Understanding the Need for Onsite Practice Management Visits

Posted on June 25, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

Interview Information also Important

By Dr. David E. Marcinko and Staff Reporters

SPONSOR: http://www.CertifiedMedicalPlanner.org

According to Robert James Cimasi MHA, ASA, AVA, CMP™ of Health Capital Consultants, LLC, in St. Louis, MO, the following types of information specific to medical practices should be gathered by the financial executive, financial advisor or healthcare consultant when performing a practice enhancement engagement, or especially, an economic valuation and appraisal. This information may be obtained through an interview, questionnaire, or preferably a site visit:

Background Information: Include such information as the number of years the entity has operated at its current location and in the community, as well as the office hours.
Building Description: Include the location (urban/suburban), proximity to hospitals and other medical facilities, and its size, construction, electrical and computer wiring, age, access to parking, and so on.
Office Description: Approximate acquisition details and price, as well as ownership or lease details should be included. The square footage and number of rooms, and a description of different office areas should be outlined, including, where applicable: medical equipment, including all diagnostic imaging and major medical equipment; pharmacy, laboratory, examination rooms, waiting rooms, and other areas.
Management Information Systems: Document types of hardware and software and the cost, age, and suitability of all components, including their management functions, reporting capabilities, and integration between programs.
History of the Entity: Give the date founded and by whom, the number of full-time equivalent (FTE) physicians in practice by year, the physicians who have joined and left the entity, the dates they practiced at the entity, and their relationship and practice arrangement with the entity.
Staff Description: Include the number and types of non-physician positions as well as the tenure and salary of all current employees.
Competitive Analysis: Include details of hospital programs impacting practice, growth or decline in the volume of business and the reasons, association with other physicians, competitive strengths and threats, the number and volume of procedures performed, any change in the number and volume, and the corresponding fees.
Patient Base Information: Encompass income distribution and percentages from different payors, the number of new patients and total patients seen per week, the age mix of patients, the number of hours spent in patient care per week, and the number of surgeries performed.
Managed Care Environment: Details the terms and conditions of all managed care contracts including discounts and withholds, the impact on referral patterns and revenues, willingness to participate in risk sharing contracts and capitation, and the entity’s managed care reporting capabilities.
Hospital Privileges and Facilities: List all hospital privileges held by physician members of the medical practice and the requirements for acquiring privileges at the different local hospitals.
Credit Policy and Collections: Include practice policies for billing and payment, use of collection agencies, acceptance of assignments, other sources of revenues, and an aged breakdown of accounts receivable.
Financial Management: Include cash management procedures and protections, credit lines and interest, controls to improve payment of accounts payable, late payment frequency, formal or informal financial planning methods, and budgeting processes.
Operational Assessment: Include governance structure for the entity, detailing responsibilities and procedures for performance, conflicts, recruitment, outcomes measures, case management, reimbursement; income, continuing medical education (CME), credentialing, and utilization review.

Assessment

http://www.CertifiedMedicalPlanner.org

The financial advisor must also allow for discussion of overall relationships with physicians in the community, practice concerns, and needs.

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated. Have you ever had such an onsite visit? Was it by a fiduciary financial advisor or medical management consultant; or other? What was the outcome? Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, be sure to subscribe to the ME-P. It is fast, free and secure.

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

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Filed under: Career Development, CMP Program, Health Economics, Healthcare Finance, Managed Care, Practice Management, Practice Worth | Tagged: certified medical planner, CMP, financial advisor, financial consultant, healthcare consultant, medical consultant, medical management, medical onsite visit, medical practice appraisal, medical practice management, medical practice valuation, Robert Cimasi, www.certifiedmedicalplanner.com | 1 Comment »

Discount Brokerages versus On-Line Brokerages

Posted on June 15, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

Physicians Must Appreciate the Differences

By Daniel B. Moisand; CFP® and the ME-P Staff

Here are a few questions for all physician-investors to consider in 2009:

1. True or False?

The key to investment success is to pay as little for a trade as possible.

2. True or False?

The higher the number of trades in an investment account, the better the investment results.

3. True or False?

The majority of revenue of a discount or on-line brokerage comes from trades.

A: The answers should be crystal clear! False, False and True. It is almost entirely that simple.

Cost Control

Much like a medical practice, keeping costs down is an important objective of personal finance but, it is certainly not the key to success. There are many studies that show that active trading garners inferior results compared to a longer term buy and hold type of strategy. One of the most publicized recently was conducted by a UC-Davis team led by Dr. Terrance Odean. The study examined the actual tracing activity of thousands of self-directed accounts at a major discount brokerage over a six-year period. The results were clear. Regardless of trading level, most of the accounts underperformed the market and showed that the higher the number of trades, the worse the result.

Of Bulls and Bears

While the U.S. markets were on a dramatic upswing a decade ago, the general interest level in them increased as well. More households owned financial assets than ever before. Demographics drive much of this surge. The older edge of the baby boom generation is finding that as the children leave home, they have more income than ever before and saving for retirement becomes a higher priority. The proliferation of defined contribution [401-k, 403-b] retirement plans has also forced more people to take responsibility for their long-term security. When, the US stock market was on a tear; one would have be wise to remember an old Wall Street saying – “Don’t confuse brains with a bull market.” Unfortunately today, far too many self-directed investors did not heed the warnings. The media is full of stories about investors whose portfolios were decimated by the recent bear market. While this loss of wealth is somewhat tragic, in almost all cases the losses were made possible by poor planning and/or poor execution that a mediocre advisor would have avoided.

The Business of Advice

One also cannot conclude that everyone is acting as his or her own investment advisor. The advice business continues to thrive. Sales of load mutual funds have continued to grow, as has commission revenue at full-service firms. No-load funds have continued to grow as well and gain market share from the load funds. However, it would be inaccurate to tie that growth to do-it-yourselfers. Much of the growth of no-load funds can be attributed to the advice of various types of advisors who are recommending the funds. In addition, several traditionally no-load fund families have begun to offer funds through brokers for a load.

The Discounters

For physicians and all clients, the primary attraction to a discounter is cost. Everyone loves a bargain. Once it is determined that it is a good idea to buy say 100 shares of IBM, the trade needs to get executed. When the trade settles one owns 100 shares of IBM, regardless of what was paid for the trade. There is no harm in saving a few bucks. However, the decision to buy the IBM shares and when to sell those shares will have a far greater impact on the investment results than the cost of the trade as long as the level of trading is kept at a prudent level. The fact is that most good advisors use discount firms for custodial and transaction services. The leading providers to advisors are Schwab, Fidelity, and Waterhouse.

Ego Driven

In addition to cost savings, discounters appeal to one’s ego for business. Everyone wants to feel like a smart investor; especially doctors. Often, marketing materials will cite the IBM example and portray the cost difference as an example of how the investor is either stupid or being ripped off. There is also a strong appeal to one’s sense of control. An investor is made to feel like they are the masters of their own destiny. All of this is a worthy goal. One should feel confident, in control, and smart about financial issues. Hiring a professional should not result in losing any of these feelings, rather solidify them. Getting one’s affairs in order is smart. The advisor works for the client so a client should maintain control by only delegating tasks to the extent one is comfortable. Knowing that the particular circumstances are being addressed effectively should yield enhanced confidence.

Sales Pressure Release

The final reason people turn to discount and on-line brokerages is to avoid sales pressure. Unlike the stereotypical stockbroker, no one calls to push a particular stock. Instead, sales pressure is created within the mind of the investor. By maintaining a steady flow of information about stocks and the markets to the account holders, brokerages keep these issues in the forefront of the investor’s minds. This increases the probability that the investor will act on the information and execute a trade. Add some impressive graphics and interfaces and the brokerage can keep an investor glued to the screen. The Internet has made this flow easier and cheaper for the brokerages, lowering costs and increasing the focus on trade volume to achieve profitability.

Assessment

The pressurized information flow however, does little to protect investors during a bear market. Ironically, this focus on trading is one of the very conflicts investors are trying to avoid by fleeing a traditional full service broker.

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated. What are your feelings on discount and internet brokers? Tell us what you think. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, be sure to subscribe to the ME-P. It is fast, free and secure.

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Filed under: "Doctors Only", Book Reviews, CMP Program, Financial Planning, Portfolio Management, Recommended Books, Risk Management | Tagged: certified financial planner, certified medical planner, CFP, CMP, common stock, daniel moisand, david marcinko, DDS, discount broker, DO, DPM, Dr. Terrance Odean, Fidelity, financial advisors, Financial Planning, internet broker, Investing, load funds, MD, Mutual Funds, no-load funds, online broker, Schwab, stock broker, stock shares, Waterhouse, www.certifiedmedicalplanner.com | 2 Comments »

Understanding the Emergency Medical Treatment and Active Labor Act

Posted on April 26, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

An Important and Contemporary Issue – Once Again

[By Patricia Trites; MPA, CHBC, CMP™ (Hon) with Staff Reporters]

The Emergency Medical Treatment and Active Labor Act (EMTALA) is receiving increasing scrutiny from prosecutors during these times of financials stress and credit tightening. The statute is intended to ensure that all patients who come to the emergency department of a hospital receive care, regardless of their insurance or ability to pay. Both hospitals and physicians need to work together to ensure compliance with the provisions of this law.

Triad of Requirements

EMTALA imposes three fundamental requirements upon hospitals that participate in the Medicare program with regard to patients requesting emergency care.

First, the hospital must conduct an appropriate medical screening examination to determine if an emergency medical condition exists.

Second, if the hospital determines that an emergency medical condition exists, it must either provide the treatment necessary to stabilize the emergency medical condition or comply with the statute’s requirements to affect a proper transfer of a patient whose condition has not been stabilized. A hospital is considered to have met this second requirement if an individual refuses the hospital’s offer of additional examination or treatment, or refuses to consent to a transfer, after having been informed of the risks and benefits of treatment.

Third, EMTALA’s requirement is activated if an individual’s emergency medical condition has not been stabilized.

