Financial Planning For Physicians

As a healthcare professional, you understand that the treatment programs you deliver are based on a thorough analysis of your patient’s symptoms, pre-existing conditions, and health risk factors. Yet, your long-term financial wellness is often put on the line. In addition to your unique financial challenges, as a physician, lack of time is likely part of your day-to-day. Here are five ways that working with an advisor can help you if you are a healthcare professional. 

1. Managing Debt

Many physicians start their careers with significant educational debt. According to the Association of American Medical Colleges, among medical school graduates, the average student loan debt was over $200,000 in 2021, not including their undergraduate debt. In addition to other obligations such as car loans, mortgage payments, and credit cards, you can find yourself with ten or more years of aggregated monthly payments of thousands of dollars.

Conducting a cash flow analysis that can generate a budget can help you allocate income to everyday expenses, debt payments, and long-term savings. By doing so, you might also discover methods to prioritize debt payments, for example, accelerating payments for loans with higher interest rates.

2. Insurance Choices

All physicians have malpractice insurance, costing tens of thousands of dollars annually. But your employer likely does not assist in helping you choose providers and coverage levels. 

While some financial planners will have a license to sell malpractice insurance and be skilled at recommending insurance carriers that meet their coverage needs and budget, be wary of recommendations if the planner gets compensation for the products they recommend. This misaligned interest between client and planner is one of the reasons that you should find a fiduciary advisor. 

3. Saving and Investing

Financial planners can recommend an investment plan that aligns with your risk tolerance and specific financial goals, such as saving for retirement, your child’s higher education, or purchasing a new home. From this information, they can recommend an asset allocation strategy to create a diversified portfolio of stocks, bonds, and cash that aligns with the physician’s investment objectives.

Many financial planners are also investment professionals who can execute the plan by recommending specific securities or mutual funds and then managing all or part of a portfolio, monitoring and reporting performance over time, and making changes as necessary, with an eye on tax efficiency.

4. Tax Planning

As physicians reach their peak earning levels, they often find themselves in higher tax brackets. If they work for hospitals, they may receive stock or stock options. Or, if they establish a private practice with other physicians, they may acquire an ownership stake in the form of private shares.

When it comes time to liquidate these positions, it is critical to find a specialist that can develop plans to sell these shares tax-efficiently. Additionally, you can maximize your taxable income by reevaluating annual contributions to 401(k) plans and IRAs and identifying strategies for making the most of available tax deductions.

5. Protecting Personal Assets

In a multi-million malpractice judgment, insurance alone might not provide enough protection. Plaintiffs may also go after a physician’s assets, such as savings and investments. Seek a specialist who can recommend strategies for shielding your assets from litigants and creditors. Moreover, if you create a strategic estate plan, you can ensure that your assets pass on to your heirs.

Physicians entering residencies are often overwhelmed by uncertainties over their future and the financial responsibilities of starting their careers. Since they’re still in the first stage of their medical career, many are not making as much money as they will be when they establish their practice. Yet, they still have educational and other debts to pay off, as well as premiums for malpractice insurance. A financial planner can help residents develop a plan for managing inflows and outflows, putting money aside to save for retirement or their children’s higher education, and selecting appropriate levels of life and malpractice insurance.

You Deserve “Board-qualified” Financial Planners

If anyone knows the value of extensive certification, it’s physicians. A personalized financial plan can help you reduce the economic uncertainties that can become a headache and prevent you from focusing on your passion.

Just as patients only want to be treated by qualified and highly trained physicians, as a healthcare professional, you should carefully evaluate the credentials of any financial advisor you are considering. Limiting your search to a financial planner certified as a CFP® professional by the Certified Financial Planner Board of Standards (CFP Board) can help. These financial planners earn their certifications by being experienced financial professionals who have passed a rigorous financial planning examination. Being a CFP is an excellent filter for knowledge; nonetheless, they may not all be fiduciary.

In the same way that studying a book and passing a test is not enough for a physician to become a surgeon, we believe advisors should have gone through a great “residency” experience to develop exceptional processes.