About Securities “Shelf Registration”

A Primer for Physician Investors and Medical Professionals

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

SPONSOR: http://www.CertifiedMedicalPlanner.org

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[PART 5 OF 8]

Dr. Marcinko with ME-P Fans

NOTE: This is an eight part ME-P series based on a weekend lecture I gave more than a decade ago to an interested group of graduate, business and medical school students. The material is a bit dated and some facts and specifics may have changed since then. But, the overall thought-leadership information of the essay remains interesting and informative. We trust you will enjoy it.

Introduction

A relatively new method of registration under the Act of ’33 is known as shelf registration. Under this rule, an issuer may register any amount of securities that, at the time the registration statement becomes effective, is reasonably expected to be offered and sold within two years of the initial effective date of the registration. Once registered, the securities may be sold continuously or periodically within 2 years without any waiting period for a registration to clear issuers generally like shelf registration because of the flexibility it gives them to take advantage of changing market conditions.

In addition, the legal, accounting, and printing costs involved in issuance are reduced, since a single registration statement suffices for multiple offerings within the 2 year period. In effect, what the issuer does is register securities that will meet its financing needs for the next 2  years. It issues what it needs at the current time, and puts the balance on the shelf” to be taken off the shelf as needed.

SECURITIES MARKETS 

The purchase of common stock in an IPO (initial public offering) is facilitated through of the members an investment bank underwriting syndicate or selling group. This is known as the primary market and the proceeds of sale go directly to the issuing company. Six months later however, if a doctor wants to sell his shares, this would be accomplished in the secondary market. The term secondary market refers to trading in outstanding issues as the proceeds do not go to the issuer, but to the current owner of the securities, such as the physician investor.

Therefore, the secondary market provides liquidity to doctors who acquired securities in the primary market. After a doctor has acquired securities in the primary market, he wants to be able to sell the securities at some point in the future in order to acquire other securities, buy a house, or go on a vacation. Such a sale takes place in the secondary market. The medical investor’s ability to convert the asset (securities) into cash is heavily dependent upon the secondary market. All investors would be hesitant to acquire new securities if they felt they would not subsequently have the ability to sell the securities quickly at a fair price in the secondary market.

Securities Act of 1934

Every trade of stocks and bonds that is not a purchase of a new issue is a trade that takes place in the secondary market. The market place for secondary trading is the stock exchanges and the over-the-counter (OTC) market, and is governed by the Securities Act of 1934, which actually created the Securities and Exchange Commission (SEC) and outlines the powers of the SEC to interpret, supervise, and enforce the securities laws of the United States. The Act of 34 is very broad and governs the sales of securities, including the regulation of securities markets exchanges, OTC markets, broker/dealers, their employees, the conduct of secondary markets, the extension of credit in the purchase and sale of securities, and the conduct of corporate insiders (officers and directors and holders of more than 10% of the outstanding stock). The Act also prohibits fraud and manipulative and deceptive activities in securities transactions

The Stock Exchanges

A stock exchange is a private association of brokers. The main purpose of an exchange is to provide a central meeting place for its member-brokers. This central meeting place is called the floor. It is on the floor that the members trade in securities. It is important to remember that a stock exchange itself does not own any of the securities that are traded on its floor. Nor does it buy or sell any of the securities traded on the exchange. Instead, the securities are owned by member firms, customers, or perhaps, by the exchange member firm itself.

It is also important to remember that a stock exchange does not establish or fix the price at which any security is traded on the exchange. The price is determined in a free and open auction type of trading. It depends on the supply and  demand relationship of that security at a particular time. In other words, if sellers of a stock are offering to sell more shares of that stock than buyers want to buy, the price of that stock will tend to go down. On the other hand, if buyers want to buy more shares of a stock than the sellers are offering to sell, the price of that stock will tend to go higher because of the strong demand.