Hospital Transfers

A hospital may not transfer an individual with an unstable emergency medical condition unless:

(1) the individual or his or her representative makes a written request for transfer to another medical facility after being informed of the risk of transfer and the transferring hospital’s obligation under the statute to provide additional examination or treatment;

(2) a physician has signed a certification summarizing the medical risks and benefits of a transfer and certifying that, based upon the information available at the time of transfer, the medical benefits reasonably expected from the transfer outweigh the increased risks; or

(3) a qualified medical person signs the certification after the physician, in consultation with the qualified medical person, has made the determination that the benefits of transfer outweigh the increased risks, if a physician is not physically present when the transfer decision is made. The physician must later countersign the certification.

On-Call Responsibilities

One area of particular concern is physician on-call responsibilities. Physician practices whose members serve as on-call hospital emergency room physicians are advised to familiarize themselves with the hospital’s policies regarding on-call physicians. This can be done by reviewing the medical staff bylaws or policies and procedures of the hospital that must define the responsibility of on-call physicians to respond to, examine, and treat patients with emergency medical conditions. Physicians should also be aware of the requirement that, when medically indicated, on-call physicians must generally come to the hospital to examine the patient. Patients may be sent to see the on-call physician at a hospital-owned contiguous or on-campus facility to conduct or complete the medical screening examination due to the following reasons:

all persons with the same medical condition are moved to this location;
there is a bona fide medical reason to move the patient;
qualified medical personnel accompany the patient; and
teaching physicians may participate.

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Conclusion

Your thoughts and comments on this ME-P are appreciated. Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, subscribe to the ME-P. It is fast, free and secure.

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FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Dictionary of Health Economics and Finance
Dictionary of Health Information Technology and Security
Dictionary of Health Insurance and Managed Care

Filed under: "Doctors Only", Career Development, Ethics, Glossary Terms, Health Insurance, Health Law & Policy, iMBA, Inc., Managed Care, Practice Management, Recommended Books | Tagged: CMP, david marcinko, emergency care, emergency department, Emergency Medical Treatment and Active Labor Act, emergency room, EMTALA, ER, healthcare, hope hetico, hospital, medicare, Pati Trites, www.healthcarefinancials.com, www.healthdictionaryseries.com | 9 Comments »

Will the SEC Protect eMRs [Welcome to my Healthcare Nightmare]

Posted on April 21, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

A Frightening Progressive Policy Institute [PPI] Report – Redeux

By Dr. David Edward Marcinko; MBA, CMP™

[Publisher-in-Chief]

It is no surprise to ME-P readers, that I am a big fan of Dr. Regina E. Herzlinger, the Nancy R. McPherson professor of business administration and chair at Harvard Business School. I quote her often, in our books, despite her recent MA fiascos chronicled here. I am also a competitive medical analyst, IT devotee and health economist, who was a CFP® designee for more than a decade; before my fiduciary reformation. In her books, Creating New Healthcare Ventures and Market Term in Healthcare, Regi rightly states that many medical professionals are becoming depressed at the current state of affairs in healthcare, and want to give up their careers, entirely. We all know that many doctors, like me, no longer wish their kids to follow our professional footstep [Busia; please don’t roll-over in your grave – I know what I am doing – RIP].

But, is the same emerging trend true for FAs?

Medical Career Changers

For example, Gigi Hirsch, MD, a former ER physician and instructor at Harvard Medical School grew so disenchanted with clinical medicine, that she ditched her career and started her own business, MD IntelliNet, in Brookline, Mass. The company places doctors in non-traditional jobs by pairing them with venture capitalists and other businesses seeking physicians. Of course, this re-engineering and formal re-education has been the experience of my personal career journey, as well.

“Don’t Give up Practice, Yet”

And, Herzlinger implores in her book, Market Driven Healthcare, “don’t give up practice, yet.”

Patients Concerned Too

On the other hand, patients and healthcare consumers are also worrying about the looming so-called governmental free-for-all regarding healthcare delivery, mandated benefits and taxes, federally mandated electronic medical records, and data collection reportage and security; etc. Can you say “Big Brother” or “Command and Controll?”

Assessment

So, now may be the time to review Regi’s op-ed piece and policy report, penned for the PPI back, in 1999. It concerns patient and consumer healthcare protections. And, in this time of an Obama administration push for national healthcare – perhaps a prescient word to the wise might be sufficient.

Link: herzlinger

Conclusion

Your thoughts and comments on this Medical Executive-Post are appreciated? Should there be a healthcare SEC surrogate, much link the financial SEC? Or, would another governmental agency be as incompetent as Wall Street’s SEC and FINRA? Do we want FA wonks directing our healthcare needs? As an SEC controlled broker-dealer, and/or FA drone, should you even pursue same in your financial planning practice? What about the independent’s, CFPs and RIA’s? Feel free to review our top-left column, and top-right sidebar materials, links, URLs and related websites, too. Then, be sure to subscribe to this ME-P. It is fast, free and secure.

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Filed under: "Advisors Only", "Ask-an-Advisor", "Doctors Only", Alerts Sign-Up, Book Reviews, Breaking News, Career Development, Ethics, Financial Planning, Managed Care, Op-Editorials, Practice Management, Quality Initiatives, Research & Development | Tagged: CFP, CMP, Creating New Healthcare Ventures, david marcinko, fiduciary financial advisors, financial advisors, FINRA, Gigi Hirsch, health economists, MA, Market Term in Healthcare, MD Intellinet, Medicare Advantage, ntional healthcare, obama, progressive policy institute, regina herzlinger harvard business school, SEC, socialized medicine | 5 Comments »

Calling for CFP® Fiduciary Status, Real Education and Higher Duty

Posted on April 19, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

Marcinko Predates Basu – Joins in on Promoting Same

[By Ann Miller; RN, MHA]

Executive Director

Editor’s Note:

We cut and pasted this verbatim anonymous comment, obtained from the trade magazine – Financial Advisor [FA] online – for its pointed charges important to the currently contentious topic of CFP mark status. Although emotional, and borderline abusive, it may represent more reality; than not.

The Letter

Liars and Frauds
Grossly Incompetent
Conveniently Stupid
Simply Unethical

The bulk of the commentary seems to focus on ethics and fiduciary duty to clients. It does not now, nor has ever existed. Fiduciary:

“As fiduciaries, financial planners must make fair and complete disclosure of all material facts and must employ reasonable care to avoid misleading their clients. The utmost good faith is required in all their dealings. Simply put, fiduciaries must exhibit the highest form of trust, fidelity and confidence, and are expected to act in the best interest of their clients at all times.”

The bulk of planner’s violate this tenet and always have. A fiduciary MUST be legal. The idea that one is practicing ethically while never being legal is an affront to any rational person. Or; shall we simply say a “prudent man” at as minimum.

As a fact, about 35 states require licensing that planners don’t want to hear about, never mind adhere to. California – with 8,000 CFPs – has only ONE that is fully licensed and legal to offer comprehensive fee services. Where is the outrage from CFP®s regarding this – and what the other 35 states demand?

A Conspiracy?

Nothing at all: The Board has actively engaged in a conspiracy of silence regarding such duty. NAPFA is a joke and always has been regarding high standards. Yet not one CFP® apparently even cares. That is being a fiduciary? It goes further. The UC system in California was also made aware of this deception more than a decade ago – yet did nothing. The illegal planners/instructors were left to “instruct and guide” new planners to the same level of illegality and fraud. You simply have a wholesale violation of integrity and honesty permeates the educational system and no one cares. I am not sure California Lutheran knows of the deception either. I doubt it. Does that make the lack of integrity and knowledge any the less worse? No.

You have to know what is required legally to perform a function. Every commentator would immediately notify regulators if a physician or attorney was practicing illegally. Yet; nothing here. Is this a double standard by CFPs etc, all to allow themselves a free pass from licensing? Sure.

Every officer, director and most staff members of the Board since Bob Goss has been aware of the fraud. All on formal written record since 1995, at the very least. Not one CFP® in this commentary venue has even bothered to address illegal and unethical activity- yet while extolling the virtues of the organization and themselves. What about the New Disciplinary Board Members? Are they not aware of the breach? If not, why not. Incompetency? If they do now, then why have they done nothing? Conveniently stupid – worse?

Steven Covey noted:

“Integrity means avoiding any communication that is deceptive, full of guile or beneath the dignity of people. A lie is any communication with intent to deceive. Whether we communicate with words or behavior, if we have integrity, our intent cannot be to deceive.”

FA is also aware of the lies and deception and at least has allowed this discussion. But to have further commentary from Board officers extolling the virtues of their standards and the highest integrity is disingenuous at best and a fraud at its worst.

Shame

Shame on all of you for not forcing the issue – of being a true fiduciary? But then again, worse yet, we have these same organizations and people deceptively going to Congress to instill this level of a breach of duty to the American public. Yet, hardly an outcry because the deception is so good and because members would benefit. So we have a benefit by deception.

“it is a lot easier to talk about your ethics than to live up to them.”

The standards might be fine. But who cares if they do not have to be adhered to. Is that not the real question?

Link http://www.fa-mag.com/online-extras/4064-weighing-the-cfp-mark-the-debate-continues.html

Assessment

Contrary to the above and CFP BoS requirements, the Certified Medical Planner program demands a college degree [with verifiable proof], a written and signed statement of legal fiduciary accountability at all times, and CEs consisting of a published dissertation, not mere annual lucre www.CertifiedMedicalPlanner.org

The CMP™ Experience

Now, in as much as I am the ED for our CMP™ online program, I vet most applications. The prioritized reasons for matriculation rejection are: 1] unwillingness / inability to accept fiduciary status while blaming it on BDs, 2] lack of at least an undergraduate college degree, and 3] absolute “panic” regarding our writing and publication requirements.

