Block Financial Pain

EXECUTIVE SUMMARY

Medical Indemnity InsuranceMedical specialists today – and none more so than anaesthetists – face extremely challenging times. Once thought of as a ‘ticket to ride’ financially, medical specialists now face a barrage of issues affecting not only their careers and job security, but their ability to build financial independence.

High education expenses, a tsunami of medical graduates, government cuts to health budgets, and changes in remuneration structures are issues that all medical specialists must face.

Anaesthetists face particular challenges of their own – increased competition due to growing popularity, sub-speciality opportunities and the added complication of private practicing anaesthetists not being paid when on holiday, or when their surgeon is on leave. They also cannot rely on equity in their business to sell when they retire.

These external challenges, coupled with lack of time and lack of financial know-how, can make it very difficult for anaesthetists to become financially independent without the help of a professional adviser.

Planning your financial future including your business, investments and superannuation; and managing your cash flow will reap rewards and will block potential financial pain; just like you block the pain for your patients. Failing to plan could see you fall short of your life and financial goals resulting in you having to work longer and harder than you thought you would.

An adviser who understands these issues facing anaesthetists can provide holistic, long-term advice to make sure that your finances are in step with your long-term plans and dreams and importantly block any potential financial pain.

RESEARCH

To prepare this research paper, Pert & Associates conducted in-depth interviews with more than twenty anaesthetists – both newly qualified and well-experienced – to gather their thoughts and opinions on clinical and financial issues.

Pert & Associates has also drawn on years of experience working with medical specialists including many anaesthetists and gathered information from secondary sources such as the Australian Bureau of Statistics, ANZCA, ASA, financial and medical journal papers, along with other professionals working with anaesthetists.

ANAESTHETICS TODAY

Compared with many other medical specialities, anaesthesia has become more popular in recent years. The Australian Society of Anaesthetists’ (ASA) effort to improve the standing and remuneration of anaesthetists has made an impact. The improvement in anaesthetic standards and technology has also seen the specialty grow in popularity.

Anaesthesia is also an increasingly popular speciality because of its comparatively flexible working conditions. The sessional nature of the work makes part-time work possible, so the specialty suits female doctors who may have child care responsibilities.

As a result, many anaesthetists are female. According to Australian Bureau of Statistics figures in 2001, anaesthetists are one of the largest medical specialist groups with 24.3 per cent female, one of the higher percentages across the specialties1. More recent 2011 figures indicate that there are now more than 3000 anaesthetists in Australia2. ANZCA report that about 40 per cent of current trainees are women3. Pert & Associates believe this number could now be close to 50%.

These changes and improvements have also seen the profession become far more competitive. To remain competitive in an increasingly difficult job market, many anaesthetists now work with new technology with dentists and radiologists outside of theatres so they have a point of difference. Others are involved in intensive care medicine and pain management, which have emerged as distinct specialities4.

In Queensland the proposed change to the payment options for specialists undertaking private practice in the public sector and the lack of full time positions have also contributed to the competitiveness forcing many anaesthetists to consider other options like private practice or regional positions.

Many of these changes are unprecedented. This paper outlines the key issues affecting anaesthetists today in their journey to build their financial security for the future. Pert & Associates has compiled these issues from knowledge of existing clients’ situations as well the interviews we conducted to prepare this white paper. In addition the paper outlines some case studies detailing how these problems manifest in real situations.

KEY ISSUES AFFECTING ANAESTHETISTS

POOR JOB SECURITY

Our research with young anaesthetists confirmed one of the biggest concerns is the declining opportunities for public hospital positions and the subsequent reduction in job security.

According to our interviewees and confirmed by the ANZCA Bulletin, many factors have contributed to this reduction in job security for medical specialists: 1) cuts to state health department budgets, 2) the significant influx of international medical graduate specialists, 3) unprecedented growth in Australian medical school graduates, and 4) the desire for more flexible hours5.

The GFC and the impact on superannuation funds has also probably delayed some anaesthetists’ plans for retirement6.Sadly medicine – and indeed anaesthetics – is no longer a ‘ticket to ride’. Medical specialists must work hard and plan ahead to block financial pain and ensure financial success.

NO WORK = NO MONEY

Like other medical specialists who work by the hour, anaesthetists only earn when they work. