An excerpt from Wealth Strategies for Today’s Physician: A Multi-Media Playbook.

Physicians of all specialties are different from the average U.S. investor in several important ways. This statement reflects data in key areas that impact fundamental aspects of investing and wealth management. It is important for physicians to realize these differences because most financial news, whether in print, online, or on television, is geared to the average investor. Therefore, media messages on investing often will not apply well to your situation.

How physicians are different from most investors

1. Income and tax liability

Doctors typically have an income level that far exceeds that of most investors in our country. According to the Census Bureau, the median household income in the United States in 2021 was $70,784. According to Medscape’s physician salary report, the median compensation for a primary care physician was $243,000 and $346,000 for specialists. The top eight earning specialties had incomes exceeding $400,000.

This enormous income difference has implications in all disciplines of wealth management but is especially relevant in tax planning. The average U.S. investor cares little about tax planning because they do not have a significant tax problem. Compare the average U.S. taxpayer’s effective federal income tax rate of 12.1 percent with the top marginal income tax rate of a physician. Many doctors find themselves in the top federal tax rate bracket (37 percent in 2024). Add the net investment income tax of 3.8 percent and potentially state and local taxes, and one can easily recognize the importance of tax-efficient investment strategies for physicians. Consider these three points:

• Outside of the April tax season, the financial media generally ignore the subject of taxes, yet it is top-of-mind for most physicians throughout the year.
• Almost all performance data for an investment fund show pre-tax returns, when post-tax returns are all that really matter to a heavily taxed investor like a doctor.
• Many financial products are designed for investors who are subject to a lower amount of taxes than physicians are.

2. Net worth

Net worth is another financial differentiator. Target date funds (asset allocation funds implementing a glide path strategy), robo advisors, and online financial planning software are useful tools that may be satisfactory for the average investor. Unfortunately, these products or services are not designed to handle the increasingly complex circumstances of high-net-worth physicians. A doctor may own an interest in a surgery center, office building, or other piece of real estate, or have a secondary income from speaking engagements or consulting. The previously mentioned tools and products lack the sophistication to integrate the physician’s nontraditional situation into an appropriate risk-managed investment strategy or comprehensive financial plan.

3. Amount of free time

Ask almost any physician what their scarcest resource is and the answer is likely to be “time.” The data back this up, as a Bureau of Labor Statistics report reveals that the average nonfarm workweek in the United States was 34.4 hours. For “private-sector production and nonsupervisory employees,” it was 33.6 hours. Conversely, the American Medical Association reported that fewer than 15 percent of physicians worked less than 40 hours per week.

Finding time to focus on the tax, legal, and insurance concepts that must be understood to manage a family’s general finances, and investments in particular, is a significant challenge for many doctors.

We are not saying that physicians cannot or should not take an active role in their wealth planning and investing. However, compared to the average investor, physicians have much less time to do so and there is more at stake.

4. Highest and best use of time

For the relatively few physicians who have the spare time to actively invest on a continuing basis, the question becomes, does it make economic sense to do so?

Certainly, most physicians are able to research investments if they have the time. Thus, the most important question is not whether a physician can do-it-yourself (DIY) invest, but whether they should. In other words, would a doctor be better off putting his or her time to its highest and best use—treating patients or building a practice—and then spending a portion of that income to hire investment and wealth management expertise?

At a high level, let’s examine a few numbers. Most (though not all) physicians work around 200 to 250 days a year and their income ranges from $250,000 to $1 million+ annually, so they earn between $1,000 to $5,000+ per day.

If we estimate that the work involved in actively managing a portfolio, including researching public and private investments, assessing portfolio risk, trading and rebalancing, harvesting tax losses, and locating tax-efficient assets, would take one to three days per month, this equates to a time cost of between $12,000 and $180,000 annually.

Obviously, this range is extremely large, with the highest-income physicians incurring the greatest opportunity cost. Even for the lowest-income physicians (who still earn much more than the average U.S. household), the cost of their time almost always exceeds what they would pay a professional to handle these tasks.

To avoid the time cost of doing their own financial planning and investment management, most physicians elect to outsource these services. However, if you make the decision to hire an advisor, that does not mean you can completely ignore your finances and become disengaged. Ask difficult questions, check for conflicts of interest, demand transparency, and expect regular communication.

View a video on the important differences between physicians and the average U.S. investor.

Takeaway

When it comes to wealth management in general and investing in particular, physicians are different than the average U.S. investor because of their income tax liability and net worth, the time they have available, and the highest and best use of that time. Physicians should keep these differences in mind when choosing and working with their team of financial advisors.

David B. Mandell is an attorney, wealth manager, author, and principal at the nationally recognized wealth management firm OJM Group, LLC, where he and his team provide comprehensive and multidisciplinary financial planning services tailored specifically for physicians. He is also the founder of The Law Office of David B. Mandell, PC.

David hosts the Wealth Planning for the Modern Physician Podcast, now in its fifth season with over 95 episodes and 50,000+ downloads. The show focuses on the unique wealth planning concerns faced by today’s doctors and features interviews with physicians across specialties and stages of their careers, as well as insights from financial and industry experts. Listeners gain practical tips on building wealth, protecting assets, reducing taxes, and achieving long-term financial goals. Click here to listen and subscribe.

He is also the co-author of more than 15 books, including the newest release, Wealth Strategies for Today’s Physician: A Multi-Media Playbook. This innovative guide includes over 250 pages of actionable content and more than 90 embedded links to videos and podcast episodes. Organized into seven key strategies, the Playbook helps physicians reduce taxes, invest wisely, choose the right insurance, protect their assets, and plan for retirement. Click here to get your free print copy or eBook download, available exclusively to members of the KevinMD community.

David has spoken at major national medical meetings, including those hosted by the American Academy of Ophthalmology, the American Association of Orthopaedic Executives, and the International College of Surgeons. He earned his bachelor’s degree from Harvard University, his law degree from UCLA School of Law, and his MBA from UCLA Anderson.

Connect with David and OJM Group on their website, LinkedIn, Facebook, Instagram, YouTube, and X @OJMGroup.