Conclusion

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Filed under: "Advisors Only", Alerts Sign-Up, Breaking News, Career Development, Ethics, Financial Planning, Op-Editorials, Quality Initiatives, Research & Development | Tagged: Bob Goss, california lutheran university, CFA, CMP, CPA, david marcinko, financial advisor magazine, financial fiduciary, financial planner, MBA, NAPFA, PhD, Somnath Basu, Steven Covey | 22 Comments »

About Certified Medical Planner™

Posted on April 18, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

SPONSOR NOTICE

Top 10 Reasons to Become a

Certified Medical Planner™

1. Expertise: Provide health economics, business and financial advice to physicians.

2. Credibility: Gain health industry recognition and fiduciary clout.

3. Opportunity: Focus on the lucrative and expanding physician advisory niche.

4. Recognition: Join a select group of advisory experts.

5. Distinction: Become quality; rather than product driven.

6. Achievement: 500 hours of financial, health economics and management education.

7. Evidence: Validate deep healthcare industry knowledge.

8. Resource: CMP™ text and hand books, dictionaries, and institutional print journal.

9. Distinction: Set yourself apart with our chartered logo and trade-mark identity.

10. Commitment: Become the “go-to” financial advisor for all medical professionals.

www.CertifiedMedicalPlanner.com

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Dr. Somnath Basu Replies to the CFP® [Mis] Trust Controversy

Posted on April 16, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

Restoring Trust in the CFP® Mark … the Ongoing Saga

By Ann Miller, RN, MHA

[Executive Director]

According to Professor Somnath Basu, PhD; Director – California Institute of Finance at the California Lutheran University,

A painful truth is that many financial practitioners are sales people masquerading as planners or advisors in an industry whose ethical practices have a shameful track record.

Restoring Trust in the CFP® Mark

Basu’s article, published in the Financial Advisor online news magazine on April 6, 2009, struck a chord with our ME-P readers the last few days. More than 75 opinions, calls, emails and faxes were received commenting on it.

Link: http://www.fa-mag.com/online-extras/4037-revisiting-cfp-credentialing.html

A Trickle – Not a Barrage

However, we did not receive the barrage of fire and brim-stone that one would have expected in the past [sans several abusive miscreants], attempting to feebly parse each phrase to an informed audience of insiders. Perhaps it is the dismal economy, the shenanigans of Wall Street, or the ire of blind-sided clients that has stunned many financial advisors and Certified Financial Planners® into sober silence – or shall we dare say it – shame. In fact, one caller ruefully said,

“Most everything that Basu and Marcinko said is true. We all know it, even though we pretend not to with a “nod and a wink” to the blind and trusting public; all while posturing as experts to friends and family. But, that’s not what bothers me the most about this whole situation … What I really hate now is that everyone else knows it too!”

I Jealously “Shake my Fist” at Somnath Basu

Rather than individual shame, the general reaction to Dr. Basu’s article – as well as this follow-up ME-P of Dr. David Edward Marcinko MBA [Publisher-in-Chief] – was an almost surreal and collective acceptance of its’ accuracy. The CFP® mark – while certainly premier in the flagging financial services industry – still leaves far too much to be desired in terms of education, competency, disclosure, ethical standing and real professionalism. And, except for some rather Herculean marketing advancements; the CERTIFIED FINANCIAL PLANNING Board of Standards’ stated goal of attaining professional stature for the marks, has fallen far short – or even regressed the past decade – seemingly abandoned for the sake of growth.

Link:https://healthcarefinancials.wordpress.com/2009/04/09/i-jealously-shake-my-fist-at-somnath-basu/

Stepping Up to Redemption and Independence

Since contemplative reflection is the first step toward redemption, we now ask all financial advisors, IAs, wealth managers, etc., and especially the CFP BoS, to step up their game and place client interests first – in writing – by demanding ERISA-like fiduciary status at all times. The public will demand it; soon enough – we guarantee it.

Link: www.fi360.com

Link: https://healthcarefinancials.wordpress.com/2009/03/01/an-interview-with-bennett-aikin-aif%c2%ae/

Oh; to be Treated as Adults!

Now, wouldn’t it be a relief for example, if the arcane rules, and feigned or failed microscopic/micromanaged oversight of the SEC, FINRA and various BDs – that we all abhor – might be someday rendered obsolete? Wouldn’t it be nice to be treated as an adult; not a juvenile employee in need of constant supervision? Then, the march to autonomy may begin, as FAs/IAs/CFP® become treated as professionals, and not sub servant agents, or …. registered representatives.

Assessment

Therefore, we personally thank Dr. Basu’s for his attached and unedited reply, specifically written and personally addressed to our Publisher and all ME-P readers and subscribers:

Dear Dave:

My response is attached.

Best regards.

Som (Dr. B)

Link: soms-reply1

Conclusion

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ADVISORS: www.CertifiedMedicalPlanner.org
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Dictionary of Health Economics and Finance
Dictionary of Health Information Technology and Security
Dictionary of Health Insurance and Managed Care

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I Jealously “Shake my Fist” at Somnath Basu PhD

Posted on April 9, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

On CFP® Mis [Trust] – One Doctor’s Painful Personal Experience

[“So Sorry to Say it … but I Told You So”]

By: Dr David Edward Marcinko; FACFAS, MBA, CMP™

[Publisher-in-Chief]

According to Somnath Basu, writing on April 6, 2009 in Financial Advisor a trade magazine, the painful truth is that many financial practitioners are merely sales people masquerading, as financial planners [FPs] and/or financial advisors [FAs] in an industry whose ethical practices have a shameful track record. Well, I agree, and completely. This includes some who hold the Certified Financial Planner® designation, as well as the more than 98 other lesser related organizations, logo marks and credentialing agencies [none of which demand ERISA-like fiduciary responsibility]. For more on this topic, the ME-P went right to the source last month, in an exclusive interview with Ben Aiken; AIF® of Fi360.com

The CFP® Credential – What Credential?

Basu further writes that stockbrokers and insurance agents who earn commissions from buying and selling stocks, insurance and other financial products realize that a Certified Financial Planner® credential will help grow the volume of their business or branch them into other related and lucrative products and services. After all, there are more than 55,000 of these “credentialed” folks. And, this marketing designation seems to have won the cultural wars in the hearts and minds of an unsuspecting – i.e., duped public; probably because of sheer numbers. Didn’t a CFP Board CEO state that its’ primary goal was growth, a few years ago? Can you say “masses of asses”, as the oft quoted Bill Gates of Microsoft used to say when only 2,000 micro-softies defeated 400,000 IBMers during the PC operating system wars of the early 1980’s. Quantity, and marketing money, can trump quality in the public-relations business; ya’ know … if you repeat the lie often enough … yada … yada … yada! Yet, as the so-called leading industry designation, the CFP® entry-barrier standard is woefully low. Moreover, the SEC’s [FINRA] Series #7 general securities licensure sales examination is not worth much more than a weekend’s study attention, even to the uninitiated.

Easy In – Worth Less Out

In our experience, we agree with Basu and others who suggest that scores of lightly educated, and sometimes wholly in-articulate and impatient individuals are zipping through the CFP® Board of Standards approved curriculum in three to six months of online, on-ground, or “self-study”. But, that some can do so without a bachelor’s degree when they join wire-houses and financial institutions, which cannot be trusted to adequately train them, is an abomination. And, even more sadly, some of these CFP™ mark-holders, and other folks, believe they have actually received an “education” from same. Of course, their writing skills are often non-existent and I have cringed when told that, in their opinion, advertiser-driven trade magazines constitute “peer-reviewed” and academic publications. Incidentally, have you noticed how thin these trade-rags are getting lately? Much like the print newspaper industry, are they becoming dinosaurs? One agent even told me, point-blank, that his CLU designation was the equivalent of an “academic PhD in insurance.” This was at an industry seminar, where he thought I was a lay insurance prospect.

THINK: No critical thinking skills.

Education

There is another sentiment that may be applied in many of these cases; “hubris.” I mean, these CFP® people … just don’t know – how much they don’t know.” The very real difference between training versus education is unknown to many wire-houses and FAs, isn’t it? And, please don’t get me started on the differences in pedagogy, heutagogy and androgogy. Moreover, it’s sad when we see truly educated youngsters become goaded by wire-houses into thinking that these practices are de-rigor for the industry. One such applicant to our Certified Medical Planner™ program, for example, had both an undergraduate degree in finance and a graduate degree in economics from the prestigious Johns Hopkins University – in my home town of Baltimore, MD [name available upon request]. He was told, in his Smith Barney wire-house training program, to eschew CMP™ accountability and RIA fiduciary responsibility, when working with potential physician and lay clients; but to get his CFP® designation to gather more clients. To mimic my now 12 year-old daughter; it seems that: SEC Suitability Rules – and – Fiduciary Accountability Drools. And, to quote Hollywood’s “Mr. T”; I pity the fools, er-a, I mean clients. But, T was an actor, and this is serious business.

Of CEU Credits and Ethics

Beside trade-marks and logos, we are all aware that continuing education, and a code of ethics, is another important marketing and advertising component of state insurance agents and CFP licensees. It’s that old “be” – or “pretend to be” – a trusted advisor clap-trap. Well, I say horse-feathers for two reasons. First, both my insurance and CFP® Continuing Educational Unit [CEU] requirements were completed by my daughter [while age 7-10], by filling in the sequentially identical and bubble-coded, multiple-choice, answer-blanks each year. Second, this included the mandatory “ethics” portions of each test. When I complained to my CEU vendor, and state insurance department, I was told to “enjoy-the-break.” My daughter even got fatigued after the third of fourth time she took the “home-based tests” for me. After I opened my big mouth, the exact order of questions was changed to increase acuity, but remained essentially the same, nevertheless. My daughter got bored, and quit taking the tests for me, shortly thereafter. She always “passed.”

Thus, like Basu, I also find that far too many financial advisors are unwilling to devote the time necessary to achieve a sound education that will help attain their goals, and would rather sell variable or whole life products than simple term life, even when the suitability argument overwhelmingly suggests so, for a higher payday. We not only have met sale folks without undergraduate degrees, but also too many of those with only a HS diploma, or GED. Perhaps this is why a popular business truism suggests that the quickest way for the uneducated/under educated class to make big bucks, is in sales. Just note the many classified ads for financial advisors placed in the newspaper job-section, under the heading “sales.” Or, in more youthful cultural terms, “fake it – until you make it.”

