Speaker 2 (00:00.12)
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Welcome to the Physician Family Financial Advisors podcast, where physician moms and dads like you can turn today's worries about taxes and investing into all the money you need for retirement in college. Hello, physician moms and dads. I'm Nate Renneke, Certified Financial Planner and Primary Advisor here at Physician Family.
And I'm Ben Utley, certified financial planner and service team leader here at Physician Family.
In today's episode, we are going to answer the question, are financial advisors worth it for physicians? So Ben, prospective clients ask you all the time, usually prospective clients that have never had an advisor, they'll ask you, what exactly will you do for me? really, what I think they're asking is, what am I paying you for? Like, what do I get? Yeah. Right. So it's definitely a fair question. know, if you're going to pay, you should
Speaker 2 (01:07.778)
get your money's worth. So I thought today we could go through just a few basic examples of what a good financial advisor would do for you every single year and kind of what we do for our clients every year during an annual progress check and just at the beginning when we get them all set up with. How's that sound? Right.
Right, well, you know, I take all the interviews for prospective clients and so I do get this question probably in about one out of three or one out of four calls and I think it makes sense because if I were new to consuming some kind of service, especially one I'd never consumed before, I'd be asking myself like, okay, maybe I can see what I pay but what do get, right? And is it worth it?
Yeah, totally makes sense to me. So again, we're going to do some basic things. Sure. Right. We're not going to get into the weeds. This is just what decent advisors should be able to do for you. So first thing is they help you do smarter things with your cash. Right. Right. What's like the easiest, most basic thing an advisor could help you do with your cash? It earns you some of your some of your money.
It's funny you mention that because yesterday, literally, I was talking to a friend of mine, has a daughter, she's in college, and she had some extra money. She's like, I want to do something with this. What I do? And I said, well, what would happen if you crashed your car or you lost your iPhone? She said, well, I'd have to pull money out of investments or borrow it. I said, what about an emergency fund? She's like, that seems like a good idea. Right? I mean, I would think that most of our listeners have heard about an emergency fund and unless mom and dad are backstopping you and you're
you know, your professional career, then it's probably a good idea to have an emergency fund. And so I think that's, that's kind of where it all begins. And that's having an emergency fund is a good idea. But I think there's also some some value that we create around emergency funds. So for example, it's not uncommon to see physicians having an emergency fund of about $50,000. Okay, so that would be enough to get you through maybe three or four months worth of joblessness.
Speaker 1 (03:11.246)
Not that physicians are without a job very often, but you know, if you created a car, you could replace a car. If you had a kid who was out of a car, you could replace a car. There are a number of things I could think of that would cost $50,000. You don't want to have your emergency fund be too large, but by the same token, you want to make sure that you do have one, right? Right. So it's very common for us to see folks come in that do have the equivalent of emergency fund and they're stowing it in their checking account.
That's not a bad place for it to be. It's super safe. But I like to see those emergency funds put in something that is FDIC insured, like it would be at the bank, but also earning some yield. And so here's where we come up with the first point of real value that a financial advisor would have. So let's say that you've got $50,000 kicking around in a name brand bank checking account, where you're getting
Maybe not exactly zero, but really darn close to zero on your deposits. Okay, so $50,000 just sitting there like a free loan to the bank. All right. Now, if you were to choose a smarter deposit, like if you roll that out to one year CD, or if you had access to some of the higher yield money market funds that are FDIC insured, you could easily get four and three quarters, 5 % yield on that.
But let's say just for the sake of argument here that all you get is 4%. All right. So if the only thing that I did for a client in a year's time was to say, hey, let's take your $50,000 out of your bank account and put it in a CD, then I've just improved that person's money by $2,000 a year, which is 4 % of $50,000. It's too grand. It's a risk-free move.
It costs nothing. There's no commission. no, nobody's going to make any money on that. yeah, I mean, that's that alone is worth 2000 bucks right there.
Speaker 2 (05:11.748)
There you go. Yeah, $2,000.
So we're going to be, you know, you and I of course know what's coming, but just for the listeners, we're going be talking about like some super, super basic stuff here. And like, just to get the minimum viable value from an advisor.
Yeah, like if you had an extremely basic situation and you're wondering what would you do with my basic situation? Emergency funds about as basic as it gets and there is $2,000 a year right there that many people miss out on. mean, I have 10 stories, the same exact thing, that people who aren't even physicians, they have some cash sitting in their checking account and a lot of times it's a year later and they're kicking themselves like, my gosh, I missed out on thousands of dollars. Yeah. They would never think.