Any discussion of stock exchanges has to focus on the NYSE, which is by far the largest and most important of the exchanges. There are two exchanges referred to as national stock exchanges, the NYSE and the American Stock Exchange (AMEX). In addition to these two national exchanges, there are several regional stock exchanges including the Philadelphia Exchange, the Chicago Exchange (formerly Midwest), the Pacific Exchange, the Boston Exchange, and the Cincinnati Exchange. Stocks that are traded on an exchange are referred to as listed stocks. The term “listed on an exchange” means that the issue is eligible for trading on the floor of the exchange.

How does a stock become listed? The issuing company, having decided that they wish the prestige and broad visibility of being listed on the NYSE, applies to the exchange for listing. A critical condition for listing is that the issuer agrees to solicit proxies from those common stock shareholders unable to attend shareholder meetings. Once the securities have been accepted for listing (trading) on an exchange, the issuer must continue to meet certain requirements which are not quite as stringent as the original listing requirements, and may be de-listed if the firm ceases to solicit proxies on its existing voting stock, or meet other minimal requirements.

Physically, the exchange brings together buyers and sellers on a trading floor. The NYSE floor is larger than several football fields and is divided into 19 trading posts. Eighteen of the posts are horseshoe or U-shaped stations 100 square feet in area. The nineteenth post (post number 30) is in the northwest corer and really isn’t a post at all; it’s just an area where the inactive stocks trade.

The Specialist

Specialists are experts in trading one or more specific stocks at their particular post on the exchange floor. Their activity is vital to the maintenance of a free and continuous market in the specific issues they represent. They are responsible for conducting the auction at the post. Everyone interested in buying the stock calls out a price and the shares go to the highest bidder. The buyers compete, but there is only one seller. Unlike the usual auction market, the auction on the floor of the exchange is a two way auction with some brokers seeking to buy at the lowest possible price for their doctor clients and other brokers trying to sell at the highest possible price for their doctor clients. When two brokers, one representing a buyer and one a seller, agree on a price, a sale is made. The specialist functions in a dual capacity as a dealer and as a broker. As a dealer or principal, he buys and sells for his own account and risk to maintain a fair and orderly market in the stocks in which he specializes.

For example, if a commission broker approaches the specialist at the post with a buy or sell order, and there are no other brokers in the crowd, that is currently interested in buying or selling the stock, the specialist will buy the stock from that commission broker (if it’s a sell order) for his own account or sell the stock from his inventory (if it’s a buy order). Perhaps, he may even be able to fill the order from his specialist’s book?

Stock_Market

Specialist’s Book

This is done by using the specialist’s book of buy orders (bids), marked on the left hand page, or sell orders (offers) on the right. There is a book for each stock in which the specialist specializes. The pages are ruled and are usually printed with fractional stock points at regular intervals to permit easy insertion of orders. The orders are entered in the book by the specialist according to price and in the sequence in which they are received at the post. He notes the number of shares, putting down 1 for 100 shares, 2 for 200 shares, etc. He also notes the name of the member firm placing the order and if the order is Good Till Cancelled (GTC), or not. When orders are executed, they are executed in the same order recorded in the book at that particular price.

The specialist’s book also keeps track of all orders “away from the market ” (limit orders and stop orders) in his book. The book is organized with all buy orders on the left hand side of the page and all sell orders on the right hand side. In the absence of bids and offers from the “trading crowd” on the floor, the specialist can quote the best available market for the security by announcing the highest bid and the lowest offer (ask). The best bid is always the highest buy limit order on his book and the best offer (ask) is always the lowest sell limit on his book. In addition to quoting the best price, he will also give the “size of the market ” which is determined by the number of shares being bid for and offered at the respective best bid and best ask prices. The quote is price and size. When asked to quote the market for a security, the specialist disregards any stop orders on his book since those orders do not become activated until triggered by another trade. One thing to remember is that since most doctors place stop orders to hedge (protect) against a price movement adverse to their interests, most stop orders are entered with the fervent wish that they never be executed.