Of the iMBA, Inc Experience

According to Executive Director Ann Miller RN MHA, and my experience at the Institute of Medical Business Advisors, Inc:

“Far too many financial advisors who contact us about matriculation in our online Certified Medical Planner™ program – in health economics and management for medical professionals – don’t even know what a Curriculum Vitae [CV] is? Instead, they send in Million Dollar Roundtable awards, Million Dollar Producer awards, or similar sales accomplishments as resume’ boosters. It is also not unusual for them to list some sort of college participation on their resumes, and websites, but no school affiliation or dates of graduation, etc. And, they become furious to learn that we require a college degree for our fiduciary focused CMP™ program, and not from an online institution, either. The onslaught of follow-up nasty phone-calls; faxes and emails are laughable [frightening] too.”

www.MedicalBusinessAdvisors.com

Assessment

More often than not, it is the financial institutions that FAs and CFP™ certificants’ work for that reward sales behavior with higher commissions, rather than salaries; which encourage such behavior and create the vicious cycles that are now the norm.

THINK: ML, AIG, Citi, WAMU, Wachovia, Hartford, Prudential, etc.

Note: Original author of Restoring Trust in the CFP Mark, Somnath Basu PhD, is program director of the California Institute of Finance in the School of Business at California Lutheran University where he’s also a professor of finance. He can be reached at (805) 493 3980 or basu@callutheran.edu. We have asked him to respond further.

My Story: I am a retired surgeon and former Certified Financial Planner® who resigned my “marketing trademark” over the long-standing fiduciary flap. I watched this chicanery for more than a decade after protesting to magazines like Investment Advisor, Financial Advisor, Registered Rep, Financial Planner, the FPA, etc; up to, and even including the CFP® Board of Standards; to no avail. Feel free to contact me for a copy of a 43 page fax, and other supportive documentation from the CFP® Board of Standards – and their outsourced intellectual property attorneys – over a Federal trademark infringement lawsuit they tried to institute against me for innocent website errors placed by a visually impaired intern. Obviously, they disliked the launch of our CMP™ program. As a health economist and devotee of Ken Arrow PhD, I polity resigned my license, as holding no utility for me, to the shocked CFP Board. They later offered to consider re-instatement for a mere $600 fee with letter of explanation, to which I politely declined. Of course, my first thought after living in the streets of South Philadelphia while in medical school, during the pre-Rocky era, was to say f*** off – but I didn’t. Nevertheless, I still seem to be on their mailing list, years later. No doubt, the list is sold, and re-sold, to various advertisers for much geld. And, why shouldn’t they; an extra bachelor, master and medical degree holder on their PR roster looks pretty good. I distrust the CFP® Board almost as much as I distrust the AMA, and its parsed and disastrous big-pharma funding policies. Right is right – wrong is wrong – and you can’t fool all of the people, all of the time, especially in this age of internet transparency.

Shaking my Fist at Somnath … in Envy

And so, why do I shake my fist at Somnath Basu? It’s admittedly with congratulations, and a bit of schadenfreude, because he wrote an article more eloquently than I ever could, and will likely receive much more publicity [good or slings-arrows] for doing so. You know, it’s very true that one is never a prophet in his own tribe. Oh well, Mazel Tov anyway for stating the obvious, Somnath. The financial services industry – and more specifically – the CFP® emperor have no clothes! Duh!

Good Guys and White Hats

Now that Basu’s article has appeared in Financial Advisor News e-magazine, the other industry trade magazines are sure to follow the CFP® certification denigration reportage, in copy-cat fashion. And, the fiduciary flap is just getting started. This is indeed unfortunate, because I do know many fine CFP® certificants, and non-CFP® certified financial advisors, who are well-educated, honest and work very diligently on behalf of their clients. It’s just a shame the public has no way of knowing about them – there is no white hat imprimatur or designation for same – most of whom are Registered Investment Advisors [RIAs] or RIA reps. For example, we know great folks like Douglas B. Sherlock MBA, CFA; Robert James Cimasi MHA, AVA, CMP™; J. Wayne Firebaugh, Jr CPA, CFP®, CMP™; Lawrence E. Howes MBA, CFP®; Pati Trites PhD; Gary A. Cook MSFS, CFP®, CLU; Tom Muldowney MSFS, CLU, CFP®, CMP™; Jeffrey S. Coons PhD, CFP®; Alex Kimura MBA, CFP®; Ken Shubin-Stein MD, CFA; and Hope Hetico RN, MHA, CMP™; etc. And, to use a medical term, there are TNTC [too many, to count] more … thankfully!

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

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BLOG: www.MedicalExecutivePost.com
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors

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Impact of Size on Mutual Fund Performance

Posted on April 8, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

Vital Information for Doctors to Consider

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

[By Professor Hope Rachel Hetico; RN, MHA, CMP™]

The actual size of a mutual or index fund, in terms of amount of assets, and the growth rate of a fund are the two aspects of size to consider. The impact of size on mutual fund performance varies—it can be negative, neutral, or positive. Size affects different types of funds differently; it also affects the manager’s ability to achieve objectives. Monitor size changes and make investment decisions accordingly.

Economies of Scale

A relatively large amount of assets available to a portfolio manager presents various economies. The costs at most funds (e.g., expense ratios) are reduced as a percentage of net asset value as the fund grows. Expense ratios can have a major impact on performance. In addition to being an effect of size, low fees can cause size changes. Funds do at times waive some fees to attract assets.

Asset Base

A larger asset base provides more liquidity to a fund. With more assets, the manager can buy more shares and more stocks. Transaction costs are reduced if higher trading volumes are achieved. A larger asset base also can reduce relative tax costs. Realized but undistributed capital gain can be spread over more shares at the time of year-end distribution. A larger asset base and manager success attracts higher-caliber managers to the management team.

Fund Growth

Growth of fund assets impairs certain funds more than others. Generally, bond funds are less affected by asset growth and size than equity funds. Growth may have a positive impact on bond funds because buying bonds of similar characteristics further diversifies credit, event, and other risks. Equity funds that invest in larger capitalization stocks can be less affected than funds buying less liquid small-cap stocks. (This is so because funds usually limit their investments in a single company, i.e., many funds will not buy more than 5% of a specific company. Five percent of a small company uses up less cash than 5% of a large company. Therefore, a small-cap fund is more likely to exhaust its choice of available companies sooner than a large-cap fund. A large-cap fund could increase its investment to a 5% level, whereas a small-cap fund may already be fully invested in the companies the manager likes to own.)

Growth Rate

The rate of growth can affect performance. Rapid growth may mean that a large portion of the portfolio remains un-invested. A rapidly growing growth-type equity fund with a high percentage of cash earns lower returns in a rising market than a fully invested fund. With rapid growth, the fund may not provide pure exposure to the desired asset class. At a certain point, however, fund asset growth impairs the manager’s ability to achieve objectives. For this reason, funds often close to new investors or to new investment once they have reached a certain size. Growth affects managers in many ways. Many fund managers or teams of managers direct a number of funds and possibly even private accounts. As the fund grows, managers are spread thin and may have difficulty in reacting quickly or efficiently to changing market conditions. Managers may need to hire assistant portfolio managers or delegate work to analysts or other employees. As a result, the manager manages people, administration, or internal quality control systems rather than studying companies or investment strategies. Also, a manager may become complacent in periods of rapid asset growth. Such growth can mean their own compensation is substantially greater, which may in turn change the manager’s motivation. Rapid growth often changes a fund because there are not enough opportunities to invest in the targeted securities. For example, a fund can change from aggressive to conservative, small cap to large cap. Managers may have to slow trading or increase liquidity in the portfolio to prevent this occurrence.

Meaningful Positions Difficult

Rapid growth or a large asset base can prevent managers from taking meaningful positions in market sectors they believe will outperform others. Smaller funds are more flexible and may take advantage of opportunities or liquidate unwanted positions faster than larger funds. A large fund that owns a significant position will negatively affect a security’s market price if it unloads shares all at one time. Rapid growth also impairs research of funds, affecting an investor’s choice of funds. A fund with outstanding performance over the past 5 years and a $150 million asset base may be much different when its base grows to $1 billion; at that point, it may no longer be the “right choice” for an investor.

Asset Declinations

Just as rapid asset growth affects performance, a rapid decline of fund assets also may impact performance. Significant quantities of redemptions over short periods force managers to liquidate security positions, often at the wrong time (i.e., they would rather be buying in a declining market than selling to accommodate redemptions). To prevent this scenario, some funds have redemption charges to discourage investors from such short-term decisions. Such environments can negatively impact bond funds as easily as equity funds. Large redemptions compound the effect of declining fund net asset values.

What a Doctor-Investor Can Do?

What can physician-investors do to avoid negative effects on investment? Avoid overloading a portfolio with hot, rapidly growing funds, if possible. Generally, size should be a neutral factor for most bond funds. Small and/or aggressive equity funds can be affected by growth, however. Emphasize funds that promise to close to new investors after assets reach a certain size. Once a fund becomes large, monitor it closely for problems caused by the growth. If there is a better, smaller fund, it may be wise to change. Also, closed-end funds are always a possibility. These funds have a major advantage in that their asset base is a factor of growth in security values, not new investment (unless the fund makes a secondary stock offering). Closed-end managers work with a finite portfolio, which reduces the problem of sudden asset growth.

Assessment

To the extent that a lack of SEC and FINRA over-sight, and the recent financial, insurance and banking meltdown has affected the above; such investing is left up to the doctor’s discretion and personal situation. When it comes to the financial services product sales industry; always remember “caveat emptor” or “buyer-beware.”

Disclaimer: Both contributors are former licensed insurance agents and financial advisors.

