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The term "wealth management" is the newest buzzword among both financial professionals and the investing public. It's so popular that a Google search on the term turns up over 2 million hits. But in some ways, it's like selling the sizzle without the steak. In my estimation, "wealth management" is another phrase for comprehensive financial planning; the processes are the same. And you don't need to be driving a Rolls-Royce or own a mansion to benefit from wealth management. If you're making at least $125,000, own a home (or intend to), and want to plan for your own or your children's future, a comprehensive plan could help you.
What's a comprehensive financial plan? In a nutshell, it's a plan that takes all your assets and liabilities into account and is designed to meet your financial life goals: sending three kids to private colleges, retiring by age 62, and passing along your estate with minimal tax, for example. Specifically, a plan should go well beyond investment management-such as choosing the right mutual funds-to include cash flow management; tax, education, estate, and retirement planning; charitable giving; and risk management, including, among other things, life insurance. Physicians with ownership stakes in their practice can add business planning to that list. That doesn't mean your planner has to be a CPA, attorney, or insurance agent, but he should be familiar with those aspects of financial planning, and be willing to work with professionals in those fields when necessary.
Coordinating the individual pieces is what separates a good plan from a mediocre one. You can't effectively plan for an early retirement when you don't take into account the cost of, say, health insurance or funding your children's advanced degrees. If you focus on only one facet of your plan, you're likely to subvert your efforts in other areas. I've had clients who've met their annual income goals, but they weren't saving enough to meet their other goals. Unfortunately, it's not uncommon for a doctor to take out a home equity loan to finance a college education; but he shouldn't have to.
As I analyzed their assets and liabilities, it became obvious they wouldn't meet their goals and maintain their lifestyle in retirement if they continued on their current path. I presented them with several scenarios to make up for the $15,000 per year shortfall in their present savings schedule. They'd either have to cut back on their spending, retire later, or increase their income. The gastroenterologist made a tough decision: he realized that while he enjoyed his work at the hospital, quality of life mattered more. He joined a group practice for a larger paycheck. We restructured his investments accordingly, and now he's back on track for a comfortable retirement without significant sacrifice. We'll periodically look at his plan to be sure all the pieces continue to fit.
If you own your practice, a planner can and should evaluate certain business issues, taking your personal goals into account. A radiologist client in his 50s spent several years searching without success for a partner, while watching the cost and use of technological equipment in his field explode. He needed help in deciding how and whether he should invest in the newest MRI.
We looked at his revenues and the equipment payments compared to where he stood in his overall retirement planning. We discussed the value he placed on working independently vs the long hours he worked with little time off. Instead of biting off more than he could chew with the MRI expense, he ended up joining a local group practice. His income rose dramatically, and even though he lost some of the independence he valued, his quality of life has improved markedly.