Now, you said super basic and I said college kid, but I want everybody to be really clear on this, okay? So we see clients who have more complex circumstances like maybe they're both self-employed, maybe they're both specialists, they live in a high-income area, they own medical office buildings, yada, yada, yada. They still have that same $50,000 that's just sitting there and checking. But beyond that, they've got usually an extra couple hundred thousand dollars. Now, should all that be an emergency fund? Totally debatable.
Right? Right. But you could see in a situation like that where they might get a capital call that maybe 100,000 should be in there. So emergency fund does not equal basic personal finance. Emergency fund equals first move. The thing that you build your base on. So perhaps it's basic from that standpoint. But it's like a right thing to do. But in this case, we're just going to work with a measly, air quotes, measly $50,000. So our gain, our
Speaker 1 (06:55.34)
Delta here is $2,000.
Right, right. Yeah. And I mean, like you said, they could have a lot more cash. We're not even going to get into extra money. We get a whole show. There's so many things you can do with it. So there's two grand, 50,000 into the right, into a smart account. Yeah. It's $2,000 this year.
A dead horse beaten to death. Let's move on.
Yes. All right. So, what's like the next thing we might help or advisors might help physicians with to do with their cash? Like one step up from
base. so this is, again, ultra straightforward, quote unquote easy, but sometimes people don't do it without a little kick in the pants from a tough love financial advisor, which I would include myself in that camp, which is getting people to invest, and sometimes getting people to stop spending, right? So we could go on a rant about not spending on this, not spending on that. But in this particular case,
Speaker 1 (08:00.076)
I'm just going to dial it way down and I'm going to say, let's get people to invest 40 extra dollars a day, right? So I think most physicians could save an extra 40 bucks a day or not spend an extra 40 bucks a day with, I could probably come up with a dozen different ways. And again, that's another show like how to save 40 bucks a day, right? Okay. So if we were saving 40 bucks a day,
that would be about $14,000 a year. And when I say save, mean, not spend and invest, all right? And I'm not talking about 40 bucks a day for the rest of your life. I'm just talking about for the 365 days, that is one year. So that'd be $14,000, right? Okay, so Nate, you've already done the math on this for our listeners, so they don't have to listen to you, know, punching numbers in your HP smart calculator. What is $40 a day worth
in the future over the course of an average physician's career getting, you know, stock-like returns.
Stock like returns average career. That's $172,500 and that's after tax.
after-tax. So basically with like all of the magic powers that I have in the tip of my pinky fingernail, we could magically convert $40 a day into $170,000 of accrued value on an after-tax basis.
Speaker 2 (09:36.172)
Yeah, it seems like when you put that tough love hat on, sometimes people feel a little bit of pain. This is like not a whole lot of pain, even when it sounds like pain. And I recommend it to physicians. the end of the day, the next year, it's on autopilot and they're like, yeah, no, I do that every year.
never miss it. You never miss it. never miss it. And coincidentally, we're talking about $1,200 a month. All right. So that's not a fortune. Okay? No. Now, because we have the power to talk about what we're going to talk about, we made sure that we gave an example that's really close to $14,000 a year, which magically and coincidentally happens to be the amount that a couple could sock away in an IRA. Okay?
So let's yeah, now I'm talking about taxes because that's something a financial advisor is supposed to help do, right? Save taxes, please. Right. Okay. You made me do falsetto. Shame on you. Okay. So yeah. So $14,000 a year. could put that into a traditional IRA. and here's another thing. Sometimes financial advisors tell you to do things that your CPA says you can't do.
Wait, so now you're talking about taxes.
Speaker 2 (10:33.918)
Help people save on taxes. Help me save. All right.
Speaker 1 (10:54.958)
All right, this is one of those things. So I've heard CPAs say, doctors, they can't contribute to traditional IRAs. Well, that's just simply wrong. The fact is that you can contribute to a traditional IRA, but you can't deduct the contribution, so you don't get an immediate tax benefit. And CPAs are like, why would you bother to do anything that doesn't give you an immediate tax benefit? Well, because there's a long-term tax benefit. And if you contribute that money to a traditional IRA, then you got a shot at doing the backdoor Roth, right? Converting your traditional IRA contribution
to a Roth IRA. So the long story short of that is you get $14,000 into an account that grows tax free forever. I call it the TFF, tax free forever. All right. So let's say that instead of investing that money in stocks over the course of a physician's career that they invested that money this year, that 14 grand this year, they did the backdoor Roth conversion. Nate, light us up.
tell us how much money they would save in taxes.
Right, yeah. Instead of investing into a counter, you tax it 25%. No taxes. So now that doing, you know, for a married couple, two backdoor Roth IRAs, that is now worth $230,000.