Conclusion

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PHYSICIANS: www.MedicalBusinessAdvisors.com
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HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
BLOG: www.MedicalExecutivePost.com
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors

Filed under: Experts Invited, Financial Planning, iMBA, Inc., Insurance Matters, Investing, Media Mentions and PR, Op-Editorials, Portfolio Management, Recommended Books, Risk Management, Taxation | Tagged: CFP, CMP, CPA, david marcinko, DDS, DO, DPM, financial advisors, Financial Planning, fund assets, fund costs, fund expenses, fund growth, fund managers, fund size, hope hetico, index fund, index fund size, Investing, MD, mutual fund expenses, mutual fund performance, mutual fund size, OD, physician investors | 2 Comments »

How Doctors Pay for Wealth Management Services

Posted on March 30, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

Many Methods Possible and Often Confusing

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

What is of the utmost importance to a physician-investor is: (1) to have a plan, (2) a means of implementation and monitoring investments, and (3) a process to review goals and objectives in the future. Some or all of these steps may require the supervision of a financial planner or fiduciary investment advisor. “Professional” advisors who assist doctors and investors with the development of an investment plan also may become involved with implementation, monitoring, and performance reporting. Other “advisors” work only with plan development, referring implementation and supervision to others.

Basic Methods

There are three basic methods of payment for professional investment management: by commission, fee only, or a combination of the two. The method of payment used depends on the type of service provided and on who provides it.

1. Commissions

Some advisors who assist investors with investment planning, implementation, monitoring, and reporting do not charge a direct fee. They provide planning services for no charge if investors buy and sell the investments that they recommend. Investment brokers who are licensed to buy and sell securities may use the resources of a brokerage firm to assist investors with planning.

Commission-based advisors generally will recommend load mutual funds, thereby receiving either front-end or trail commissions. Trail commissions are paid over time or as a fee based on a percentage of the account value, similar to a 12b-1 fee. Brokers may provide or recommend professional money managers affiliated through their brokerage firm. The broker is paid directly or indirectly by some form of referral fee, or through a trading commission arrangement with the money management firm.

2. Only Fees

Fee-only professionals provide planning and supervisory services for a fee. The fee may be a flat periodic fee, an hourly fee, or a percentage-of-assets fee. Investment planning often is paid for by a flat or hourly fee. Supervisory services (encompassing implementation), monitoring, and reporting, often are paid by the hour or as a percentage-of-asset fee. Percentage-of-asset fees usually are tiered based on the size of the account.

3. Combination Fees and Commissions

Many investment professionals use a combination of commission and fee planning. They may charge a nominal fee for planning and discounted commissions for other services. Another combination is the fee offset, in which a flat or similar fee is charged and then is reduced by commissions, referral fees, and similar charges earned by the planner or advisor.

Registration

Investment advisors registered with the SEC may provide fee-only services. Registration does not guarantee the investor is using a competent investment advisor or money manager as it is required for those advisors giving investment advice.

Certifications and Designations

Many professionals become certified by a peer or professional group to provide fee-only services. They must pass exams and otherwise demonstrate some level of competence to obtain and maintain certification marks. Certified Financial Planners (CFPs®), ChFCs Chartered Financial Consultants [insurance industry], personal financial specialists (PFSs, who also must be CPAs), and more than 100 others can advise investors. Within these designations, there are so called “specialists” in areas of investment planning (on a more sophisticated level), implementation, and supervisory services. Except for CPAs and Certified Medical Planners™; none of these “advisors” are truly fiduciaries.

www.CertifiedMedicalPlanner.com

Supervisory Service

Supervisory services can be basic or sophisticated. In the simplest form, an advisor monitors the implementation process and periodically reviews the investment plan to assure that it is being followed. These advisors delegate or let the investor delegate the selection and supervision of actual investments to other brokers, investment managers, etc. Other advisors take a more direct role in the selection and supervision of brokers, investment managers, and mutual funds. At a more sophisticated level, an advisor prepares periodic reports, uses software to monitor and review portfolio structures, and implements strategies and tactical asset allocation decisions.

Assessment

To the extent that online trading, deep discount brokerages, lack of SEC and FINRA oversight, and the recent financial, insurance and banking meltdown has affected the above, investing – with or without an advisor – is left up to the physician. Generally, all fess are, and should be, negotiable. When it comes to the financial services product sales industry; always remember that most of these folks are salesmen; so always remember “caveat emptor” or “buyer beware.”

Disclaimer: The author is a former licensed insurance agent, Certified Financial Planner® and founding principal of the Certified Medical Planner™ online educational program, in health economics and medical management, for financial advisors and healthcare consultants.

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

DICTIONARIES: http://www.springerpub.com/Search/marcinko
PHYSICIANS: www.MedicalBusinessAdvisors.com
PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
BLOG: www.MedicalExecutivePost.com
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors

Filed under: "Doctors Only", Alerts Sign-Up, Funding Basics, Investing, Op-Editorials, Portfolio Management, Sponsors | Tagged: 12b-1, certified financial planner, certified medical planner, CFP, ChFC, CMP, commissions, CPA, fee only, financial advisors, financial planners, FINRA, PFS, registered investment advisor, registration, RIA, SEC, Series 63, Series 65, Series 7, stock broker, wealth manager | 3 Comments »

About Sharkey, Howes & Javer

Posted on March 24, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

Advertisement

Enhanced Listing about Our Practice

At Sharkey, Howes & Javer, we specialize in people, their money and their choices. We offer our clients peace of mind and the guidance to help them make wise lifetime decisions along their path to success.

Team Approach

We are a team, working in partnership with our clients and their other professional advisors to ensure a comprehensive approach to long-lasting financial decisions.

Our History

We were established in Denver, Colorado in 1990, when Eileen M. Sharkey, CFP®, formed the firm of Sharkey, Howes & Javer, a partnership with Lawrence E. Howes, MBA, CFP® and Joel B. Javer, CLU, CFP®. Since then, our team of professional planners and support staff has grown to serve over 1000 clients.

Industry Acknowledged Certifications

Larry Howes, MBA, AIF®, CFP® is a founder and principal of Sharkey, Howes & Javer, Inc., a firm that provides financial planning and portfolio management to individuals and businesses. He received his MBA from Regis University and Bachelor of Science degree in Management from Metropolitan State College in Denver and was admitted to the Registry of Financial Planning Practitioners in 1986. He received his CFP® designation in 1987. Larry was awarded an AIF®, Accredited Investment Fiduciary, in 2004 from the University of Pittsburgh. He is also a Certified Medical Planner™ (Hon).

Fiduciary – Yes

RIA – Yes

Published Authors and Educators

Mr. Howes is an adjunct professor of financial planning at Metropolitan State College – Denver.

Larry teaches the Investment course for the Certified Financial Planning certification program for Metro.

Larry is a featured writer for the Metropolitan Denver Dental Society’s journal entitled Articulator. Larry is also a featured writer for Colorado Medicine. In addition, Larry co-authored the Estate Planning and Execution chapter in the book entitled the Financial Planning Handbook for Physicians and Advisors.

Clean CRD record – Yes

Clean Criminal record – Yes

More information:

Tammy K. Durnford; MA

Manager of Client Relations

tammy@shwj.com

Sharkey, Howes & Javer, Inc.

720 S. Colorado Blvd.

Suite 600 South Tower

Denver, Colorado 80246

303-639-5100

800-557-9380

Fax 303-759-2335

Website: www.shwj.com

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Physician Household Borrowing and/or Investing

Posted on March 8, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

Deciding What Works?

[By Staff Reporters]

Another way of asking the above titled question might be, “Is it smart for a doctor’s household to build savings while they are getting out of debt?”

Financial Priorities

In the first instance, the doctor already has debt and would be increasing the terms of any loans by deferring some of the payments to savings, which is equivalent to borrowing the same amount.

In the second instance, the doctor would be taking on debt to save more money. The answer is that it makes sense to borrow money for investment purposes only if the financial gains derived from the investment are larger than the financial benefits of paying off the debt. But, who can know for sure?

www.MedicalBusinessAdvisors.com

Minimum Account Payments

Assuming that a medical professional has more debt than needed, and doesn’t make contributions to a retirement account, the concern becomes: [1] should he/she make minimum payments to the debt and contribute to a retirement account; or [2] should he/she make the maximum payments toward the debt or loans, etc?

Downside Risks

It is important to understand the downside risks of a lower payment strategy. Just as stocks return more than bonds due to their higher risk, the lower payment strategy returns more because of its’ higher risk. Taking on debt to finance an investment is riskier than paying off debt for a number of reasons.

First, the US economy may continue its’ current depressionary spiral, and investments and savings could disappear as financial institutions fail. This would leave the doctor with debt that he or she could not service.

Second, the rate-of-return required to decide whether or not to borrow for investment purposes may not be achieved, leaving the doctor in worse financial shape than if he or she had just paid off the debt.

Assessment

Ultimately, the doctor must decide if the added risks are worth the possible gain. But, the services of a fiduciary financial advisor may also be required. However, some doctors may not be ready to receive the sort of “tough-love” required in this case.

Channel Surfing the ME-P

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

PRACTICES: www.BusinessofMedicalPractice.com
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ADVISORS: www.CertifiedMedicalPlanner.org
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Dictionary of Health Economics and Finance
Dictionary of Health Information Technology and Security
Dictionary of Health Insurance and Managed Care

Filed under: Financial Planning, Funding Basics, Investing, Recommended Books | Tagged: cash management, certified financial planner, certified medical planner, CFP, CMP, david marcinko, debt, depression, financial planner, Financial Planning, Investing, physician debt, US economy | 1 Comment »

Debt Consolidation for Physicians

Posted on March 6, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

Advantages and Disadvantages

By Staff Reporters

The main advantage of debt consolidation is that it allows a doctor to make one payment instead of many, and this helps avoid late fees for missed payments. The doctor may save time by having to make only one payment per month instead of many.

Other Advantages

Another advantage is that debt consolidation promotes self-discipline by transferring credit card debt (and other lines of credit) that does not require mandatory principal payments into a fixed-term loan – with mandatory payments that include both principal and interest. This is a useful tool for doctors who may find it difficult to make more than the minimum payments on their loans because they spend too much. It should be obvious that budgeting should go hand-in-hand with this process, because if the doctor continues to spend at the former level, yet now has a mandatory payment, the result can be financially devastating.