On stop and limit orders placed below the market, the specialist is required to reduce the price of those orders on the ex-dividend (ex-split, ex-rights) date. The two critical things to remember are: what types of orders are reduced and by how much? The specialist will reduce all GTC (open) buy limit and sell stop orders on an ex-date. You may remember this with the acronym BLISS where the BL equals buy limit and the SS equals sell stop. The only time either of these orders will not be reduced is if the medical client turned in DNR (do not reduce) instructions.

The price of the order is then reduced by enough to equal or exceed the amount of the dividend.

If we go back to the example approaching the specialist to buy or sell stock and there is no one in the “crowd”, the specialist will first give the commission broker a quote from his book. That quote will be the highest bid price (the highest priced limit order to buy on his books) and the best asked price {the lowest priced sell limit on his books). If the commission broker is willing to buy at the lowest ask or offering price on the specialist’s book, then a trade will take place; if the commission broker is looking to sell and is willing to accept the highest bid price on the specialist’s book then, again, a trade will take place. It is the responsibility of the specialist to maintain an orderly market and to keep the spread between the bid and asked prices as narrow as possible. If the spread between bid and asked is too wide to generate market activity, the specialist will act on his own account.

If the specialist is presented with sell orders at the post and he has no buyers, he must bid at least 1/8 of a point higher than the best bid on his books. If he has buyers and no sellers, then he must offer stock from his inventory at a price at least, 1/8 of a point below the lowest offer on his book.

Why? It’s because the specialist cannot “compete” with public orders and if his bid matched a customer’s bid or his offer matched a customer’s offering or ask price, he would be considered to be ” competing”.  Since the specialist is required to bid higher and ask lower than the best public orders on his book, the spread is narrowed. That is why it is said that the specialist acts in a dual capacity, as a dealer and as a broker. When buying and selling for his own account, he is acting as a dealer. The specialist acts as a broker when he executes limit orders left with him by commission brokers. When these limit orders are executed out of the specialist’s book (the doctor’s limit price is reached), the specialist uses a priority, parity, and precedence system, as to which order is executed first. These rules, like most others, are designed to give preference to the general public, not to members of the exchange, on a first come first served basis.

Walking Through a Trade

To see how the transactions are actually handled on the floor of an exchange, let us assume that an order to buy 100 shares of General Electric has been given by a doctor customer to the registered representative (stock broker), of a member firm in Atlanta. The order is a market order (an order to buy at the lowest possible price at the time the order reaches the floor of the exchange). This order is telephoned by direct wire, or computer, to the New York office of the member firm, which in turn telephones its order to its clerk on the floor of the exchange.

Each member firm has at least one member of the exchange representing them making trades on the floor. Each one of these members is assigned a number for identification. When the floor clerk receives the order to purchase the General Electric, he causes his member’s call number to appear on 3 large boards situated so that one is always in view. These boards are constantly watched brokers so that they will know when wanted at the phone, since there’s too much noise on the floor to use a paging system. Seeing his number on the board, the broker hurries to his telephone station or cell phone and receives the order to buy 100 shares of G.E. “at the market”. Acting as a commission broker, he immediately goes to the post where G.E. is traded and asks “how’s G.E”, of the specialist?

Part 4: Underwriting US Government Securities Issues

Conclusion

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UPDATE: The Markets, Ruja Ignatova, and the Grayscale ETF Bitcoin SEC Challenge

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By Staff Reporters

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Markets: The S&P’s drop of more than 21% was its biggest H1 plunge since 1970. Its second quarter was the worst since Q1 of 2020. And while the S&P is floundering in the bear market, the NASDAQ, which is loaded with tech stocks, has taken an even bigger licking: It’s plunged more than 30% since its peak last November. For example:

Netflix: down 71% YTD (the worst performer in the S&P)

Coinbase: down 81%

Even megacaps like Meta (-52%), Amazon (-38%), and Apple (-25%) haven’t been spared.

Ruja Ignatova promised her cryptocurrency, OneCoin, would become the next Bitcoin. The only problem: It didn’t exist. The FBI today added the Bulgarian-born Ignatova—accused of defrauding investors out of approximately $4.1 billion in a fake cryptocurrency scheme—to its most-wanted list. The 41-year-old has been on outstanding since October 2017, just days after a warrant was issued for her arrest in the U.S. In a press release, the FBI called OneCoin a “massive fraud scheme” and offered up to $100,000 for information leading to Ignatova’s arrest.