All right. So what's my tax, my, what's my tax delta there? What did I say?
Speaker 2 (12:16.238)
An extra almost $58,000 this year.
Almost 60 grand. now we've magically converted $40 worth of pizza and beer for one year into about a quarter million dollars worth of after-tax, tax-free wealth for one year.
And once again, this is, I mean, you and I hear all the time, there's advisors that simply don't bother with this.
Yeah, yeah. And the reason they don't bother with it, Nate, this is is sick. It's sick and wrong. OK, so they're like, fourteen thousand dollars. You know, I built one percent. One percent of fourteen thousand dollars isn't enough to get me out of bed in the morning. Mm Right. And so they just totally skip over this. What I find amazing is I have a number of people who call me and their prospective clients because I do all of our inbound client calls and they'll say, you know.
My advisor is asleep at the wheel on this tax stuff. So I read online and some investor blogger forum that, you I could be putting this money in this backdoor Roth IRA and I took it to my advisor and they didn't know what it was. And I had to like teach them how to do it so they could do it for me and they've been doing it ever since. But they didn't do it for like 10 years. yeah. And it just makes me want to scream because I'm looking at that $58,000 that you're talking about.
Speaker 1 (13:41.934)
Let's say it's even $50,000 over 10 years. That's a half a million dollars in taxes that they could have saved on money that could have been invested. Yeah, and it blows me away. here, I got to let you know that last year, Kyle handles this. He did like 140 backdoor Roth conversions for our clients. We've been doing backdoor Roth since before backdoor Roth was cool. I've been doing backdoor Roth with my clients for over a decade.
Right. But this is something advisors routinely skip, forget about, ignore, kick under the bus because they're not getting paid very much on it. They think it's a pain in the butt to do the rock conversions. But this is a mega tax saver for people and it's ultra basic. Ultra basic. So, so far we talked about like two or three ultra basic things. One, don't leave your money sitting in a check account. Two, save some money. Three, make sure that your investments are getting a tax break.
Yeah, let's go one step further with taxes. This is something people ask about all the time. Can you tell us how physicians can save money with tax loss harvesting? What's the real dollar amount?
tax loss harvesting. The number of people I talk to who come in with tax loss harvesting on their lips, they've read something on an online forum. They're like, oh, tax loss harvesting. I've got a taxable account. I should be doing tax loss harvesting. I feel so bad because I'm not doing it. And I'm like, do you know what tax loss harvesting is really worth? And they're like, I don't know. It's worth about $1,000 a year. Because the most losses you can harvest and use in a year, can
harvest all the losses you want, but you can only use 3,000 of that as a write off against ordinary income. And at the top tax brackets, a write off against ordinary income is worth about a thousand bucks. Like if you didn't do tax loss harvesting, you got no tax benefit. If you did tax loss harvesting, you'd pay like a thousand bucks less in taxes. That's the end of it, right? And that's for, know, docs that are a high income tax bracket. So it's funny because the one thing
Speaker 1 (15:46.882)
that drives people into our fold is this tax loss harvesting thing. And it's only worth a thousand bucks. And I've told countless physicians like, look, if the only reason you're gonna find a financial advisor is you tax loss harvesting, you're way off base. Like that's totally not worth paying for. Because there's no advisor is gonna work for a thousand bucks.
Right, right. Now, it is a nice little dessert though. I mean, who doesn't want a thousand dollars? So if it makes sense, certainly you could.
do it. It is a tiny little dessert. like the half of the cherry that comes on top of the hot fudge sundae that you buy at the drive-through place, not even the fancy restaurant. It's just like it's so – and yet, my wife and I still fight over the cherry, but I always give it to her, It's tiny. Yeah.
Right. Yeah. But sometimes it makes total sense. But you're right. It is not worth paying a financial advisor for if that's what you're
That's all your tax policy harvesting not worth time.
Speaker 2 (16:48.386)
But it's something. so, might seem easy enough, right, to do. I mean, it's not easy. It is a little bit basic. But it's really, it's sort of table sticks. If you're going to get an advisor, they should be doing these things. But the problem here, Ben, is things that are easy, they many times still require discipline. Like it's easy to eat broccoli, but you still got to do it. Yeah. Right? Yeah.
And a lot of people just don't do it. So what I'm calling this discipline, an advisor can can bring some discipline to your finances and that discipline this year, we just determined is worth about a quarter million dollars.
So the math on that is like 240 or $250,000 plus two plus one. Right? Yes. So it's like the big thing, the backdoor Roth, right? Everything else is kind of little stuff, but it's valuable. I mean, $3,000 a year is still a pretty good pickup.
