Advisor Selection for Emerging or Suddenly Wealthy MDs

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Monitoring the “Professional” Advisors

[By Dr. David Edward Marcinko; MBA, CMP™]

An emerging or non-previously wealthy doctor may never have had a reason to develop a team of “professionals” to help manage his or her personal finances and/or affiliated medical practice businesss entity.Many areas of expertise such as tax planning and medical compliance, risk and investment management, or HR, practice succession planning and medical practice valuations may not be within the background, training, and health economic experience of the emerging or newly wealthy individual physician. 

Required Protean Subject-Matter Mix

The first step in developing a single or cadre of advisors is identifying which specific services are needed. For the practicing physician today, this often includes a protean mix of expertise in:

· Banking and credit relationships

· Budgeting and debt reduction

· Employee benefits negotiations

· Practice business planning and practice organizational start-up

· Practice funding and cash flow

· Financial accounting and tax planning

· Managerial accounting and practice cost accounting

· Insurance planning

· Risk Management implementation

· Continuous practice management

· Practice compliance

· Human resource management

· Investment advice and implementation

· Medical practice equity building

· Mature practice health law and policy issues

· Medical practice valuation and appraisal

· Practice sale and succession planning

· Retirement plan administration

· Professional trustee appointments

· Estate planning and documentation; etc.

Advisor Characteristics

Next, the individual physician should write down the criteria that will be used for selecting these advisors. These criteria could include:

·  Fiduciary capacity

·Medical specificity and expertise

· Educational degrees

· “Professional” credentials [many require just a HS diploma or GED]; age and experience

· Size of firm providing the services [agent, representative or owner].

·Compensation arrangements

·Location; increasingly less important; etc. 

A written document should also specify the services to be provided by the advisors that outline not only the specific responsibilities of all parties, but also the amount and source of compensation. (Some advisors receive compensation only from their clients; others are paid only when they sell certain products – try to avoid the latter). 

Avoiding the Hype 

Additional factors for the emerging or newly wealthy doctor to consider are reviewed below. Finding the right match in advisors can be a difficult but not impossible task.

While many advisors may fulfill the doctor’s initial criteria, it also is important to secure the services of those with whom the physician can have a relationship based on (documented-legal) trust and professional interaction. 

Because the emerging or newly wealthy doctor may have little experience in dealing with financial advisors, the doctor needs to be wary of the flashy, aggressive marketing hype that can accompany different types of advisors.

Physicians should look for fiduciary integrity, personality, extreme physician focused subject matter specificity and professionalism when selecting advisors. 

Compensation Schemes

From the beginning of a relationship, it is important to establish a clear understanding of how an advisor is to be compensated. 

Advisors who are paid a fee directly by their clients, based on time worked or the complexity of their services, are more likely to provide objective advice than are agents or representatives – who are paid to sell certain products.

Services delivered should be reviewed on a systematic, regular basis as outlined in the engagement agreement. The time period for review will vary, depending on the services being provided.

For example, in working with a money manager, it may be appropriate to schedule quarterly review sessions to check investment performance, expected changes in asset allocations, the types of investments made, and so on. Many however, feel this may be too often and merely serves as a pretense to conscientious-industry on the part of the advisor.

With an insurance agent, a bi-annual review may be sufficient for checking on policy coverage and premium costs.

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Evaluating the Advisors

Ask advisor level of experience in dealing with other physicians in similar settings. And, consider employment setting.

For example, a large firm provides continuity and depth, while a small firm often results in more personalized, individual attention. Most broker-dealers [BDs-wire-houses] use non-fiduciary stock-brokers [aka vice presidents, wealth managers, investment advisors, etc]; while most Registered Investment Advisor (RIA) firms are true fiduciaries.

  • Ask about confidentiality as well as transparency.
  • Do not sign arbitration agreements; if possible. You do not want to give-up your right to sue as the deck is stacked against the plaintiff by most arbitration panels.
  • Check references that are not offered by the advisor. Make sure they are long-term clients.
  • What are the advisor’s professional affiliations? For instance, what professional organizations or societies does he or she belong to and what do their codes of ethics require? Nevertheless, remember ethics is not fiduciary capacity which entails a much high legal duty (i.e., to the doctor-not the representing firm); etc.


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Speaker: If you need a moderator or speaker for an upcoming event, Dr. David E. Marcinko; MBA – Publisher-in-Chief of the Medical Executive-Post – is available for seminar or speaking engagements. Contact:


FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors

8 Things your Financial Planner Won’t Tell You:

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7 Responses

  1. Lottery Winnings Gift

    In Tonda Lynn Dickerson v. Commissioner; T.C. Memo. 2012-60; No. 20029-08 (6 Mar 2012), the Tax Court determined that a lottery ticket given to a waitress and subsequently transferred to a family-owned Subchapter S Corporation created a taxable gift of 51% of the winnings.

    Tonda Lynne Dickerson was a waitress at the Waffle House in Grand Bay, AL. A regular customer, Edward Seward, had a practice of purchasing Florida lottery tickets and making gifts of tickets to waitresses at the Waffle House. On March 7, 1999, Mr. Seward gave Dickerson an envelope containing a lottery ticket. He did not know that this ticket had been selected the previous day to receive a jackpot amount of $5,075,961.71 in cash or $10,015,000 over 30 years.