The U.S. Securities and Exchange Commission rejected a proposal from Grayscale to list a spot Bitcoin ETF on the NYSE Arca exchange, setting up a potential legal battle with the country’s biggest digital asset manager. The SEC said Grayscale’s request for an ETF listing, which it proposed as a conversion of its popular Grayscale Bitcoin Trust GBTC, didn’t meet the regulator’s standard of being “designed to prevent fraudulent and manipulative acts and practices” and “to protect investors and the public interest.” Grayscale said it would challenge the SEC’s decision in court, arguing that its approval of ETF’s that hold Bitcoin futures should “logically (make it) comfortable with ETFs that hold that same asset.”

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What are OTC “PINK” Sheets?

LOW PRICED “PENNY STOCKS?

By Dr. David E. Marcinko MBA CMP®

SPONSOR: http://www.CertifiedMedicalPlanner.org

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Pink sheets are an over-the-counter (OTC) market that connects broker-dealers electronically. There is no trading floor and the quotations are also all done electronically. Since there is no central trading floor or stock exchange like the New York Stock Exchange (NYSE), the pink sheet-listed companies do not have the same criteria to fulfill as the companies listed on national stock exchanges. Many stocks listed on the pink sheets are low-priced penny stocks that trade for under $5 a share.

CITE: https://www.r2library.com/Resource/Title/0826102549

Pink sheets got their name because the original pink sheets listing the stocks were actually printed and distributed on pink pieces of paper. Trading over-the-counter (OTC) refers to the process of how securities listed on the pink sheets are traded through a broker-dealer network.

MORE: https://en.wikipedia.org/wiki/OTC_Markets_Group

Pink Sheets | Explanation | Examples with Advantages and Disadvantages

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WHAT IS A STOCK MARKET “CIRCUIT BREAKER?”

EXACTLY WHAT IS A STOCK MARKET “CIRCUIT BREAKER?”

cropped-dem

By Dr. David E. Marcinko MBA

Yesterday, within a few minutes of the open, the S&P dropped 7% triggering a Level 1 circuit breaker that paused trading for 15 minutes.

Had the S&P declined 13%, trading would’ve paused another 15 minutes.

Another 20% down and it would have closed.

HISTORY

  • Circuit breakers launched after 1987’s Black Monday when the Dow fell 22.6%.
  • In 2012, the markets closed because of Storm Sandy.
  • Rules were revamped in 2013 after failing to prevent 2010’s “flash crash.”

LINK: https://lnkd.in/eJNz355

And so, according to NYSE President Stacey Cunningham: “I’m seeing markets act normally. They react to uncertainty … they become more volatile.”

GOING FORWARD: Uncle Sam hasn’t yet enacted crisis measures like it did during the financial crisis. Regulators are more alert (take the Fed’s emergency rate cut and $50 billion infusion to its overnight lending). Banks appear to be in relatively good shape. Your thoughts and comments are appreciated.

Assessment: Your thoughts are appreciated.

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BUSINESS, FINANCE AND INSURANCE TEXTS FOR DOCTORS:

1 – https://lnkd.in/ebWtzGg

2 – https://lnkd.in/ezkQMfR

3 – https://lnkd.in/ewJPTJs

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Risk Management, Liability Insurance, and Asset Protection Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners™

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Happy Birthday Irene Bergman [A 99-year-old financial advisor]

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Happy Birthday – Ring that NYSE Bell

[By staff reporters]

A 99-year-old financial advisor and holocaust survivor will be the oldest person to ring to the bell at the New York Stock Exchange in honor of her 100th birthday; today August. 2nd, 2015.

As a teen, Irene Bergman wanted to follow her private banker father to the Berlin stock exchange, but the Nazis chased them out of Europe in 1942. Now she is a financial advisor at Stralem & Co., overseeing institutional and individual clients, which she advises from her midtown apartment decorated with paintings from Dutch masters and pre-war European furniture.

