Smart financial tips from top advisers

May 2, 2008

Expert financial advice boosted doctors' bottom lines-and might help you, too.

Key Points

When it comes to making money, there's a thin line between error and success.

Financial decisions dominate many aspects of life, from your practice to investments to legal arrangements. While there's no shortage of chances for an unintentional oversight to drag you down, there are also plenty of ways to improve your situation by making savvy moves.

We asked some of our top financial professionals about cases in which their advice to physician clients significantly helped the doctors' money situation. Their sharp-eyed catches, which ranged from questionable investments to strategic leasing arrangements to flawed estate plans, could help save your stash, too.

"Doctors are frequently pitched investments that promise a lot of sizzle with little steak," says John Q. Bird, a financial planner with Albion Financial Group in Salt Lake City. "These risky instruments are designed to be sold, not purchased." He cites the following example: When bankers approached a 50-year-old neurologist with a "collateralized debt obligation" (CDO), the doctor immediately assumed it was a safe investment because it was to pay interest and was backed by commercial real estate.

"The bankers reported past returns of 14 percent a year and implied future 'risk-free' returns of the same magnitude, but were careful not to make any promises," Bird says. But after he dug into the cost, commission, and interest structure, Bird found the "investment" to be neither safe nor high-yielding. While the CDO could generate a 3 to 7 percent return, it could also lose 5 to 10 percent after the sales commission was paid. Besides, the real estate bubble had already burst in some markets, which meant that the underlying collateral could be worth less than the debt itself.

"It was a great deal for the promoter, but not so great for the doctor," says Bird. "We passed on the CDO and instead kept this doc's portfolio diversified. Rather than looking for a 14 percent equity-like return with a questionable debt offering, we invested directly in stocks, and kept a portion of his assets in short-term, low-risk municipal bonds." The neurologist ended that year with a net return of 20 percent, a figure that could have been much lower if he had invested in that risky CDO.

Review your estate plan-now

When a 47-year-old general surgeon first came to Sharon Olson, a financial planner in Bloomington, MN, his estate plan hadn't been reviewed in several years. Still, he thought his will was airtight: The three children from his first marriage would inherit the amount exempted from federal estate tax, while the balance of his $2 million estate would go to his second wife.

"We immediately detected a problem," Olson says. "Estate tax changes would've wreaked havoc with his initial intentions if he died before we could change his will." Boilerplate language was to blame, written before 2001 when the maximum future exclusion was just $1 million.

The surgeon thought the will would effectively direct half the estate to the kids and the other half to his wife. By the time Olson reviewed the surgeon's estate plan in 2006, the exclusion had risen to $2 million. The unintended result would be that his kids would get it all, and his wife would get nothing. To top it off, the state would've slapped the family with a $100,000 estate tax bill since only $1 million of the $2 million estate was exempt in Minnesota in 2006.

To correct the error, Olson worked closely with an estate planning attorney. "We created a new estate plan with a revocable trust that allowed the trustee some freedom in distributing assets. More importantly, because we took the time to meet with them, the private trust company understood the physician's intentions."

The end result: The kids will split $1 million three ways, and the balance will go to the wife. "We'll review the plan along with the account balance annually, especially in light of expected changes in the federal exclusion," adds Olson.