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Is Your Wealth Plan Built for Flexibility? Part II


Part two of a short series on how to factor flexibility into your financial plan in order to protect it from various elements that could affect you.

Too often, physicians have ignored the most important factor in a sophisticated long-term plan: flexibility.

Considering how uncertain life can be, flexibility should be fundamental to a wealth plan. This is especially so in the financial arena, since many factors that may make the difference between hitting your financial goals or not are beyond your control.

In the first part of this two-part article, we looked at two key elements around which any plan should build flexibility: changes in your cash flow/income and in tax rates. Here, in the second part, we will examine three additional changes to plan for: the “market,” your liability situation and your health.

The reason we put the word “market” in quotes is that we mean more than a small sample of the stock market in the U.S., such as the Dow Jones or even the S&P 500 indices. What we are trying to get at here is the concept that there is volatility in all of the securities, commodities, real estate and other asset marketplaces in the U.S. and all over the world. Values go up and they go down in all asset classes.

This might be obvious, but a Nobel Prize was developed around the concept of constructing portfolios that minimize this risk and maximize returns. This is the concept of “diversification” or “asset allocation.”

Most savvy doctor investors understand that portfolio diversification is a key consideration to reducing some of the risk of loss in a portfolio. In historically volatile markets, mitigation of loss is not a luxury — it is a necessity. Though most savvy investors who thought they were “adequately diversified” also lost almost half of their portfolio value in 2008 and 2009, there is an explanation. Most investors were diversified “within” the stock market with holdings in various sectors. What these investors suffered was “market risk.” As the entire market came crashing down, so did all investors within the market. Wealth plan flexibility requires better planning.

What many experienced investors don’t understand is that diversification need not be limited to securities like traditional stock and bond investments or bank deposits. Proper diversification, especially in a highly volatile market like the one we are experiencing today, must also be across investment classes, not just within a class (such as securities or real estate). A balance of domestic and foreign securities, real estate, small businesses, commodities, and other alternative investments would prove to be much less risky than holding the majority of your investments in real estate and securities (which is what most doctors do).

For many doctors, a popular investment strategy is to take advantage of different investment programs that are not traded on a public exchange like the New York Stock Exchange (NYSE). Non-Traded Real Estate Investment Trusts, Leasing Funds, and Oil & Gas Drilling programs are a few examples. As with any investment, there are pros and cons for each type of offering.

Given recent market conditions, many physician investors have been attracted to non-traded programs because they offer a certain level of stability. Most of these programs are sold to investors at a flat price, for example $10 per share, during the offering period. An advantage to these programs is that their performance is not correlated with any particular market or index, making them an additional form of diversification. Holding non-correlated offerings can help reduce the “volatility rollercoaster” of a traditional portfolio. They should be an additional allocation in your portfolio, not a substitute for proper allocation.

It is important to note that one of the advantages of a non-traded offering is also a disadvantage. There is typically no market for shares of these programs. As an investor, you are expected to hang on to the security for the life of the investment — which can be as long as four to 10 years. This can make your investment relatively illiquid.

In addition, these programs are not without risk. You could invest in an oil and gas drilling program that finds no oil. Sure you will get a deduction, but you may not get much of the initial money back. Like any other investment class, some offerings are more aggressive than others, and none make any guarantee about future performance. The bottom line: true wealth plan flexibility dictates a true diversification plan that may or may not involve alternative asset classes or non-traded assets.

Another option many physicians overlook to their detriment is a cash value life insurance policy where their policy’s investment performance is tied to a market index (such as the S&P 500) but where the insurance company provides a guaranteed minimum return. The guarantee, of course, is only as strong as the insurance company itself — which is why using a very strong company with 100-plus year track record is crucial. The benefit of such a policy is that you can use it to truly participate in the years of positive returns of the index and have protection against the years of negative returns.