A final advantage to debt consolidation is it may result in a lower overall interest rate. This is, of course, conditional on the lender providing the consolidation.

Disadvantages

One disadvantage of debt consolidation is that it can lock a doctor into mandatory payments. Depending on the situation, this can be either a blessing or a curse. It becomes a curse when the fixed payments are so high that he/she can no longer make the full debt payments each month. Depending on the lender, and the terms of the consolidation loan, this could result in the loan being called. The effects of this are obviously detrimental to the doctor.

Other Disadvantages

A second disadvantage is that the doctor loses flexibility when he or she takes on a fixed payment that is larger than the combination of all smaller minimum payments. The fixed-payment schedule becomes detrimental when h/she has an unexpected reduction in income. The doctor without a fixed-payment schedule can increase payments to many small individual loans, and if income reduction occurs, drop the payments back down to the lower level. Then; when normal levels of income return, the higher payments can be resumed.

Assessment

Making larger payments requires discipline; because a lack of same was likely causative of the debt in the first place.

Conclusion

Your thoughts and comments on this Medical Executive-Post are appreciated. Have you ever been in this situation? Feel free to opine anonymously.

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Filed under: Financial Planning, Funding Basics, Investing, Risk Management | Tagged: cash management, certified financial planner, certified medical planner, CFP, CMP, david marcinko, debt consolidation, doctors, financial planners, Financial Planning, hope hetico, loans, medical payments, physician debtors, physician investors, physicians | 2 Comments »

Physician Cash Maximization Rules

Posted on March 4, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

One Doctor- Advisor’s [How-To] Diatribe

[By Dr. David Edward Marcinko; MBA]

[Publisher-in-Chief] www.CertifiedMedicalPlanner.org

For some doctors – even more than laymen – cash management is the pivotal issue in the financial planning process. Accumulation of investment assets cannot occur if cash inflows do not exceed cash outflows. On the other hand, accumulated assets are eventually spent to fund expenses during planned time periods when cash outflow exceeds inflow.

Inflation

Traditionally, financial advisors have opined that inflation has a dramatic impact on both ends of the cash management spectrum because inflation has a compounding effect. That compounding effect means that a mere ¼% change in planning assumptions about anticipated inflation can have more significant influence over long-term projected outcomes than a 5% change in the amount of a particular item of budgeted income or expense. Well, true enough if projected linearly using some Monte-Carlo type software simulation. But, in the real word, economists appreciate cost and efficiency improvements [email over snail mail] and the potential for substitution of goods [diesel fuel for gasoline – chicken for steak, etc].

Be More Like … my Dad

On the other hand, far too few of my fellow medical colleagues – and financial advisors – are like my dad. Not well educated by academic standards, but with common sense that seems a precious commodity, today.

Dave, he used to tell me – and still does at age 84:

“Invest your money for growth carefully – and take some risks – but don’t be too afraid of inflation.”

Why not, dad?

“Because; if you’re not a conspicuous consumer, you’ll have less to worry about.”

Cash Management

Well, most of us are not like my dad; me included. But, his depression-mentality has never completely worn off. A doctor’s household can maximize the cash available for investing by setting up the account in this manner.

1. The first step is to open a checking account, money market account, and a brokerage account. The money market account is often included in a brokerage account.

2. The second step is to initiate electronic direct deposit of the paycheck into the money market account.

3. The third step is to determine the amount of cash reserve needed. As mentioned elsewhere on this ME-P, we are suggesting 3-5 years of cash-reserves on-hand, as an emergency fund for most medical professionals.

Once, when, and if, the amount of the reserve is determined and achieved, any extra money should be transferred to the brokerage account and invested according to personal goals, objectives and risk-tolerance. A small balance of a few thousand dollars can be kept in the checking account to prevent overdrafts. Beyond the few thousand dollars, the checking account should serve as a pass-through account where money is transferred from the money market account to cover checks written for the budgeted expenses.

Example of Managing Cash Reserve Amounts

A physician client recently asked me to help him increase his savings. He explained that he had a very detailed realistic budget, but had a hard time staying within the budget when cash was available; as he lectured occasionally and was fortunate to have a few extra dollars every now and then.

Recommendations

As a financial planner, and the founder of an online educational-certification program for physician focused advisors, I recommend that he set up his checking, money market and investment accounts and have his medical practice directly deposit his paycheck in the money market account. He then was to transfer only enough money to his checking account each month, to cover his very carefully budgeted and spread-sheet driven expenses. Furthermore, his money market account was to be equal to our predetermined cash reserve needs, with any excess cash transferred to his investment account and according to his financial and investing plan.

Assessment

Of course, his carefully constructed budget included no cash reserves or emergency fund! He forgot to budget cash! And so; the usual conundrum ensued.

Conclusion

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Become a Media Referral Source

Posted on February 17, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

To Be -or- Not to Be

By Hope Rachel Hetico; RN, MHA

Managing Editor

As we are all aware, healthcare is top-of-the-mind for most citizens today. And, reporting on it has exploded exponentially of late, just as the traditional newspaper and magazine print industry is deteriorating. Cultivating trusted journalistic relationships with reporters, staffers, publishers and editors is therefore more important than ever for the dissemination of accurate state-of-the-art healthcare administration information.

Link: https://healthcarefinancials.wordpress.com/2009/01/31/about-the-ahcj

Subject Matter Experts

And so, if you or your colleagues as subject matter experts, see or encounter any misinformation in the press about the healthcare industrial complex, please point them to our formal healthcare financial website and/or this complimentary companion blog.

We do not want inaccurate information or erroneous commentary to undermine the various Health 2.0 initiatives that all thoughtful insiders, experts and thought-leaders champion in this space.

Assessment

Just politely point them to our websites for expert modernity. We gain readers, you gain gravitas, and they gain unbiased current opinions.

The more we grow, the more we can assist you – our esteemed colleagues. It’s a win-win situation for all concerned.

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated.

Our Other Print Books and Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

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Filed under: Alerts Sign-Up, Career Development, CMP Program, Ethics, Experts Invited, iMBA, Inc., Marketing & Advertising, Media Mentions and PR | Tagged: certified medical planner, CMP, health journalism, hope hetico | Leave a comment »

A Due-Diligence ‘Condom’ for Physician Investors

Posted on February 10, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

Using Financial Advisors with Increased Safety

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

Following the Bernie Madoff investment scheme, and related financial industry scandals, here are seven “red-flags” that should have alerted physician-investors to proceed with extreme caution. Always consider them before making an investment with any financial advisor [FA], registered representative [RR] or financial advisory firm, regardless of reputation, size, referral recommendation or so-called industry certifications and designations. In other words, according to Robert James Cimasi; MHA, AVA, and a Certified Medical Planner™ from Health Capital Consultants LLC, of St. Louis, MO;” trust no one and paddle your own canoe.”

Red Flags of Cautious Investing

As a former insurance agent, financial advisor, registered representative, investment advisor and Certified Financial Planner™ for more than a decade, the existence of any one of the following items may be a “red-flag” of caution to any investor:

Acting as its’ own custodian, clearance firm or broker-dealer, etc.
Lack of a well-known accounting firm review with regular reporting.
Unreliable or sporadic written performance reports.
Rates-of-return that don’t seem to track industry benchmarks.
Seeming avoidance of regulatory oversight, transparency or review.
Lack of recognized written fiduciary accountability in favor of lower brokerage “sales suitability” standards.
No Investment Policy Statement [IPS].

Assessment

Let a word to the wise be sufficient going forward. But, in hindsight, a healthy dose of skepticism might have prevented this situation in the first place. As is the usual case, fear and greed often seem to rule the day. Just as there is no such thing as safe sex – just safer sex – there is no thing as safe intermediary investing. But, exercising some common sense will surely make investing with any financial advisor much safer. It’s like a condom for your money.

For more information on the topic of fiduciary standards – which we have championed for the last ten years in our books, texts, white-papers, journal and online educational Certified Medical Planner™ program for FAs – watch out for our exclusive Medical Executive-Post interview with Bennett Aikin AIF®, Communications Coordinator of www.fi360.com coming in March. Ben, an Accredited Investment Fiduciary® did a great job with the tough questions submitted by our own Ann Miller; RN, MHA and Hope Hetico; RN, MHA, CMP™. Don’t miss it!

Disclaimer

I am the Managing Partner for http://www.CertifiedMedicalPlanner.org and I agree with this message.

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
Dictionary of Health Economics and Finance
Dictionary of Health Information Technology and Security
Dictionary of Health Insurance and Managed Care

***

Filed under: "Advisors Only", "Doctors Only", Ethics, Financial Planning, iMBA, Inc., Investing, Op-Editorials, Research & Development | Tagged: BD, Ben Aikin, Bernie Madoff, broker-dealer, certified financial planner, certified medical planner, CFP, CMP, david marcinko, fiduciary, fiduciary standards, financial advisor, financial planner, Financial Planning, hedge funds, hope hetico, insurance, Investing, investment advisor, physicians, registered representative, RR, suitability rule, www.wi360.com | 3 Comments »

About National Compliance Services, Inc.

Posted on January 26, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

Want, Need or Risk Reduction Mechanism?
Staff Reporters

As readers and subscribers to the Medical Executive Post, and our related print periodicals, dictionaries and books are aware, choosing the right financial consulting firm, or consultant, is always a challenging task www.HealthCareFinancials.com Today, this is true more than ever, given the financial meltdown and the all too obvious shenanigans of Wall Street www.HealthDictionarySeries.com Lay and physician investors alike are affected; along with related financial advisors of all stripes, degrees and designations [spurious or more credible] www.MedicalBusinessAdvisors.com

National Compliance Services

According to the National Compliance Services, Inc. [NCS] website, an experienced team of customer-oriented professionals is in place that strives to meet personal and corporate compliance needs so that clients can focus on areas of expertise www.NCSonline.com

A Protean Focus

NCS operates in the financial compliance and regulatory services industry. Its strength may be in providing efficient, and reasonably priced products and services for many different sub-arenas, such as: investment and financial advisors, hedge and mutual funds, stock-brokers and broker-dealers. Their customized services are designed to structure a compliance program that is appropriate for any individual, or firm’s unique regulatory needs. NCS works to ensure compliance with applicable federal and/or state rules and regulations.

