Money Matters Investment & Finance Planning Tomorrow, Today
Planning Tomorrow, Today
Saturday, 01 June 2013
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This month’s E-Poll  reveals that nearly half of respondents wished they’d been more diligent planning their financial future. In an interesting twist, approximately the same percentage feels that medicine as a career is not well understood by financial planners. Medical Forum spoke with a number of experts to chart a course through the career transition of medical practitioners and explore some solid foundations to underpin an effective investment portfolio.

Rob Pyne, a director with HIH Solutions, paints a picture of ‘doctor as client’, examines some of the subtle differences within the profession and outlines some practical strategies to make the numbers add up before medical practitioners step away from their practice.

“The level of investment expertise varies enormously with doctors. There’s no question they have the intellect for it, they’re highly engaging clients and very often you’ll have a detailed conversation regarding investment theory. And a lot of our strategies are evidence-based, which has a direct link with the practice of medicine, so they’re familiar with that style of communication. But when it comes down to it, they all want to understand the basis of their investment strategies.”

“There’s a subtle difference within the specialties. You could probably make a case that surgeons fit the Type A personality profile and I’ve always found that they’re very hands-on. If you’ll pardon the obvious pun, that’s very much a reflection of their own professional practice and they tend to test the waters pretty closely before you gain their trust.”

“More broadly, medicine is a high-status profession and some doctors struggle with the pathway to reducing their hours and exiting the workforce. The conversations aren’t always strictly financial. We talk about bringing in younger associates, reducing session times and the transition to oversight roles.”

“There’s often significant wealth to consider so it’s important that a legally binding Will incorporates testamentary trusts to make sure children are well protected. And looking even further ahead we’ll talk about designating power of attorney and individual advanced health directives, which is something they deal with every day.”"

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Rob Pyne

The actual nuts and bolts of a financial plan that suits doctors is similar to many other professional individuals. But there are, as Rob points out, some important and potentially rewarding niche opportunities.

“There’s a strong disposition towards property, which is not atypical of a lot of high-end investors. We often recommend residential investment properties and this extends to their own consulting rooms if they’re in private practice.”

“Conversely, if they work in the public system the GESB superannuation scheme gives doctors a unique opportunity to contribute more than the normal annual concessional contributions allow. This is an untaxed fund and we’ve got some people contributing significant sums in the order of $200,000 per annum into this scheme.”

There’s a familiar pattern underpinning the career trajectory of most doctors. Rob suggests that it’s prudent to focus on the shifting priorities within this professional profile.

“There are distinctly different needs moving through a medical career. Young doctors are often working extremely hard so we look at the fundamentals of planning and packaging their financial situation. Having a look at Fringe Benefit Tax (FBT) is useful but one of the most important areas is basic income protection. Many doctors may not be aware that insurers can provide more cover than actual current earnings. For example, an endorsed agreed benefit of $10,000 a month before the insured person is even approaching that salary.”

“At the early to mid-career stage we’ll often try to dissuade younger doctors from getting too highly geared into investment properties. We’ll suggest that they establish themselves in their own home and build equity in that property because the cost of purchasing real-estate can be quite high.”

“Closer to retirement we’ll concentrate on non-concessional contributions and unrealised capital gains and sometimes this takes a lot of untangling. Doctors may well have been highly geared throughout their working lives and, because their cash flow has been strong, all the debts have been paid off. Rather than thinking about gearing to minimise tax it’s often better to flip that thinking around and look at more tax-friendly environments.”

 

Bart-Piestrzynski-Slade-Burnet-Aaron-SwynyMay160x110Bart Piestrzynski, Slade Burnet and Aaron SwynyBart Piestrzynski, Slade Burnet and Aaron Swyny from Medfin pooled their collective wisdom:

Managing cash flow and having a good hard think about the rollercoaster of life is vital. It is so important to work out your actual cash flow. After purchasing a first home, sit down and calculate how much is left after tax obligations and putting a glass of wine or a beer on the table. Then have a think about short-to-medium term goals with career progression in mind.

A young medical graduate moving into intern and registrar roles will often be on a PAYG structure, salaries will increase as they move into a specialty and then, for some, it’s into a corporate environment with turnover in the tens of millions of dollars.

The other important aspect is to put in place adequate insurance that will cover any circumstance if you are not able to continue in the profession. There’s often large expenses incurred gaining medical qualifications and that investment needs to be protected.

Financial planning is critically important for medical professionals but a degree of flexibility is required because, even with the best-laid plans, life can get in the way.

There’s marriage, the potential for one partner temporarily out of the workforce when a baby comes along and educating children. And divorce? We take that into account, too. We’re seeing doctors on their second and third marriages, and some men in in their 50s and 60s beginning new families. There seems to be more people starting a career in medicine at a later stage and some decide that they don’t want to continue in the profession.

Investment advice needs to be tailored to specific career stages and, just as importantly, factor in individual personal circumstances as well.

There is a gender aspect to financial planning quite apart from the fact that some female doctors will be temporarily out of the workforce in the early to mid-stages of their careers.

It’s fairly common that doctors marry doctors and often it’s the woman who’ll have a better understanding of the finances. They’re usually more focused on estate planning as well. There’s a strong interest in making sure there’s a smooth path in passing assets on to the next generation.

If we were speaking to a room full of doctors we’d stress three things. Firstly, make sure you have properly structured and tax-effective insurance in place. If something unpleasant happens you can slide from expensive dark chocolate to boiled lollies very quickly. Secondly, look at investments from a number of different angles, both medium and long-term. Finally, there will come a time when you’re not earning a living and good investment decisions will replace that cash flow.

** Tax Tips for High Wealth Individuals: www.ato.gov.au/content/00129961.htm

 

 

 

Ed. The opinions expressed in this article are not intended as financial advice. Consult your financial adviser for specific guidance relevant to your financial circumstances.