Dr. Mark Gurland, a hand surgeon, said he thinks doctors often believe their knowledge can be applied to something seemingly simpler, like investing.
Fred R. Conrad • New York Times ,
Money advice for doctors and lawyers – and the rest of us
- Article by: Paul Sullivan
- New York Times
- April 6, 2013 - 4:16 PM
In most places in America, doctors and lawyers are at the top of the career pyramid. They’re often the top earners in town. And they usually live in the nicest neighborhoods and drive expensive cars.
But their attitudes toward money and investing can pose financial challenges.
And the years of education that got them to where they are, their financial advisers say, can also stand in the way of their financial decisionmaking.
As Greg Erwin, managing principal at Sapient Private Wealth Management who works with doctors, put it, “A lot of these physicians would like to believe that investing and savings is pure science, and that’s not true. It’s an art form.”
Let’s look at what the rest of us can learn from doctors and lawyers.
Doctors: Do no harm
Doctors have a reputation among financial advisers for spending every bit of money they make. They earn a lot, after all, and figure they can work a long time. But doctors who engage in this type of spending can forget how hard it will be to maintain their lifestyle in retirement without millions of dollars saved.
“Doctors can have a sense of entitlement,” said Lewis Altfest, CEO of Altfest Personal Wealth Management, who has a specialty in advising doctors.
“Doctors are highly respected in their communities. They have historically been among the most gifted intellectually and they’re not afraid to exercise it.”
While doctors are certainly smart, their medical ability does not necessarily translate to financial acumen.
Dr. Mark Gurland, 59, a hand surgeon in New Jersey who is married to a psychiatrist, said he had a theory about doctors’ financial behavior. Since most do not finish their internships and residencies until age 32 — if they have gone straight through from college — they have been living cloistered existences.
“When they’re done, my feeling is, there is this repressed self-sacrifice and when money appears, they’re living in huge houses and driving the fanciest new cars,” he said.
On the investment side, he said, doctors often believe that their knowledge of medical issues translates into something seemingly simpler, like investing.
Gurland, who has always been a saver, said he had been guilty of making investments on a tip or a hunch. A cardiologist friend persuaded him to invest in fiber-optic cables a decade or so ago: He said he doubled his money, then lost almost all of it.
When he invested in a company that was promoting a drug for hand surgeries, he thought he had a winner but lost money on that one as well.
Now, he said, he defers to his adviser on investments and thinks of some of his most annoying patients who try to tell him what’s wrong with them.
“Every day, we see patients in today’s world who seemingly know more about medical conditions than the doctor,” he said. “Why? Because they went on the Internet and read about this.”
Erwin, the adviser, said he tried to offer doctors a financial plan that dealt with their desire for rewards. At the same time, he lets his clients know about the risks inherent in not saving.
“They’re very methodical thinkers, but they’re also extremely busy,” Erwin said.
He said he spent time coaching his doctor clients not to get swayed by a friend.
But doctors generally get two important things right. Doctors, particularly those with a unique specialty, buy disability insurance because they know that if they can’t work as a hand surgeon, for example, their income will plummet, even if they can still work as a doctor in a different capacity.
Given their high incomes, they can eventually be persuaded to defer a large portion of their income into retirement plans to lower their current tax bill.
Lawyers: Objections overruled
Lawyers certainly can be as busy as doctors, but they also chart their days in billable hours: giving up time to talk to financial advisers or to think about their financial situation can literally cost top litigators $1,000 an hour.
“They want a strategy that they sign off on but that they’re not going to have to micromanage,” said Ross Gerber, chief executive of Gerber Kawasaki Wealth and Investment Management, who said a third of his clients are litigators in the Los Angeles area. “Trust is huge. I don’t think they’re looking at their statements at all.”
That is not a practice any adviser would recommend, but it’s just another area of their lives where lawyers delegate as much as they can, advisers said. And the difference between lawyers and everyone else, of course, is that they make so much money that advisers are willing to do the work for them.
Like doctors, most lawyers spend a lot of money but also put a lot of it away for retirement.
Brooks Herman, head of research at BrightScope, a company that rates retirement plans, said that when he looked at 401(k) plans by industry, lawyers had the strongest ones as a group: their plans had low fees and high average balances.
But lawyers’ income could be at risk when a portion of their compensation is deferred into plans sponsored by the law firm. As happened when Dewey & LeBoeuf filed for bankruptcy last year, the money in those plans could be lost or reduced.
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