1. Helping Physicians Avoid
Common Financial
Mistakes
Michael Zhuang
MZ Capital Management
To Schedule a Appointment
Email: info@mzcap.com or
call 301-452-4220
2. 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
3. What mistakes?
• No practice succession planning
• Bad real estate investments
• Bad estate planning
• Bad life insurance purchase
• Bad annuity purchase
4. 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?
5. 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
6. Bad Estate Planning
• Put away $3mm in irrevocable trust to
save taxes
• Now can’t touch the money
• There goes another $3mm.
7. 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
8. Bad Annuity Purchase
• $2mm left in SEP IRA,
• $1mm in variable annuity that guarantees
“double money” and save taxes at the
same time.
9. 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.
10. 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?
11. What Caused This Mess?
• Too busy with practice
• Lack of knowledge
• Not ware of conflict of interest
12. 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
13. Answer to Quic
• Financial Advisor – It depends
• Insurance Agent - No
• Registered Investment Advisor - Yes
• Stock Broker - No
• Fee-Based Financial Advisor - No
• Fee-Only Financial Advisor - Yes
• CPA – Yes (but)
• Attorney - Yes
14. 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
15. 5 Issues Concerning
Most Physicians
• Investment (myself)
• Tax mitigation (team)
• Practice Succession (team)
• Wealth Gifting and Transfer (team)
• Asset Protection (team)
16. 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
17. 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
18. 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