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Conclusion

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Comprehensive Financial Planning Strategies for Doctors and Advisors: Best Practices from Leading Consultants and Certified Medical Planners(TM)

“In an era where doctors must have a solid understanding of the basics of financial management, this book is a must-have on every physician’s private book collection. Although not a substitute for a formal business education, this book will help physicians navigate effectively through the hurdles of day-to-day financial decisions with the help of an accountant, financial and legal advisors.

This book would make an excellent reference for teaching medical students and residents the basics of monetary management. I highly recommend this book and commend Dr. Marcinko and the Institute of Medical Business Advisors, Inc. on a job well done.”

Manuel J. Colón MD

R.I.P. Muriel “Mickie” Siebert

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On Muriel Siebert

“Mickie” Siebert, founder of the brokerage firm that bears her name, Muriel Siebert & Co. Inc., bought a seat on the New York Stock Exchange in 1967.

She was one of the pioneers in the discount brokerage field, as she transformed Muriel Siebert & Company (now a subsidiary of Siebert Financial) into a discount brokerage in 1975, on the first day that Big Board members were allowed to negotiate commissions; the so-called “May Day” decision.

BORN: Sept. 12, 1932, in Cleveland.

DIED: Aug. 24, 2013, in New York.

EDUCATION: Attended Western Reserve University (now Case Western Reserve University) 1949-1952.

FAMILY: Never married and did not have any children.

Link: http://news.msn.com/obits/muriel-siebert-first-woman-member-of-the-nyse-dies?ocid=ansnews11

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NYSE

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Assessment

She was the first woman to become a member of the New York Stock Exchange [NYSE].

Visit: www.SiebertNet.com

Conclusion

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Public Misconceptions of Private Equity

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A Political Season Review

By Rick Kahler CFP® MS ChFC CCIM

www.kahlerfinancial.com

During tax time and this very political season, some of the attacks on Mitt Romney as a Presidential candidate have focused on his tenure with the private equity firm Bain Capital. Critics and rivals have denounced Romney as “profiteering off the backs of fired workers,” and running a “vulture capital” rather than a “venture capital” fund. A PAC supporting Newt Gingrich even produced a documentary about Bain which tries hard to leave viewers with the idea that capitalism isn’t evil, but private equity firms are.

The Negative Impressions

Some of this negativity may come from a lack of understanding as to what “private equity” really means. Here’s my explanation.

First, equity just means “common stock.” Whether equity is public or private depends on whether the company lists its shares on a public exchange, like the New York Stock Exchange or the NASDAQ, or is privately held.  When you purchase a share of common stock, either directly or through a mutual fund, you buy it from a public stock exchange where anyone can buy or sell shares of stock. Private equity shares, however, are bought and sold privately, just like houses or small businesses.

One of the benefits of a public exchange is that it makes owning a slice of a company exceedingly affordable. For example, for about $600 you can own a share of Apple, the largest company in the U.S. If Apple were privately held, you would need $500 billion to buy it. If you were a little short on cash but still wanted a piece of Apple, you and 999 of your closest friends could pool your resources. You’d only need $500 million each.

That is exactly what a private equity company does. It brings together substantial investors, usually institutions, pooling their money to purchase companies not available on public exchanges. This requires raising or borrowing amounts that may be in the billions of dollars. The minimum to invest in a public equity company is often one million to 25 million dollars or more, putting it out of reach of most Americans.

An Asset Class

However, that doesn’t mean John Q. Public doesn’t own a slice of the private equity pie. Public pension funds, like the South Dakota Retirement System, have invested over $200 billion in private equity funds. The SDRS invests over 10% of its $7.8 billion fund in private equity. Many investment officers and committees feel this is such an important asset class that not holding a portion of their portfolio in private equity would violate their fiduciary duty to the fund.

Why Invest Privately?