Range of Products and Services

NCS has offered its personalized services to more than 6,000 clients, both domestically and internationally. Their consultants include former regulatory examiners, accountants, attorneys, and other individuals with extensive hands-on industry experience.

Verification Services

NCS also offers a standard or customized line of verification services to Mutual Funds, Hedge Funds, Custodians, Broker-Dealers, Investment Advisers, and Third-Party Vendors. Verification services can be customized to include any or all of the following:

Firm Registration/Notice Filing with the Proper Jurisdiction(s)
Adviser Representative Registration(s)
Adviser Representative Degree(s) or Professional Designation(s)
Firm Reported Disciplinary History
Adviser Representative Reported Disciplinary History
Proper Registration of Solicitors
Proper Registration of Wholesalers and Third-Party Vendors
Bank Background and Activity Reports, and
OFAC Checks, etc.

Assessment

Moreover, claims of verification for over 15,000 Registered Investment Advisers, and Investment Adviser Representatives, seem plausible. For example, NCS recently contacted www.CertifiMedicalPlanner.com to verify the good-standing of a member and charter-holder.

Contact Info:

For further information, please contact:

Alex Aghyarian
National Compliance Services, Inc
Verification Technician
Phone: 561.330.7645 ext 302 and Fax: 561.330.7044
aaghyarian@ncsonline.com

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated. Verification in most any space is worthwhile of course; but is membership in a vague or nebulous organization helpful or harmful to the uninitiated?

Our Other Print Books and Related Information Sources:

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Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

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Filed under: "Advisors Only", "Doctors Only", Career Development, CMP Program, Ethics, Financial Planning, Insurance Matters, Investing, Op-Editorials, Quality Initiatives, Research & Development | Tagged: certified medical planner, CFA, CFP, CMP, CPA, david marcinko, financial advisor, hedge funds, iMBA, Mutual Funds, National Compliance Services, RIA, stock broker | 4 Comments »

Financial Advisory “F” Bomb

Posted on January 19, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

Placing Client Interest before Self-Interest

Staff Writers

We are taking an informal poll, and are asking two key questions of financial intermediary modernity.

#1. As a financial advisor, regardless of designation, do you require a brokerage arbitration agreement; or not? Why or why not?

#2. Does this document place client interest first – as in a true fiduciary relationship – at all times? Please explain your rationale.

#3. Regardless of your philosophy – pro or con – regarding the use of arbitration agreements, do you give clients the option of selecting a fiduciary relationship; or not? Is it in writing?

Conclusion

And so, your thoughts and comments on this Medical Executive-Post are appreciated. Please respond; clients, doctors, laymen and FAs; etc. Is this query the ultimate “F” bomb?

Our Other Print Books and Related Information Sources:

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

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Filed under: "Advisors Only", Career Development, Ethics, Investing, Point-Counter Point, Research & Development, Voting Polls | Tagged: arbitration agreements, CFP, CMP, CPA, FA, fiduciary, IA, stock broker | 7 Comments »

About the Certified Medical Planner™ Designation

Posted on January 4, 2009 by Dr. David Edward Marcinko MBA MEd CMP™

It’s all about Credibility … and Deep Knowledge

Staff Reporters

The Certified Medical Planner™ program was launched in 2006 and its notoriety has grown with RIAs and fiduciary advisors of all stripes; while garnering the ire of industry RRs and brokers. Of course, the recent sub-prime mortgage fiasco, and Wall Street problems and shenanigans with banks and investment houses like Bear-Stearns, Lehman Brothers, USB, Wachovia, Fannie Mae and Freddie Mac, WaMu, SunTrust etc., are well known.

And so, what is the physician-investor to do? Select help from fiduciary–liable and physician focused consultants; suggest some pundits.

Fiduciary Accountability

A recent group of surveyed physicians said that fiduciary accountability, health economics expertise and medical management acumen mattered most to them when selecting a financial advisor [FA]. But, many did not know that the majority of financial “advisors” eschewed accountability. Hence – the existence and very cause [raison de’tra] of the online Certified Medical Planer™

iMBA Survey

In addition, related research of physicians and medical practitioners reveal that:

85% of those surveyed considered practice-related health economics information very important to them.
756% objected to demeaning sales metaphors like “financial-doctor” or “physician for your finances” when informed of a non-fiduciary relationship.
70% heavily favored processes and solutions to specific problems – or needs – versus a general sales or stock-broker approach.
65% found the integrated financial advisor-medical management format more useful than a financial product sales presentation or generic financial services provider.
Most physicians respected the MBA, PhD and JD degrees, and CPA designation; while virtually all other designations were lightly known, including several industry vanguards.
90% felt the finance-services sector knew little about the domestic healthcare industry.
Most physicians ranked financial-services industry ethics as “suspicious”, or not “trustworthy.”
Over 82% of physicians surveyed said they would like to lean more about any new medical and fiduciary-focused designation, like the Certified Medical Planner™ professional charter.

Source: Annual research conducted in 2006 and 2007 by iMBA Inc.

Assessment

Of course, the competitively based CMP™ program is not for everyone; and especially not for those financial advisors uninterested in either fiduciary accountability or the healthcare space.

Disclosure

Executive-Post Publisher-in-Chief, Dr. David Edward Marcinko; MBA, CMP™ is a former Certified Financial Planner™ and founder of the program www.CertifiedMedicalPlanner.com

Conclusion

Your thoughts and comments are appreciated. Is this certification and educational program, with logo trade-mark, needed in the healthcare space; why or why not?

Practice Management: http://www.springerpub.com/prod.aspx?prod_id=23759

Physician Financial Planning: http://www.jbpub.com/catalog/0763745790

Medical Risk Management: http://www.jbpub.com/catalog/9780763733421

Healthcare Organizations: www.HealthcareFinancials.com

Health Administration Terms: www.HealthDictionarySeries.com

Physician Advisors: www.CertifiedMedicalPlanner.com

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Filed under: Financial Planning, Investing, Op-Editorials, Portfolio Management, Research & Development, Sponsors | Tagged: Certified Medical Planner™, CMP | 2 Comments »

ETF Portfolio Diversification and Cost Reductions

Posted on January 10, 2008 by Dr. David Edward Marcinko MBA MEd CMP™

A Multi-Dimensional Investment Product

By JD Steinhilber

Most physicians and their financial advisors and/or Certified Medical Planners™ [CMP™] believe that effective diversification is most readily achieved by combining poorly correlated asset classes within an investment portfolio.

And, when combined with low costs, a winning combination may be achieved for most any physician-investor’s wealth achievement and management goals.

Diversification Impact

One of the most basic examples of proper diversification is two poorly correlated assets like stocks and bonds. Over time, the returns of these two asset classes have a very low level of correlation. Over shorter time periods, the degree of correlation between stocks and bonds can vary widely.

From January 1999 to November 2002, for example, stocks and bonds had a negative, or inverse, correlation. Real Estate Investment Trusts [REITS] and international stocks are examples of other asset classes that tend to be poorly correlated with US stocks. And, volatility is expected to increase beyond 2008.

Because exchange-traded funds replicate the performance of entire asset classes, which themselves are diversified among numerous securities, it is possible to construct well-diversified, high-performing portfolios with only 5-10 ETFs. Accordingly, ETFs provide a highly efficient means of diversification.

Reduction of “Style Drift”

Mutual funds also facilitate diversification, but actively managed mutual funds are susceptible to “style drift” and their portfolio holdings at any particular time are unknown. This presents a challenge to diversification efforts.

In contrast, ETFs offer asset class purity, meaning their holdings are totally transparent, disclosed daily and not subject to style drift. Actively managed mutual funds are also more expensive and less tax-efficient than ETFs.

Cost Impact

Exchange-traded funds have some of the lowest expense ratios of any registered investment product. In fact, ETFs have a cost advantage, on average, in excess of 100 basis points relative to actively managed mutual funds. This can have a significant impact on a portfolio’s performance over time.

For example, assume that investor A and investor B each invest $10,000 and earn the same gross annualized return over a 20 year time frame. After expenses, assume that investor A earns a net return of 10% and investor B earns a net return of 9%. After 20 years, investor A would have $67,275, while investor B would have $56,044, representing a difference of $11,231.

Trading Cautions

It is important to point out that physician-investors have to pay commissions when they buy or sell ETFs.As a result, the cost advantages of ETFs relative to mutual funds diminish the more actively an ETF portfolio is traded. ETFs are therefore not appropriate vehicles for active traders; they are more suitable for investors.

Of course, physicians and all investors tend to be more conscious of investment costs when portfolio returns are low or negative.Given that costs are among the few controllable variables in a portfolio’s returns, investors and advisors should always be evaluating portfolio costs relative to the benefits received.

Assessment:

Exchange-traded funds may provide an opportunity to enhance net returns by reducing investment expenses and increasing returns through improved diversification.

Conclusion

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Annuity Insurance Products

Posted on November 26, 2007 by Dr. David Edward Marcinko MBA MEd CMP™

A Brief Overview of Annuities for Physicians

[By Gary A. Cook, MSFS, CFP®, CLU, ChFC, RHU, LUTCF, CMP™ (Hon)]

[By Kathy D. Belteau, CFP®, CLU, ChFC, FLMI]

[By Philip E. Taylor, CLU, ChFC, FLMI]

Introduction

Annuities were reportedly first used by Babylonian landowners to set aside income from a specific piece of farmland to reward soldiers or loyal assistants for the rest of their lives.

Today’s annuities substitute cash for farmland; however the concept is the same. In 1770, the first annuities were sold in the United States and were issued by church corporations for the benefit of ministers and their families. Annuities have grown on a tax-deferred basis since enactment of the Federal Income Tax Code in 1913. They began to gain widespread acceptance in the early 1980s when interest rates credited exceeded 10%. During the last two decades, annuities have been the fastest growing sector of premiums for life insurance companies.