Any planning designed to shield wealth from a lawsuit claimant, creditor or even soon-to-be ex spouse is typically not effective if implemented after you have notice of a threat. Simply put, you have to put asset protection planning in place before there is a problem.

The challenge, of course , is that clients want to maintain ownership of the asset, control of the asset and access to the asset — or some combination of all three — at times where there is no liability threat lurking. Fortunately, with comprehensive asset protection planning, utilizing exempt assets, legal tools, insurances and proper ownership forms, the client’s goals here can typically be accomplished.

Thus, you can build flexibility into your planning by using tools that shield wealth if, or when, you have liability threats, but allow you ownership, control and/or access to that wealth when “the coast is clear.”

In fact, if such planning can be combined with corporate structure and tax planning at a medical practice, we often can find ways to provide asset protection that, in effect, “pays” the doctor handsomely each year — as the tax savings gained from such planning can far outweigh its costs. If this is achievable (which it is), you might ask “why doesn’t every doctor engage in this type of planning?” We agree that it is a question worth asking.

Changes in the “market”Changes in liability

As physicians, you know that the element of health is the most important of any. At one extreme, being in good health is a blessing and can allow you to be more productive — to create more wealth and allow you to share it, enjoy it and even give it away. On the other extreme, poor health can keep you from practicing medicine, earning a living and even lead to premature death — which can have a devastating economic impact to the family, on top of the emotional difficulty that comes with it. For these reasons, it is crucial that a conservative wealth plan build flexibility around changes in health.

The first way to build flexibility here is to secure the proper insurances to shield your ability to earn income as a doctor. There are two important insurances to examine — one that provides you a regular income stream if you become disabled and one that provides your heirs financial protection in case you die. We are describing, of course, disability insurance and life insurance.

Certainly, if you are concerned only about your own ability to meet your financial goals and have no financial dependents, than disability insurance may be the only coverage on which to focus. The data tell us that the likelihood we will incur a significant long-term disability is much higher than dying prematurely. Nonetheless, in our experience, most physicians are significantly under-insured for disability. As such, they are risking all of their financial goals on their ability to avoid disability. This is not a risk we counsel our clients to take.

We have also found that many doctors remain under-insured because they believe that they cannot get more than $10,000 or $15,000 monthly coverage, even though their income is well above these limits.

As for life insurance, there are many different types of products — from term to cash value, from whole life to private placement. Be sure that, whatever product you use, you have adequate coverage given your income, debt, assets, family situation, tax rate, state of residency and goals. As you can imagine, this is very much a case-by-case analysis.

In conclusion

Because risk and uncertainty are so prevalent over the long term, flexibility is a crucial element of a conservative, yet creative, wealth plan. In this series, we looked at five key elements around which any plan should build flexibility — changes in cash flow/income and in tax rates in part one, and changes in the “market,” in your liability situation, and in your health in part two.

Changes in healthDavid Mandell, JD, MBA, is an attorney, author of five books for doctors, and principal of the financial consulting firm OJM Group. Jason M. O’Dell, MS, CWM is also an author of multiple books for physicians and a principal of OJM Group. They can be reached at (877) 656-4362. You can also call for a free (plus $5 S&H) copy of For Doctors Only: A Guide to Working Less and Building More, please call (877) 656-4362.

OJM Group, LLC. (“OJM”) is an SEC registered investment adviser with its principal place of business in the State of Ohio. OJM and its representatives are in compliance with the current notice filing and registration requirements imposed upon registered investment advisers by those states in which OJM maintains clients. OJM may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. For information pertaining to the registration status of OJM, please contact OJM or refer to the Investment Adviser Public Disclosure web site (



For additional information about OJM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein. Please read the disclosure statement carefully before you invest or send money.

This article contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized legal or tax advice. There is no guarantee that the views and opinions expressed in this article will be appropriate for your particular circumstances. Tax law changes frequently, accordingly information presented herein is subject to change without notice. You should seek professional tax and legal advice before implementing any strategy discussed herein.


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