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.”
# 2 Doctors
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.
Snowflake-Free Zone
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.
Gold Level Scholarship Sponsor
Here at The White Coat Investor, we have been doing all we can to help you since 2011. Very little of the information we provide is new or cannot be found anywhere else. We have simply packaged it up into a format that we hope will resonate with you. That might be a blog, a forum, a monthly newsletter, a podcast, a videocast, a book, a conference, live events, email correspondence, or an online course. However you prefer to get this information, we try to provide it. This quest has provided a lot of unexpected opportunities along the way- like starting a scholarship program, creating high-paying jobs, and reaching financial independence a decade sooner than expected, but mostly we do this to help you fight against your three financial enemies.
What do you think? Which of the physician's financial enemies is most powerful? What can we do to overcome them? Comment below!
Unfortunately I have fallen prey to all 3 of these financial enemies you have listed.
I fell for a financial advisor early on in my career that put me in a high expense load bearing mutual fund. Luckily just starting out the money amount was a lot smaller so the damage was a lot less than it could have been now.
I broke away from enemy number two by stumbling onto the Boglehead site (and shortly after white coat) in my post divorce daze and finally saw the financial light. I realized with just a few hours of reading (including the white coat book and both Boglehead books) I put myself on par (actually even above par) with most financial advisors and saved myself thousands of dollars in fees
The medical culture is likely the hardest one to break. I have tried to spread the gospel of white coat to my colleagues but it mainly falls on deaf ears. I have only a few converts to speak of.
Now, you are spending my language.
You summed up almost all of why I write about what I do on my website (outside of the wellness topics) in one post.
I am trying extremely hard at my main job in academics to fix the second and third problem for my medical students and residents. This will likley involve following Jason Mizell’s lead over in Arkansas. He has really done an outstanding job.
Getting the word out there that this isn’t as tough as people make it sound, educating students and residents on how to avoid conflicted advice, and pointing them in the direction of good advice is really important.
It’s time for this topic to no longer be taboo, and I am as transparent as they come for my trainees so that they know any question is on the table. For too long we have ill-prepared them to be successful with finances. I just can’t stand it anymore.
Thanks for doing what you do and for paving the way.
TPP
Learning about personal finance is a lot easier than organic chemistry. I really do not understand why so many docs do not do it.
I would add only one major thing you haven’t….”divorce”. That is a devastating event, financially, emotionally, and spiritually.
One of my mentors used to say “don’t ever talk about money when someone wants to interview you for a job”. I never understood that….in my other field, it was usually the first thing to come up. If the job doesn’t pay well, I’m not interested…..Taboo subjects are often the areas in which we are damaged…..
As Pogo said “we have met the enemy, and he is us”…
Could not agree more on the taboo topic. I was told something pretty similar about looking for jobs and never asking what the compensation would be. Was a little worried when hearing that; I thought “was the job market so bad that employers could reject any person arrogant enough to what they would be paid?” I couldn’t help myself, I politely/tactfully asked all 3 places I interviewed at the important questions of input (hours, call, how busy on calls/nights) and output (salary, vacation, benefits, profit sharing). 1 place was a little hesitant and it might have put them off a little. The other 2 were completely transparent and did not seem offended at all. I took one of those, couldn’t be happier.
As Andrew Tobias says “TRUST NO ONE”, how true!
Reading this article really makes me realize how lucky I am. I discovered WCI as an intern and dropped our “financial advisor” (a family friend, yuck) within 6 months. So while I am guilty of losing some money to Enemy #1, the damage was really negligible.
That being said, I’m lucky to have joined a group of private physicians that are very business savvy. Money and how we run our group (i.e. a business!) are talked about in our office on a daily basis. Revenue streams and profits are reported monthly to everyone, including junior partners, so as to have total financial transparency among the docs. The longer I’m out of training, the more I realize how unique this is.
As far as personal finance goes, our younger docs are much more willing to open up and discuss specifics. Maybe it’s generational thing, or maybe it’s because two of us young guys are WCI acolytes? Who knows?
I have this site to thank for saving me from making these mistakes and many others!
I’d add another couple of big ones. There is a huge societal pressure for us to be big spenders. It is hard to break free from that mold. It comes from your friends, family, co-workers, random strangers. Despite everything I’ve learned this last year about Financial Independence i still find myslef thinking that my radiologist brother in law and his dermatologist wife are rich and have gobs of money to spend!
