Pechersky Blog

Is the Internet Giving Physicians Bad Financial
Guidance?
October 17, 2018
 
Michael Pechersky, CFA
The higher transparency that the internet brings to the field of finance is a welcome change and certainly one that has empowered many physicians to make better decisions about their money. Despite this, there are still some ways that the internet fails to render financial insight that is completely accurate. Here are five examples of ways the internet may actually be giving physicians bad financial guidance.

 
#1 Getting advice online from people who aren’t practitioners


There is a growing movement of people rendering financial guidance called FIRE (financial independence retire early). These bloggers are usually not financial advisors by practice but rather a writer or high earning professional who has done well managing his or her own money. They tout the value of living a balanced life and supposedly have all the answers about how to get rich, be happy, and retire early without hiring a financial advisor or working too hard at your job.

 
Sounds good, but is this really practical?
 

Theory is one thing, and real life is another. Keep in mind that we are in the midst of a nine-year bull market. It’s easy for everything to smell like roses when there’s no 20% downturn for miles. Now take 2008 for example when financial advisors were, in some cases, the shoulders to cry on and the ones who saved people from massive financial devastation. Of course, there is no guarantee that any historical trend will continue into the future.

 
Many of these people have only invested for themselves which makes the premise of their ability to advise others entirely that – a theory.

 
Talk to someone who has made financial decisions for other people for 20 years and they will have tons of stories to tell you about how theory and reality have failed to align on numerous occasions (painfully, I might add). It’s like the difference between getting advice about the gearshift in your car from someone who knows a lot about it and has successfully fixed their own versus someone who has been a mechanic for 20 years.

 
Also consider that when you read something on the internet, it’s likely free. The writer has no personal
accountability to you if it doesn’t work out. In fact, you may not even remember which article you read. They will not have to suffer the reputational consequences of telling you to do something that didn’t work out.
 

With internet blogging, the goal is generally to write content that gets enough views; it is usually not to provide personalized investment advice. The people writing the content aren’t necessarily financial experts, in fact in many cases don’t even hold industry designations. Their goal is to write about things that will get people to respond (share, like, and comment on the article.) So naturally the dry, boring details behind these financial concepts are neglected in favor of the more sensational.  

 
#2 Underestimation of liabilities


Information about the way financial systems, products, and services work has been made available in abundance
on the internet. While there’s nothing wrong with doing your homework, the facts and figures are only part of
the equation.

 
Piecing together a financial plan one element at a time may seem logical, but in reality it can cause all kinds of issues. A plan should be designed holistically and take your personal goals, both short and long term, into account. Unless you are following some kind of holistic program, you run the risk of combining things that may not make sense together or leaving important things out.

 
For example, doctors have a high likelihood of being sued. Most financial products are discussed on the internet in terms of their investment features rather than their risk protection potential.  Ask any financial advisor who puts together holistic plans for doctors for a living, and they’ll say that asset protection is just as important as, if not more important than, growing your wealth.

 
#3 Biased views of insurance products


The insurance industry has earned itself a less than favorable reputation in the eyes of the consumer due to many instances in the past where agents have placed people into highly fed products that were not suitable and ultimately did not work out in the client’s best interest.

 
While nobody can dispute this fact, the effect has been that there is a great deal of skepticism around insurance products whenever they are discussed on the internet. So much so that the true merit of these products often becomes obscured.

 
There are many positive things that whole life insurance, for example, can do for a high earning physician, yet you rarely hear about that. You’re more likely to hear the disaster stories instead.
 

Let’s take, for example, a medical practitioner earning $400K per year with approximately $1M in savings. As most medical practitioners tend to be in high-income tax brackets, this practitioner needs to find a balance between having reasonable after-tax return liquidity and having asset protection from possible lawsuits related to their profession.

 
Retirement accounts are the commonly cited option to help with taxes as well as provide protection against lawsuits. However, the liquidity of these accounts depends upon age of the practitioner. Withdrawing funds can increase the overall taxes for that year unless it is a Roth account. There are also annual contribution limits for both Roth and Traditional IRAs that prohibit investments over a certain amount into the accounts.

 
As long as there is an insurable interest, a properly-constructed whole life policy can be used for supplemental retirement funds. In some cases, the death benefit of a life insurance policy is protected from creditors.Protection varies by state and may be limited. Consult your tax and/or legal advisor for more information. There are no penalties to use the available cash that accumulates within such a policy, and no requirement to pay it back. As the policy’s cash value accumulates, it can become a valuable resource that can be used whenever you need to borrow or withdraw money. Accessing the cash value will reduce the total cash value and total death benefit of your policy.

 
Whole life insurance could be a possibility as a retirement income supplement if other savings vehicles such as 401(k) account have been exhausted.

 
Although insurance products like life insurance get a bad rap from the internet, as you can see, there are times when they may offer the best option.

 
#4 A mile wide and an inch deep


Recognize that content written for the internet is designed to appeal to the most people in a certain circumstance. It is not set up to address people’s needs on a one by one basis.