Why invest in companies that are privately held? They often are purchased for lower prices than their publicly traded cousins, which makes owning them more profitable. In other cases a private equity firm will purchase a company that is failing or purchase a public firm and make it private.

In most every case, the private equity company’s aim is to try and improve the profitability of the company in the hope of reselling it at a profit or taking it public. Sometimes this is successful; sometimes it isn’t.

Goals of Private Equity Firms

What is the goal of a private equity company? Why, to produce a return for its investors, of course. Like any other business, its ultimate goal is not to create jobs. While more jobs may be a byproduct of creating better profitability, that isn’t always the case. Nor should it be.

Assessment

Failing to turn around a struggling company or laying off a division that is sucking a company dry in order to save the company isn’t evil. It is a natural and crucial component of a competitive free market system, a system that has given the U.S. one of the highest standards of living the world has ever known.

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About the Third and Fourth Stock Trading Markets

On OTC and Private Transactions

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By Dr. David Edward Marcinko MBA

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In most cases, a market maker of a stock in the NASDAQ system must report his trade in 90 seconds, but there is another circumstance in which the trade must be reported. This is called the third market, and is defined as transactions in exchange listed securities in the OTC market.

For example, even though IBM is listed on the NYSE, an OTC market marking firm can acquire the IBM stock and begin to make a market for it just like an OTC stock. All of these trades are considered the third market, and are reported to the Consolidated Quotation System (CQS) within 90 seconds of the trade.

Fourth Market

The fourth market is defined as private transactions made directly between large investors, institutions such as banks, mutual funds, and insurance companies without the use of a securities firm.

In other words, fourth market trading is usually one institution swapping securities in its portfolio with another large institution. From the stock broker’s viewpoint, there is one problem with the fourth market.

Assessment

Since no broker/dealer is involved, no registered representative is involved and there is no commission to be earned. These trades are reported on a system called Instinet. This is advantageous to larger medial foundations or institutional investors.

Conclusion

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RIA Merger Mania and the Medical PPMC Fiasco

What is Old is New Again -or- Lessons Learned

By Dr. David Edward Marcinko; MBA, CMP™

 dr-david-marcinko9According to the article Great Expectations-Disappointing Realities that recently appeared in Registered Representative, a trade magazine for the financial services industry, by John Churchill, the booming stock market of the last five years saw many Registered Investment Advisory [RIA] firms sell a portion of their future cash flows in return for cash and stock in an acquiring consolidating firm. This is known as a roll-up, or consolidator, business model. I am quite familiar with it, as both a doctor and financial advisor. I believe my dual perspective of both camps is somewhat unique, as well.

The NYSE Collapse

As the stock market collapsed in 2008-09, many RIAs who previously sold stakes to these “roll-up” consolidator firms began scrambling to pay quarterly preferred disbursements.  What gives, many implored? As a reformed Certified Financial Planner™, RIA representative, financial advisor and insurance agent, I can draw many parallels from these present day RIA consolidators to the similar Physician Practice Management Corporation roll-up fiasco of 1999-2000? Indeed, I can, and will [www.HealthcareFinancials.com]

My Experience with Medical Practice Consolidators

As a clinician and surgeon, I was the past president of a privately held regional Physician Practice Management Corporation [PPMC] in the Midwest. I assumed this route about a decade ago, by happenstance and background, when I helped consolidate 95 solo medical practices with about $50 million in revenues. But, our small company’s IPO roll-up attempt was aborted due to adverse market conditions, in 1999. Fortunately, a conservative business model based on debt, not the equity which was all the rage at the time, saved us right before the crash of 2000. So, we harvested fiscally conservative physicians who lost only a few operational start-up bucks; but no significant dollars.

On the other hand, those PPMCs roll-ups based on equity lost much more. In fact, according to the Cain Brothers index of public PPMCs, more than 95% of all equity value was lost by doctor-investors hoping to cash in on Wall Street’s riches they did not rightly deserve; not by practicing medicine but by betting on rising stock prices. So, projecting a repeat disaster from medicine, to the contemporary RIA consolidator business model, was not a great leap for me. And unfortunately, this was one of the few times I was all too correct in my prognostications.

