects in the halls of our medical schools, residencies, hospitals, and physician groups with the expected consequences. It is a well-known adage in the business world that those who handle the money are those who make the most money. When doctors are no longer willing to own, manage, and lead their businesses and hospitals, they should not be surprised to see their income drop and their work environment become more onerous. Doctors take advantage of younger, inexperienced doctors, skimming off their earnings and enticing them into unfair contracts. Medical schools continue to increase tuition at incredible rates, either pricing out potentially excellent clinicians or damning them to decades of indentured servitude. They persist in using inefficient, expensive, and ineffective educational models. They provide little to no high-quality financial or even student-loan related advice to their students despite charging them tens of thousands of dollars per year. Most schools don’t even offer an optional class on finances and the business of medicine, which could easily be placed into the late fourth-year curriculum. Physicians don’t talk to each other about money, and so we all remain in our own little silos, making the same financial mistakes over and over again.
James M. Dahle is the author of The White Coat Investor: A Doctor’s Guide To Personal Finance And Investing and blogs at the White Coat Investor. He is the creator of Fire Your Financial Advisor!, a high-quality 12 module course with a little over 7 hours of videos and screencasts, a pre-test, section quizzes with answer explanations, and a final exam. The goal is to take a high income professional from square one, teach them financial literacy and help them write their own financial plan.
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