There is also our own sense of self worth and feeling like we deserve it all. “I sacrificed for years!” “I deserve this car and house and boat and jet ski and….” also a tough mindset to get over. Because in some sense you do deserve a nice life. Anyone who works hard and gives so much does, regardless of the career. It’s just that for docs the nice life we all envisioned is shaped a bit differently then we thought and we need to figure that out as early as possible!
Excellent point on # 3. It is amazing to think that these institutions of higher learning can be so ignorant in educating their students for a career. I understand the romance of being a physician is a “calling”, but realistically it is a profession just like any other profession. They should provide the tools to help their trainees succeed in all aspects.
These are accurate. But if physicians want to conquer the enemy rather than just manage it, they must understand that institutional control of the physicians is a very intentional business decision by these institutions.
Yes…I am saying that medical schools, insurance companies, and healthcare conglomerates encourage the oppression of physicians’ business and financial knowledge. In fact, this oppression is critical to their mission to take the profits away from the physicians…or “practitioners” as they would prefer to call you.
As an entrepreneur who is the Founder & President of a 700-physician financial advisory practice, I see this oppression everyday, without any acknowledgement from the physicians of what is happening, nor how to fix it. The solution is instilling entrepreneurial knowledge to empower physicians to take control of their lives. It is the exact same mission as WCI…but all-encompassing. Let’s help physicians get a fair shake in business and take back control from these institutions.
Fortunately, I am willing to educate your readers on the specialty of entrepreneurship and the entrepreneur’s way of thinking, which is 100% symbiotic with the financial empowerment that defines this blog.
–Physician’s Entrepreneur
The work that you have done here is great, WCI.
Medical culture in Canada has been both a boon and an impediment for us. As a boon, our medical schools are way less expensive. Our hospitals are all public, with most of us as independent contractors rather than employees which gives us a decent amount of control over our careers. That hasn’t stopped Universities and hospitals from trying to use our billings or funding as revenues streams, but I suspect it is much less than you encounter in the US. On the other side of that though is that our income can be limited by restricted OR time and hospital resources with no real option to have a privately run alternative. Our public system has generally made talking money in medicine even more of a taboo since healthcare is strongly branded as “free” here as a point of national pride. To acknowledge the financial aspect is very counter-cultural. However, with recent tax attacks surgically aimed at doctors here, there seems to be a renewed interest.
Kuddos for succintly capturing all that is wrong with #3. My guess is when you started the blog the obvious educational targets were #1 and #2, but the longer you’ve done this and the more you’ve talked to good people in healthcare who are struggling financially the more you understand how perverse #3 is. But since there is little any individual can do about that aspect its best to focus of personal offense/defense.
Had a near miss with number 1, but got out with minimal damage. Still struggle with number 2, but its getting better. Don’t know what to do about number 3 except continue to fight the good fight.
Got to continue to increase financial literacy among our colleagues and make them more aware of, and involved in the business side of medicine.
-Ray
Thanks for all you do! My family and I have found your advice to be life changing over the the past three or four years.
The student loan advice I got from the med school financial aid office was laughable. Also seems unfair that in my upper 20s with two kids they still considered me to be a dependent of my parents for purposes of determining financial need, but that’s neither here nor there.
I also remember that when the students complained about the cost of attendance, the school would say that inspite of the very high price that it did not actually cover the cost of attendance and that med school endowment provided the balance. Now the fundraising material I receive from my Alma mater references the high cost of attendance and asks for donations in the name of helping students lower their student loan burden so they can afford to offer more scholarships and grants. That seems like a worthy goal, but t does make you wonder why they don’t attempt to lower th cost of instruction along with fundraising.
Until there is a legitimate study showing value, I consider MOC as part of #3.
If it’s so beneficial, why do older physicians get a free pass (lifetime board certificates)?
Why does it cost so much? Shouldn’t employers, government and patient advocacy groups be tripping over each other to fund it in the name of patient safety?
And why do the ABMS and AOA officers get paid so well without having to undertake the risk of providing care to actual patients?
Kudos on your fee advice, “A fair price is a four-figure amount.” This focuses the issue on the dollar amount of the fee and not percentages. Transparency is 90% of the battle.
For sure. An AUM is fine IF you actually do the math and compare it to what you could be paying as a retainer or hourly rate. If you don’t do the math, you don’t actually know what you’re paying, like 90% of wealthy financial advisory clients:
https://www.financial-planning.com/news/boston-consulting-group-global-wealth-report-shows-excessive-discounting
That link is *amazing*.