PPMC’s Today

The type of medical consolidator or roll-up, formally called the Physician Practice Management Corporation [PPMC], was left for dead by the year 1999. Even survivors like Pediatrix Medical Group saw its stock drop precipitously. And, more than a few private medical practices had to be bought back by the same physicians that sold out to the PPMCs originally.

RIA Example

I sure hope this does not occur with FAs, as well. But, if an entity is being bought back and accounts receivables are being purchased, FAs should be careful not to pick this item up as income twice. The costs can be immense to the RIA practice, as later clients of mine learned the hard way.

Buy-Backs

For example, let’s say a family practice [or RIA?] purchased itself back from a PPMC, or RIA consolidator. Part of the mandatory purchase price, approximately $200,000 (the approximate net realizable value of the accounts receivable), was paid to the PPMC to buy back accounts receivable [ARs] generated by the physicians buying back their practice. Now, if an office administrator unknowingly begins recording the cash receipts specifically attributable to the purchased accounts receivable as patient fee income; trouble begins to brew. If left uncorrected, this error can incorrectly added $200,000 in income to this practice and cost it (a C Corporation) approximately $70,000 in additional income tax ($200,000 in fees x 35% tax rate). The error in the above example is that the PPMC [or RIA consolidator] must record the portion of the purchase price it received for the accounts receivable as patient [advisory] fee income. The buyer practice has merely traded one asset – cash – for another asset, the accounts receivable [ARs].  When the practice collects these particular receivables, the credit is applied against the purchased accounts receivable (an asset), rather than to patient [RIA] fees.  

RIA Revolution Follows PPMC Evolution

Today, surviving medical PPMCs are evolving from first generation multi-specialty national concerns, to second generation regional single specialty groups [my type], to third generation regional concerns, and finally to fourth generation Internet enabled service companies providing both business to business [B2B] solutions to affiliated medical practices, as well as business like consumer health solutions to plan members [healthcare 2.0]. I trust this sort of positive morphing will occur, over time, with the RIA consolidators. Perhaps yes, or no [www.HealthDictionarySeries.com]

RIA Consolidators

Among the most distressed RIA roll-up entities today may be the publically traded National Financial Partners and its more than 180 acquired firms, with more than 320 members in 41 states and Puerto Rico. NFP specializes in life insurance and wealth transfers, corporate and executive benefits, and financial planning and investment advisory services. Jessica M. Bibliowicz has been NFP’s President and CEO since inception in 1999. She is the daughter of Sandy Weill, and a member of the Board of Overseers for the Weill Medical College and Graduate School of Medical Sciences of Cornell University. NFP’s stock has declined from a high of $56 more than a year ago, to a current trading range of $3-4.           

And the Question Is?

And so, the question that MDs and RIAs should have asked when contemplating this business model was simply this: would I but the stock of an acquiring roll-up company if I were not part of the deal?

Valuable Consideration

Why? When MDs and RIAs sell to a consolidator, part of their “valuable consideration” is stock equity, so confidence and a conscientious work ethic is important. But, these “‘sell-out” entities are not retirement vehicles according to former financial advisor Hope Rachel Hetico; RN, MHA, CMP™ – a nurse executive and managing partner for www.MedicalBusinessAdvisors.com. Hope is also managing editor of this blog forum.

Assessment

More pointedly, according to one seller mentioned in the Churchill article,

“the whole [consolidator] pyramid is built on cash flows based on incremental growth and hugely optimistic projections of that growth”.  

Conclusion

Rest assured, the consolidator business model can be very successful; just think H. Wayne Huizenga’s Blockbuster Video and Waste Management, Inc. And so, your thoughts and comments on this Medical Executive-Post are appreciated? Why didn’t consolidation work in medicine, or with the RIAs? Or, reframed, why did consolidation work in the garbage collections industry and video store space? Can the fiercely independent RIA space learn something from the fiercely independent medical space?

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  or Bio: www.stpub.com/pubs/authors/MARCINKO.htm

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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