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Issue #7 - 11.21.06
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When to Call a Financial Planner?
Now, would be a very good time to pick up the phone. In reality, however, most dentists don’t consider working with a financial planner until a significant or life changing event occurs, such as marriage, birth of a child, divorce, death, disability, purchase of a practice, etc. And even then, many doctors will try to handle the details themselves. Unfortunately, with busy practices and even busier lives, critical particulars of financial security can become lost. And few dentists have the time or background to effectively consider all areas that affect their financial picture.
Financial planners help clients develop and implement a comprehensive financial plan, says Ken Rubin of Ken Rubin and Company, Certified Public Accountants and Financial Planners. He is a Dental CPA/PFS (Personal Financial Specialist). Mr. Rubin explains that a financial planner should consider everything from cradle (determination of guardians for children, college education funding, etc.) to grave (estate tax reduction, wills, trusts, smooth transfer of assets). The financial planner should also look at all revenue areas, from investments, to income, to cash flow, to budgeting, while simultaneously protecting against financial risk. He notes that like a chain, a financial plan is only as strong as its weakest link
A personal financial specialist (PFS) or certified financial planner (CFP) also should help the doctor establish a retirement plan for him/herself as well as a tax deductible plan for the office. “Generally, you should work with a financial planner who will take a comprehensive approach rather than segmented, and be wary of those who want to sell you huge life insurance policies,” explains Mr. Rubin. Excessive amounts of life insurance are often sold to unsuspecting clients under the guise of “financial planning.”
When choosing a financial planner, check their credentials. Absolutely anyone, including you, can call him/herself a financial planner or financial advisor. However, those offering financial services should be licensed and carry certain designations. For example, CPA/PFS, which is among the highest credentials given, is only available to members of the American Institute of Certified Public Accountants (AICPA) that specialize in financial planning. In addition, to fulfilling extensive experience and testing requirements, the designation requires those awarded the credential to meet certain ongoing requirements to retain the certification. Mr. Rubin notes that fewer than 4,000 financial planners have earned the PFS designation.
The Certified Financial Planner credential is awarded by the CFP Board of Standards after a candidate has completed a series of exams in the areas of financial planning, taxes, insurance, estate planning and retirement planning. CFPs also must meet continuing education requirements to retain certification. There are over 50,000 CFPs nationwide.
If you choose your financial planner carefully, you can expect them to help you choose your investments wisely, which Mr. Rubin says should generally be comprised of a well-diversified portfolio of mutual funds and/or stocks and bonds. “It shouldn’t be sexy or something you will be bragging about at cocktail parties, but in the long run, you will generally get at least a 10-12% return on the average. If someone insists on trying to hit a home run financially, I tell them to limits this investment to 5-10% of their total portfolio. This reduces their downside if they end up striking out.”
He urges dentists to invest in real estate as well, including their home and their practice. “Don’t pay rent for 40 years to a landlord. In the long run, if the dentist owns their facility when they go to sell the practice they often will make more on the sale of the building than they would for the practice alone.”
The most important step is to begin saving for retirement immediately. The more time you have, the less risk you have to take on your investments. “Every year I hear from dentists who hit age 50 and have been spending as much as they’ve been earning and now it’s a huge shock to prepare for retirement.” emphasizes Mr. Rubin. “These dentists will try to hit a home run on their investments, and most of the time they strike out and become even further behind.”
So how much should you set aside? There’s no magic number, says Mr. Rubin. “Some say put 5% away, some say 10%, the more you save the better. But you don’t want to be so frugal that you’re not having any fun in life. You need balance; the key is to start early on a consistent basis and letting time work for you rather than against you.”
Ken Rubin can be reached at (619) 299-6161.
Sally McKenzie is CEO of The McKenzie Company, Inc. a nationwide dental management, practice development and educational consulting firm. Working “on-site” with dentists since 1980, McKenzie Management provides knowledge, guidance and personalized systems that have propelled thousands of general and specialty practices to realize their potential. Sally can be reached directly at 1.877.777.6151
Interested in speaking to Sally McKenzie about your management concerns? Email her at Sally@thedentistsnetwork.net
Interested in having Sally speak to your dental society or study club? Click Here.