Nevertheless, are they actually “needed” by contemporary physicians – – or merely “sold” to them?

An annuity is a legal contract between an insurance company and the owner of the contract. The insurance company makes specific guarantees in consideration of money being deposited with the company.

Annuities are generally classified as fixed or variable – deferred or immediate. As their names indicate, deferred annuities are designed as saving funds to accumulate for future use.They are growth-oriented products where the tax on the interest earned is deferred until the money is withdrawn. An immediate annuity is used for systematically withdrawing money without concern for the money lasting until the end. The insurance company assumes this risk.

Deferred Annuities

The deferred annuity contract, like a permanent life insurance policy, has been found by some to be a convenient method of accumulating wealth. Funds can be placed in deferred annuities in a lump sum, called Single Premium Deferred Annuities, or periodically over time, called Flexible Premium Deferred Annuities. Either way, the funds placed in a deferred annuity grow without current taxation (tax-deferred). .

Fixed Deferred Annuity

Fixed deferred annuities provide a guaranteed minimum return of return (usually around 3 percent per year) and typically credit a higher, competitive rate based on the current economic conditions.

Fixed annuities are usually considered conservative investments as the principal (premium) is guaranteed not to vary in value. Insurance companies are required by state insurance laws to maintain a reserve fund equal to the total value of fixed annuities. Fixed annuities are also protected by State Guaranty Fund Laws.

Example:

Dr. Park, a retired physician, desires a safe financial vehicle for $100,000 of her excess savings. She doesn’t need the earnings of this investment for current income and also wants to reduce her income tax liability. She decides to purchase a fixed deferred annuity with her $100,000. The annuity guarantees a 3 percent annual return and the current rate is 6 percent.

After the first year, $6,000 of interest is credited to the annuity and Dr. Park has no current income taxes as a result. If the 6 percent interest rate does not change, after 3 years, the annuity will have $119,102 of value.

Variable Deferred Annuity

Recently, variable deferred annuities have become very popular. Like fixed annuities, variable deferred annuities offer tax-deferred growth, but this is where the similarities end. Variable annuities are not guaranteed. The appreciation or depreciation in value is totally dependent on market conditions.

Variable deferred annuities assets are maintained in separate accounts (similar to mutual funds) that provide different investment opportunities. Most of the separate accounts have stock market exposure, and therefore, variable annuities do not offer a guaranteed rate of return.

But, the upside potential is typically much greater than that of a fixed annuity. The value of a variable deferred annuity will fluctuate with the values of the investments within the chosen separate accounts. Although similar to mutual funds, there are some key differences. These include:

· A variable annuity provides tax deferral whereas a regular mutual fund does not

· If a variable annuity loses money because of poor separate account performance, and the owner dies, most annuities guarantee at least a return of principal to the heirs. This guarantee of principal only applies if the annuity owner dies. If the annuity value decreases below the amount paid in, and the annuity is surrendered while the owner is alive, the actual cash value is all that is available.

· When money is eventually withdrawn from a deferred annuity, it is taxable at ordinary income tax rates. With taxable mutual funds, they can be liquidated and taxed at lower, capital gains rates.

· There is also a 10 percent penalty if the annuity owner is under 59½ when money is withdrawn. There is no such charge for withdrawals from a mutual fund.

· The fees charged inside of a variable annuity (called mortality and expense charges) are typically more than the fees charged by a regular mutual fund.

Assessment

Variable deferred annuities are sensible for physicians who want stock market exposure while minimizing taxes. Most financial advisors and Certified Medical Planners™ [CMP™] recommend regular mutual funds when the investment time horizon is under 10 years. But if the time horizon is more than 10 years, variable annuities may occasionally become more attractive because of the additional earnings from tax-deferral.

Both types of deferred annuities are subject to surrender charges. Surrender charges are applied if the annuity owner surrenders the policy during the surrender period, which typically run for 5 to 10 years from the purchase date. The charge usually decreases each year until it reaches zero. The purpose of the charge is to discourage early surrender of the annuity.

Equity Index Annuity

The equity index annuity combines the basic elements of both the variable and the fixed annuity. The credited interest earnings are generally linked to a percent of increase in an index, such as the Standard & Poor’s 500 Composite Stock Price Index (S&P 500). This percentage is called the Participation Rate and may be guaranteed for a specified period of up to 10 years or adjusted annually. Thus, the physician annuity owner is able to participate in a portion of market gains while limiting the risk of loss.

Typically, the indexed annuity has a fixed principal, with the insurance company and contract owner sharing the investment risk. If the S&P 500 Index goes up, so do interest earnings. If it declines, the insurance company guarantees the principal.

So, the physician contract owner accepts the risk of an unknown interest yield based on the growth or decline of the S&P 500. Medical professionals and healthcare practitioners should pay particular attention to surrender penalties, asset management fees and any monthly caps on appreciation.

Immediate Annuities

Immediate annuities provide a guaranteed income stream. An immediate annuity can be purchased with a single deposit of funds, possibly from savings or a pension distribution, or it can be the end result of the deferred annuity, commonly referred to as annuitization. Just like deferred annuities, immediate annuities can also be fixed or variable.

Immediate annuities can be set up to provide periodic payments to the policy owner annually, semiannually, quarterly or monthly. The annuity payments can be paid over life or for a finite number of years. They can also be paid over the life of a single individual or over two lives.

Immediate Fixed Annuity

Immediate fixed annuities typically pay a specified amount of money for as long as the annuitant lives.They may also be arranged to only pay for a specified period of time, i.e., 20 years. They often contain a guaranteed payout period, such that, if the annuitant lives less than the guaranteed number of years, the heirs will receive the remainder of the guaranteed payments.

A note of caution here, as the selection of an immediate annuity is an irrevocable decision!

Example:

Dr. Jones is 70 years old and retired. He is only of average wealth, but is concerned that if he lives too long, he could deplete his savings. He decides to use $100,000 and purchase a lifetime immediate annuity with 20 years certain. The insurance company promises to pay him $7,000 per year as long as he lives. If Dr. Jones dies four years after purchase, he would only have received $28,000 out of a $100,000 investment. However, his heirs will receive $7,000 for the next 16 years. If Dr. Jones survives to the age of 98, he would have received $196,000 (or 28 years of $7,000).

Immediate Variable Annuity

Immediate variable annuities provide income payments to the annuitant that fluctuates with the returns of the separate accounts chosen. The theory is that since the stock market has historically risen over time, the annuity payments will rise over time and keep pace with inflation. If this is indeed what happens, it is a good purchase, but it cannot be guaranteed.

Some companies will, at a minimum, provide a guarantee of a low minimum monthly payment no matter how poorly the separate accounts perform.

Split annuities

A popular method of adding income and yet still accumulating savings is through the use of two separate annuity policies. Part of the funds is placed in an immediate annuity to provide monthly income. The balance is placed in a deferred annuity grows to the total value of the premium paid for both annuities.

The income that is received from the Immediate Annuity includes a portion of the initial premium, as well as the taxable interest earned. Only the portion of income that is interest is taxable. The ratio between the annuity principal and interest being paid out is called an Exclusion Ratio.

Example:

Dr. Jeanne Jones has put $100,000 into a 5-year non-tax deferred vehicle at 5%. The earnings to supplement Jeanne’s retirement is $25,000. With a combined federal and state tax of 33%, the net after tax income would be $16,750. Jeanne takes the same $100,000 using the split annuity concept she would receive $24,444 over the 5 years. Based on an exclusion ration of 89%, her total taxable amount is $2,797. This would yield $923 in taxes at the same 33% tax rate. Jeanne would have $23,521 of spendable income with the split annuity compared to the $16,750.

Qualified Annuities

The term qualified refers to those annuities which permit tax-deductible contributions under one of the Internal Revenue Code (IRC) sections, i.e., § 408 Individual Retirement Accounts (IRA), § 403(b) Tax Sheltered Annuities, § 401(k) Voluntary Profit Savings Plans. Qualified annuities can also result from a rollover from such a plan.

Assessment

Currently, there is much lively debate in the industry as to whether an annuity, which is tax-deferred by nature, should be used as a funding vehicle within a tax-qualified plan, i.e., a tax-shelter within a tax-shelter. Since the investment options within the annuity are also generally available to the plan participant without the additional management expenses of the annuity policy, it is felt this could be a breach of fiduciary responsibility. And, most insurance agents are not fiduciaries.

Both the National Association of Securities Dealers (NASD) and the Securities and Exchange Commission (SEC) have gone on record as criticizing these sales.

However, there are numerous examples of deferred annuities that have outperformed similar investment-category mutual funds, even after taking the annuity expenses into account.

Conclusion

OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

DICTIONARIES: http://www.springerpub.com/Search/marcinko
PHYSICIANS: www.MedicalBusinessAdvisors.com
PRACTICES: www.BusinessofMedicalPractice.com
HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
CLINICS: http://www.crcpress.com/product/isbn/9781439879900
ADVISORS: www.CertifiedMedicalPlanner.org
BLOG: www.MedicalExecutivePost.com
FINANCE: Financial Planning for Physicians and Advisors
INSURANCE: Risk Management and Insurance Strategies for Physicians and Advis ors

Filed under: CMP Program, Financial Planning, Glossary Terms, Insurance Matters, Investing, Recommended Books, Retirement and Benefits, Risk Management | Tagged: annuities, certified medical planner, CMP, deferred annuity, Financial Planning, FINRA, Flexible Premium Deferred Annuities., Insurance Matters, NASD, SEC, Single Premium Deferred Annuities, SIPC, variable annuity, wualified annuities, www.certifiedmedicalplanner.com | 6 Comments »

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Conclusion

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A Brief Overview of Annuities for Physicians

Deferred Annuities

Fixed Deferred Annuity

Variable Deferred Annuity

Immediate Annuities

Immediate Fixed Annuity

Immediate Variable Annuity

Split annuities

Qualified Annuities

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