Helping Physicians Avoid Common Financial Mistakes Michael Zhuang MZ Capital Management To Schedule a Appointment Email: firstname.lastname@example.org or call 301-452-4220
The Story of Dr. Jones• 71 years old retired doctor• >$10mm in accumulated wealth before retirement• Only a few financial mistakes ….• Now worry about running out of money
What mistakes?• No practice succession planning• Bad real estate investments• Bad estate planning• Bad life insurance purchase• Bad annuity purchase
No Succession Planning• Very profitable practice …• Great reputation in specialty• The practice was simply given to associate doctors without anything in return• Consult a practice succession attorney after the fact. TOO LATE. There goes $1mm.• How many of you have Succession Plan?
Bad Real Estate Investments• Invest $5mm in multiple properties in multiple states at the peak of the market.• Can’t get out, rents can’t cover taxes and expenses.• $10k negative cashflow• Stressful to travel and manage• There goes another $2mm and counting
Bad Estate Planning• Put away $3mm in irrevocable trust to save taxes• Now can’t touch the money• There goes another $3mm.
Bad Life Insurance Purchase• $5mm worth of life insurance benefiting his 3 children and 2 grand children.• Paying $56k a year a insurance premiums• Second to die permanent life – pay until spouse dies
Bad Annuity Purchase• $2mm left in SEP IRA,• $1mm in variable annuity that guarantees “double money” and save taxes at the same time.
Annuity Guarantee “Double Money”• $1mm purchase price• Guaranteed Amount of $2mm if stay 10 years without any withdrawals.• Starting in year 11th, maximum allowable withdraw rate 5%.• Value of this income stream is 640k using 6% discount rate• Guaranteed Amount is NOT annuity value.
Real Annuity Expenses• Deducting from annuity value every year. – Mortality and Administrative Charge: 1.4% to 2.4% – GMDB (death benefit charge): 1.9% – GMWB (living benefit charge): >0.75% no cap – Variable account expense ratio: 1.4% – Surrender Charge: 8% decreasing over 10 years.• How much is total expenses?• What other risk? How much left for living?
What Caused This Mess?• Too busy with practice• Lack of knowledge• Not ware of conflict of interest
Quiz: Who Are Legally Required to Put Your Interest Fist• Financial Advisor• Insurance Agent• Registered Investment Advisor• Stock Broker• Fee-Based Financial Advisor• Fee-Only Financial Advisor• CPA• Attorney
How Are Financial Advisor Compensated• Example of a Morgan Stanley Fee-Based FA. – 1.2% asset management fee – Put your assets in mutual funds that charge 1.3% expense ratio including 12b-1 fee of 0.5% and loads. – Your total cost 2.5%, MS’s total take 1.7%.• Example of a Fee-Only FA – 0.4% to 1% asset management fee – No load/No 12b-1 fee funds with 0.3% expense ratio
5 Issues Concerning Most Physicians• Investment (myself)• Tax mitigation (team)• Practice Succession (team)• Wealth Gifting and Transfer (team)• Asset Protection (team)
Good Financial Advisor?• Check record at http://www.adviserinfo.sec.gov• Find out if he receives commissions.• Speak in plain English instead of industry jargon.• Know issues facing physicians and has good references from physicians• Is interested in provide ongoing support.• Spend time to get to know you.• Give you confidence to make your own decisions and support your priorities and values
Michael Zhuang• Carnegie Mellon MS in Applied Math and Quantitative Finance, PhD candidate in Financial Economics• Founded MZ Capital 6 years ago, many physician clients all over the country.• Write for Morningstar, Physicians Practice and KevinMD.com• Quoted in ABCNews, CBS MoneyWatch and Barron’s
My Services and Fees• Financial Review (FREE) – find out hidden issues in your personal finances• Financial Planning ($500 to $1000) – create a plan for you• Ongoing Wealth Mgmt (1.0% to 0.4%) – Provide ongoing support in carry out the plan. Give you confidence in making smart decisions