    After discovering the value of the ticket, Dickerson and her family discussed their options. On March 8, they created an S Corporation called 9 Mill Inc. (“9 Mill”). All stock was allocated to Reece family members. Dickerson and her husband received 49% of the shares, her mother 17% and two siblings each owned 17%. On March 12, 1999, 9 Mill claimed the jackpot and requested the $354,000 payment per year for 30 years.

    There was a competing claim that delayed payment. Four coworkers at the Waffle House filed an action against Dickerson and claimed there was an existing oral agreement among the five waitresses to share proceeds of any lottery. They claimed ownership of 80% of the proceeds or $4,060,769.20. On April 30, 1999 the Circuit Court of Mobile County determined that the oral agreement was enforceable and the other four waitresses were entitled to 80% of the jackpot. However, on February 18, 2000, the Alabama Supreme Court indicated that there was an oral agreement to share the lottery proceeds, but that it was not enforceable. Under Alabama public policy, the unenforceable agreement was “founded on gambling consideration.”

    In 2007, the IRS asked Dickerson to file Form 709, United States Gift Tax Return. She filed Form 709 on November 30, 2007 and indicated no taxable gift. The IRS disagreed, determined the gift to be valued at $2,412,388 and issued a deficiency for $771,570.

    At trial, counsel for Dickerson argued that the Reece family contract created an agreement that the gifted lottery ticket would be jointly owned. Under Alabama law, a contract requires an agreement between two parties, consideration, a legal object and capacity to enter into the agreement.

    There were multiple issues with respect to the claim that a family contract existed. There was only a general plan to share proceeds. There was no requirement to share, no pattern for sharing, no specified percentages and no determination of when a jackpot was “substantial” and therefore subject to sharing. Finally, there were no defined parties to the sharing agreement. Because the alleged Reece family agreement was “too indefinite, uncertain and incomplete for enforcement,” the contract was not valid under Alabama law.

    In addition, the court determined that there was not a contract under federal law. While it is possible for individuals to have a formal pooling agreement or a standard practice that could create joint ownership, the Reece family did not actively pool assets and did not follow partnership formalities.

    Therefore, the primary issue was the valuation of the gift. On the March 7, 1999 date of the transfer to Dickerson, the potential existed for a claim by the other four Waffle House waitresses. At court, plaintiff’s attorney Steven Nicholas testified on valuation. He indicated that the potential claim of 80% of the proceeds by the four Waffle House waitresses should be discounted by 65%-80%. In addition, the litigation costs could be between 2% and 5% of the total value of the ticket.

    Based on this analysis, the court determined that the 80% value would be discounted by a total of 67%. Therefore, Dickerson owned 33% of approximately $4 million and 100% of approximately $1 million. Her gift of 51% was valued at $1,119,347.90.

    Source: Children’s Home Society of Florida


  2. Sudden MONEY!

    We all know that the lottery is random, and that the odds are one in 292 million. Maybe you’ll get lucky and win it all, or maybe you’ll split the payout because multiple people luckily choose the same winning numbers. But keep in mind that the higher the lottery jackpot goes, the more likely you are to split the pot with others.

    Lottery participation is not linear. Every new dollar increase in the jackpot game after game does not bring with it a set new number of people who play. Rather, the larger the jackpot, the more exponential the number of people who play becomes. That means the more attention the lottery gets, the odds of splitting the payout with others actually increases. Meaning if you really want to play the lottery, the best way to do so given the same odds of choosing the right numbers is actually to bet on a jackpot that is high, but not high enough to attract a large number of new players.

    And this relates to the stock market how? The more an investment is talked up (largely because that investment has already moved and made a boat load of money), the more likely you are to split the payout among others listening to the same reasons to buy that particular investment. The more people know about a big payout, the more likely you are to split the pot and not make as much as you hoped. There is a high correlation to the amount of attention the Powerball and stock market gains receive from the media and the jump in the number of new entrants who come in afterwards

    This is where contrarianism comes into play. Few people pay attention to losing investments. Those who do will often be too scared to buy in after a large drawdown, even though the very definition of “buy low, sell high” is based on those depressed prices that happen peak to trough. Some will argue that if a stock, asset class, or strategy is down, it must be down for a good reason. As we know from several quantitative studies of markets, however, that “good reason” may be either 1) legitimate, 2) random, or 3) based on a cycle that simply doesn’t favor that investment. We show the latter point as being a major one in our award winning papers related to predicting stock market volatility (click here to download). Being a contrarian isn’t about going against the crowd. It’s about betting on a jackpot which few other players are betting on so the odds of you splitting the payout are much lower.

    Let’s apply this to today’s market. Ask yourself very simply – where have most people overweighted their portfolios? What is the overarching narrative? Where are most people betting? Likely on the “cleanest dirty shirt” on the global landscape, which is the US stock market. Why? Because Fed policy and the Age of QE, combined with ever faster information flow from the internet has resulted in a similar Powerball mentality among a large portion of the investor landscape. Make no mistake about it – though we may hear stories about investors “selling” US stocks in this volatility, you can’t unwind 5+ years of divergence from the rest of the world in 5+ trading days.

    Where does the contrarian look to now? Reflation through a bounce in commodities and emerging markets, both of which no one seems to want to buy a ticket on. Of course that doesn’t mean you buy that ticket right here, right now. But that also doesn’t mean you should ignore what on the surface looks like a low payout right now.

    Michael A. Gayed CFA


  3. Record SEC award expected for JPMorgan whistleblowers

    The agency plans to split the award between just two of the people who reported the bank’s product-pushing tactics:



  4. SAD Sudden Money

    Disappointing stories reveal what it’s really like to win the lotter.



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