Mm-hmm. Right. Yeah. That's real money in your pocket this year. Absolutely. And then there's a ton of money in your pocket when you get to retirement. So that is a lot of money. what is it that you read that's like in order for people to feel like it's worth it needs to be 10X? Tell me.
Yeah, so I was reading some stuff about product innovation because we're always kind of innovating how we serve here and trying to make things better. And basically, the gist of the article was that people won't change unless the thing that they're going to change to is 10 times better. It's got to be at least 10 times better than what they're already doing now, otherwise they won't bother to change.
Speaker 2 (18:31.531)
Okay. So, 10 times, that means that an advisor could charge $25,000 a year and they would potentially, with these few things, if you're not doing those things, they would make you 10X your money.
It starts to make sense, right? like if you knew that you had this $250,000 out of this unclaimed, you might pay somebody $25,000 to do that. But what I find hilarious is that we charge a fraction of that. Just a fraction of that.
go get it right
Speaker 2 (19:07.214)
Because that is, I mean, no matter 10X or whatever article, $25,000 is a, I mean, that's a pretty big haircut and a lot of people wouldn't feel comfortable paying that. no.
No, that would be like the beginning and the ending of can I save or can't I save? Like that's the amount of money that, you know, we did this on one of the last shows. You know, that kind of money can send a kid to college. Like if you have twins, that's all of your college savings right there. So I think most people are not going to be happy to fork that out of pocket. But refraction of that, to get that and then 10 times that. mean, is it, the question is like, will physicians see the value? I think without a show like this?
Probably not. But is it worth it? Absolutely. Yeah. Yeah. I'd pay a dollar to get $10 every day.
Right, right. So essentially with a few disciplined choices that an advisor can help you make, you're going to get your money back plus 10x, 20x more. But there's some other things and this is stuff we hear from clients who have been with us for a while that they get beyond just the money.
So now we're like, not 10 times, we're beyond 10 times better. We're like a fraction of 10 times better than that, right? So, you know, you're about to talk about the more complicated things that are a little harder to value. And I have a word that I call these things. I call them the free things. The free things. The free things. Because you've already paid for the advisor relationship with the three dumbest pieces of advice that I can give. Everything else beyond that is just
Speaker 1 (20:45.23)
You know, 30 years worth of wisdom, an experienced team of five people who serve exclusively physicians. That's our whole focus. That's what we, that's the hill we die on. We eat, sleep and breathe that. Free. Free. Free.
Free, With all that experience, what I've heard people say is that they just feel confident. So you and I, sit here, we say this is easy. This is not easy for a lot of people. They're not doing it. They don't have the discipline, but they know at the end of the day that they're doing the right thing. So advisors should know exactly what to do.
Exactly. Yeah, like they should be able to answer the question, dear advisor, I've got this extra money. What do I do with this extra money? Right. And which is a plenty question is like, I need a plan. Tell me what to do with this money. That makes sense. Right.
Yep. So knowing what to do that when, when, when an advisor is sharp and they know exactly what to do, you get this feeling of confidence that you're not making a mistake. Right. And right now I think that's extremely valuable with all the information out there online. People don't know what to do. There's, there's crazy ideas out there and then there's this stuff and they're like, is this really all should be
You've been hanging on a reddit again.
Speaker 2 (22:03.294)
Yeah, right. was laughing at Reddit the other day and how crazy their advice was. But yeah, so avoiding mistakes, knowing what to do, feeling really good about your money, feeling really good that you're on track for these really important goals, college and retirement. There's one more and I don't know if this is exactly for everyone, but we hear this all the time. We hear that we are a backup. Yeah, tell me about the back. Okay.
the backup plan, right. So we have some physicians who've got it all dialed in. They came to us dialed in. I looked in their portfolio, I'm like, you know, this looks very similar portfolio I would have built. Not exactly the same, but very similar, right? Good enough. And your savings rate is right on the money. you're already doing your backdoor Roth IRA. That's cool. Refinance your mortgage. Fantastic. Term life insurance. Wow, you're really doing great. mean, box check, box check, box check on all the
on all the kind of tactical stuff. And so you've got one physician in there who's really dialed in on finances, but they know that they are the linchpin in their family and that if they somehow slip under the bus or go missing or die, that the remaining spouse is not gonna have a clue. And so what I find interesting is that for some of the physicians we serve, we're almost like,
some kind of, you know, backstop. I don't want to say insurance, because that's a dirty word, right? But we're a backstop because we're going to be able to continue to carry the torch for the rest of that family in events that something bad happens to them, because we've got the plan. And I mean, sure, they've done a great job, but they're going to need to continue doing that for, you know, their wife and their kids and their husband if they're the non-financial spouse to be able to cross the finish line, right? Because it's a long game.
