Wealth Matters: Smart in Medicine or Law, but Not in Managing Money Money Advice for Doctors and Lawyers and the Rest of Us

But their attitudes toward money and investing can create financial challenges later in life.

And the years of education that got them to where they are, their financial advisers say, can also stand in the way of their financial decision-making.

As Greg Erwin, managing principal at Sapient Private Wealth Management who works with doctors, put it, “A lot of these physicians would like to believe that investing and savings is pure science, and that’s not true. It’s an art form.”

Over the last two columns, I have looked at the behaviors of some highfliers — athletes and people who make their living drilling and transporting oil and gas; and those who have built their wealth in volatile fields like technology and real estate.

In each of those cases, I asked financial experts to share their insights into the financial and investing mistakes that are often typical of these clients.

In this column, I’m going to look at what the rest of us can learn from doctors and lawyers.

DO NO HARM Doctors have a reputation among financial advisers for spending every bit of money they make. They earn a lot, after all, and figure they can work a long time. But doctors who engage in this type of spending can forget how hard it will be to maintain their lifestyle in retirement without millions of dollars saved.

“Doctors can have a sense of entitlement,” said Lewis Altfest, chief executive of Altfest Personal Wealth Management, who has a specialty in advising doctors.

“Doctors are highly respected in their communities. They have historically been among the most gifted intellectually and they’re not afraid to exercise it.”

(He has dentist clients as well, but said they generally acted more like accountants than doctors: conservative and more risk-averse.)

While doctors are certainly smart, their medical ability does not necessarily translate to financial acumen.

Mark Gurland, 59, a hand surgeon in New Jersey who is married to a psychiatrist, said he had a theory about doctors’ financial behavior. Since most do not finish their internships and residencies until age 32 — if they have gone straight through from college — they have been living cloistered existences even as their college friends have been working for at least a decade.

“When they’re done, my feeling is, there is this repressed self-sacrifice and when money appears, they’re living in huge houses and driving the fanciest new cars,” he said. “They have a lot of money they worked hard for, and they’re spending it.”

On the investment side, he said, doctors often believe that their knowledge of medical issues translates into something seemingly simpler, like investing.

Dr. Gurland, who has always been a saver, said he had been guilty of making investments on a tip or a hunch. A cardiologist friend persuaded him to invest in fiber optic cables a decade or so ago: he said he doubled his money and then lost almost all of it. When he invested in a company that was promoting a drug for hand surgeries, he thought he had a winner but lost money on that one as well.

Now, he said, he defers to his adviser on investments and thinks of some of his most annoying patients who try to tell him what’s wrong with them.

“Every day, we see patients in today’s world who seemingly know more about medical conditions than the doctor,” he said. “Why? Because they went on the Internet and read about this.”

Mr. Erwin, the adviser, said he tried to offer doctors a financial plan that dealt with their desire for rewards. At the same time, he lets his clients know about the risks inherent in not saving and in trying to fit in time for investing when they have an all-consuming job.

“They’re very methodical thinkers, but they’re also extremely busy,” Mr. Erwin said.

He said he spent time coaching his doctor clients not to get swayed by a friend who thinks they should invest in something they know nothing about or has an opinion about timing the market.

But doctors generally get two important things right. Doctors, particularly those with a unique specialty, buy disability insurance because they know that if they can’t work as a hand surgeon, for example, their income will plummet, even if they can still work as a doctor in a different capacity.

Doctors Urge F.D.A. to Restrict Caffeine in Energy Drinks

A group of 18 doctors, researchers and public health experts jointly urged the Food and Drug Administration on Tuesday to take action on energy drinks to protect adolescents and children from the possible risks of consuming high amounts of caffeine.

“There is evidence in the published scientific literature that the caffeine levels in energy drinks pose serious potential health risks,” the doctors and researchers wrote.In their letter to Dr. Margaret A. Hamburg, the F.D.A. commissioner, the group argued that energy drink makers had failed to meet the regulatory burden placed on them to show that the ingredients used in their beverages were safe, specifically where children, adolescents and young adults are concerned. As a result, the group urged the F.D.A. to restrict caffeine content in the products and to require manufacturers to include caffeine content on product labels.

A similar letter was sent to the agency by the San Francisco city attorney, Dennis J. Herrera, who is one of several public officials conducting investigations of the energy-drink industry.

Energy drink makers have insisted their products are safe and that their levels of caffeine, a stimulant, are on a par with other widely consumed drinks, like coffee.

The F.D.A. has said that it is safe for adults to consume about 400 milligrams of caffeine daily, though many experts say that most adults can consume 600 milligrams or more of caffeine without ill effect. A 16-ounce cup of Starbucks coffee has about 330 milligrams of caffeine, an amount about twice that of some similarly sized energy drinks.

Less is known about the safe level of caffeine for a young teenager, experts say, apart from the fact that it is considered to be lower than for an adult. In their letter Tuesday to Dr. Hamburg, the group of researchers and scientists also pointed out that makers of energy drinks aggressively marketed their products to young teenagers and urged them to consume the drinks quickly.