 
Look at the inherent complexity of many financial products, namely life insurance. Life insurance policies can be very complicated and difficult to understand.

 
Some policies have various stipulations and provisions that may become triggered over the life of the policy. It requires practical knowledge and experience dealing with such policies to find the best course of action.

Life insurance is just one example - taxes and estate planning are others. For physicians who have a lot at stake, general advice is no substitute for the opinion of a professional who has experience evaluating a client’s specific situation.

 
#5 A search engine is not a financial advisor


What people may not understand is that a search engine is based on algorithms. It is not a human financial
advisor whose job it is to provide you with the right information, to make a recommendation based upon your
needs.

 
The internet is a business and those who are the best at optimizing readership using various techniques such as
keywords, optimizing content to hit targeted key words, or even choosing topics that are the most provocative
will get the most attention. Sometimes people game the system and use certain blog titles as “click bait” or
keyword load their blogs to get a higher ranking.

 
The end result? You may end up reading something that isn’t answering the question you asked just because it’s what a website served you.

 
For example, let’s say you typed into a search engine, “How should I invest my retirement money?” You will get pages and pages of answers, but the top entries will talk about investing your money into the retirement accounts.

 
While a person doing the search will get a wealth of knowledge about various retirement accounts and how they
work, it will not answer the most crucial question: Are retirement accounts the best option for this person to
begin with?  That answer may be buried on page five which you’re unlikely to get to.

 
Here’s how this may hurt physicians. As discussed in example #3, a younger person making less money will
benefit less from putting his or her money in a 401(k) plan than an older person who is in higher income bracket,
because of the lower amount of immediate tax savings as well as the sacrifice of liquidity for a longer period of
time.

 
However, some people won’t think past the information given to them and will be inclined to believe that the advice that the search returned is specifically applicable to them. It must be, it’s right there on the screen!

 
Conclusion
 
 
The internet is a great source of financial knowledge and one that physicians should indubitably consult with when creating their financial plans. However, there are limits to its power, and in some cases basing decisions on the information you are given can do more harm than good. Just like their patients, physicians should follow their own advice: Learn as much as one can about the issue, but let a professional come in and execute the plan. 
Whether it is a plan of treatment or a financial plan, the success is more likely to come from the knowledge and experience rather than a random page on the internet.

 
This material is general in nature and is being provided for informational purposes only. It was not prepared, and is not intended, to address the needs, circumstances and/or objectives of any specific individual or group of individuals. For advice regarding your personal circumstances, you should consult with your own independent financial and tax advisors.  Life insurance contains exclusions, limitations, and terms for keeping it in force. For costs and complete details, contact a financial professional. 

 
Michael Pechersky, CFA
 
Financial Adviser, Eagle Strategies LLC, a Registered Investment Adviser
 
Registered Representative, NYLIFE Securities, LLC, (Member FINRA/SIPC), a Licensed Insurance Agency, 120 Broadway, 29th Floor, New York, NY 10271, 917-318-5504.

Agent, New York Life Insurance Company (NY,NY)

CA Insurance License #OI39424

 

Newlyweds: Here’s what to do after saying ‘I do.’

There’s nothing more exciting—and exhausting—than planning a wedding. But even after the “I do’s” have been said and the thank you notes sent, there are still a number of important legal and financial steps you should take before settling in and spending the rest of your life together. 

Establish joint bank accounts—If you are both young and just starting out, it’s probably easiest—and best—to set up joint accounts. That way, you both know exactly how much money is available and you are more likely to work together on a budget. Plus, you are more likely to get better rates if you pool your money.   

Revise legal documents—Did one of you change names? If so, be sure to keep several copies of your marriage license, so you can update your credit cards, driver’s license, passport, voter registration card, and all other legal and financial documents. Also, be sure to check with the Social Security Administration to see that it has recorded the change as well.

Review your workplace benefits—Assuming you are both working, you may want to compare medical plans and other benefits to see if see if it makes sense—and if it is permitted—for one spouse to be covered under the other spouse’s plan. (Some employers do not allow spousal coverage if the spouse has access to another policy.)

Consider your tax bracket—Now that you are part of a joint household, you may find that you have jumped into a higher income-tax bracket. If so, you may need to increase your withholding, contribute more to a pretax retirement account, or take other steps to lessen the financial impact.[1]

Re-title assets and property—If you own a car, home, or any other property your spouse will be sharing, you may want to re-title them under both your names or designate them as Joint Tenant with Right of Survivorship (JTWROS), in case something tragic happens to one of you.

Create an estate plan—While you may not have had time to accumulate much in the way of wealth, be sure to look through any insurance policies (workplace or otherwise) and other financial assets you own and make sure your spouse is named a beneficiary. You may also need to update your wills or purchase additional life insurance protection to make sure both of you are financially protected.

Now that you are married, you face a whole new set of responsibilities. The sooner you act upon them, the better off you’ll be…and, who knows, it may even get you out of writing a few thank you notes as well.     

 

 

[1] Neither New York Life nor its agents provide tax, legal, or accounting advice. Please see your tax, legal, or accounting advisors before determining a course of action.

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