And sometimes you run out of time to play it. But I mean, there's five of us. you know, the chances of wiping all five of us out really slim, especially since we're distributed. yeah, but you know, we are the backup plan for a lot of really smart physicians. mean, these are, you know, sometimes people are like, ah, gosh, can you can you serve me? don't I don't know if I'm gonna get value. We serve 200 200 plus practicing medical doctors and doctors of osteopathy. Now,
Speaker 1 (24:22.87)
There's a chance that some of those people are really dumb. But if you're a physician and you're walking into an organic chemistry class and there's 200 people in there that are going to be your competitors, they're going to be your colleagues, you can bet that at least half that room is smarter than you are on average. right. So we don't work with dumb people. Right. Right. And so like that's another
right?
Speaker 1 (24:51.402)
another proof positive. I how is it that a couple hundred of your colleagues would be willing to pay a financial advisor for a lifelong relationship in exchange for nothing? In exchange for a break even? No, they're smart. This is where the smart money is at. And it's even for simple things like we've talked about, but especially for complicated things like, you know,
Am I, what can I do to be able to actually improve my quality of life? What can I do to be able to balance out the number of hours I work? Like, should I put in an extra shift or like, can I just keep working this at the same pace? I'm trading time for money. I want to spend more time with my kids. I want to spend more time with my family. Like, can I do that? You know, can I afford to take a pay cut and move someplace to be able to balance out my life, to avoid burnout, to be able to extend my career, to be able to have more joy, to reduce stress?
Then I have the plaque building up the walls of my arteries every day because of all the crazy things they're forcing me to do here with a new EMR. These are intangibles. They're things you can't put in a Hallmark card. You can't write on a website because they take way too damn long. So fortunately, we're on a podcast where we can see these things quickly. But these are things that I believe physicians get well beyond just the standard basic.
you you invest some money for me, maybe you get a little bit better return than I could and you cover your fees that way. Right. Which I think is just improbable because fees eat up returns, right? So that's not even a valid comparison. these are just, these are the freebies. These are well beyond the, all the hundreds of thousands of dollars worth of value that I created by exercising all the powers in the tip of my pinky finger.
Yeah, these are the written the funny thing is the freebies are the things money can't buy the things are actually difficult to get right
Speaker 1 (26:45.038)
Right. So tell me more about that because we talk about like how to buy the things that money can't buy. Internally, I think we talk about that. We don't talk about it very often on the podcast. like give me one example. Make it a good one. One example of something that we help clients get that money can't buy. Yeah.
Well, I could think of many. Just one.
See you shame on you.
I just recorded an episode where I talked a lot about it. But something I didn't say on that episode and is probably more straightforward is that with a really good advisor, you can stop worrying about money. You can't exactly turn your back on your money. But you can turn it sideways.
15°, 30°, maybe 45°
Speaker 2 (27:36.718)
Right, exactly. And to me, as someone who used to be sort of obsessed with it, I I talked about that on that episode too, that is a huge lift off of people's shoulders. They have someone in their corner who's worrying about their money with them, for them. That is just, to me, it's extremely valuable.
Okay, so I heard a quote the other day. I want to say the other day about 20 years ago when I was reading a book about play. And the quote was this, said, children use their minds to create with, where adults use their minds to worry with. And you talk about turning your back on money. I think about turning toward money. I think about turning toward your finances because now you don't have to do it by yourself.
You've got somebody who's right there focused, they're comfortable talking about it, they're versed in it, they work with people like you. You can bring some focus to it. And I think that by bringing focus to things, it just clobbers the worry. mean, nothing clobbers a worry like a plan. Like, I'm worried that I'm going to have a flat tire. Well, you got to spare on the trunk and you've got some training about it or place it. So you have a plan. The cognitive behavioral therapist will tell you the fear killer is a plan. And you can't worry if you killed the fear. So I think turning toward it is one of those things.
not worrying about money is a deliverable. It's that feeling that you get knowing that things are under control and it gives you the freedom to live the rest of your life.
Right.
Speaker 1 (29:02.872)
So Nate, it's that point on our show where we tell all the good boys and girls at home, what is the big takeaway?
The big takeaway is a good advisor will help you more than break even. A great advisor could help you break new ground on a better life.
Couldn't have said it any better myself. That's all for today, folks. Thanks for listening. Until next time, remember, you're not just making a living, you are making a life.
Thank you for listening to the Physician Family Financial Advisor podcast. Are you getting all the tax breaks you really deserve? To find out, get your copy of the Overtax Doctors Retirement Investing Checklist, available at physicianfamily.com forward slash go.
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