In recent years, the number of reported emergency-room visits in which an energy drink was cited as the primary cause of a health problem, or a contributing factor, has grown sharply. In 2011, there were 20,783 such visits, compared with 10,068 in 2007. Problems typically linked to excessive caffeine consumption can include anxiety, headaches, irregular heartbeats and heart attacks.

Today's Economist: Uwe E. Reinhardt: If Primary-Care Doctors Were Taxed Like Hedge-Funds Managers

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

“Advancing Primary Care” was the sole focus of the latest report by the Council on Graduate Medical Education, whose mandate is to assess the current and future health work-force situation and make recommendations to the federal government. The problem has long been how to get this done.

Perspectives from expert contributors.

To entice a higher than the current fraction of medical-school graduates into primary-care practice requires a solid understanding what factors influence the choice of a medical specialty as a career.

Among the nonpecuniary factors that have been identified are the medical students’ personal characteristics, their socioeconomic background, whether they grew up in rural or urban settings, the professional prestige that faculty advisers and society at large appear to accord different specialties and, of increasing importance in recent years, the life styles that different specialties imply – that is, the leisure time available for family and personal control over work hours.

It is difficult, perhaps even impossible, to manipulate these nonpecuniary factors significantly through public policy. Much easier to manipulate are the purely economic prospects implied by the choice of a specialty – that is, the rate of return on their investment in medical education that medical students can expect from practice in different specialties. Along with prospective life style, that economic dimension of specialty choice has been found to be influential.

In an earlier post, I described the “human capital” approach to occupational choice, replete with graphic illustrations of the model. In that model both a student’s investment in the choice of a particular profession and the financial returns from that choice are calculated as differential flows against a baseline net-income stream that could be expected by the student from an alternative career that began with only a bachelor’s degree.

Thus, the total amount of money invested in becoming a particular medical specialist has two components: (1) the income forgone by training to become a physician in a given specialty, that is, the income that would have been earned during the years of the physician’s education and training in the baseline occupation, and (2) additional cash outlays for tuition and other fees. The investment does not include the cost of housing and food, because they would have been incurred in any case.

Similarly, the return stream to this investment is the expected income stream the physician can expect from practicing in the chosen medical specialty minus the income stream that would have been earned in those practice years in the alternative baseline occupation.

Public policy can try to influence the choice of medical specialties through the economics of that choice either by reducing the cost of investing to enter that specialty or enhancing the future income stream from practice in that specialty, or by doing both.

Either or both would increase the rate of return the physician earns on the sizable investment in becoming a medical practitioner.

For students signaling an intention to practice in primary care, public policy could lower the cost of investing in such a career by reducing or even eliminating tuition and fees for attending medical school, as some policy analysts have proposed. I criticized that idea in an earlier post, because taxpayers might end up subsidizing some medical students who ultimately decide not to specialize in primary care after all.

A more effective method of lowering the cost of investing in a primary-care career is to charge all medical students full tuition and to lend students the funds for it at reasonable interest rates – and then to forgive sizable fractions of the student’s accumulated debt for each year of full-time practice in a designated primary-care specialty (or in a geographic location) thought to experience a shortage.

Several programs of this nature already exist, most prominent among them the Loan Repayment program of the National Health Service Corps, which was established by Congress in 1972. The program, which so far has been kept relatively small by Congress, could be vastly enlarged to address the entire primary-care shortage head on.

The income stream earned by practicing in a medical specialty could be enhanced in one of two ways.

First, the fees paid for primary-care services or the salaries paid primary-care physicians could be significantly increased to the point that current and future medical graduates would be aware of them. In principle, this seems easy; in practice, it has proven much harder, for reasons whose exploration warrants a post in their own right.

If raising primary-care fees or salaries turns out to be too difficult, an easier alternative might be to enhance the future income stream of primary-care physicians through the federal income-tax code by taxing the practice income of full-time primary-care physicians at the same low rate now accorded the managers of private-equity and hedge funds on certain portions of their income.

The managers of private-equity and hedge-funds are typically paid a performance bonus called carried interest by other investors in the funds. The bonus is earned if the funds under management yield a return above a certain minimum level (e.g., full preservation of invested capital plus 8 percent).

Although carried interest is not a long-term capital gain on the fund managers’ own investment in the funds they manage, carried interest is taxed at the low capital-gains rate (currently 15 percent), rather than the ordinary-income tax rate (currently 35 percent plus payroll taxes) that would apply to similar performance-based bonuses in other industries (e.g., sales commissions), cash bonuses paid executives for performance or to, say, the income earned by physicians.

While economists, including Gregory Mankiw of Harvard, can be found valiantly trying to defend this practice (though Professor Mankiw sometimes seems to support the opposite view), probably most others, including myself and my fellow Economix blogger Bruce Bartlett, take the opposite view.

As long as this tax preference accorded private-equity and hedge-fund managers remains on the books – presumably because they are deemed precious and important to our country – why doesn’t Congress treat full-time primary-care physicians as equally precious and important? That would show we really are serious about an acute shortage of primary-care physicians.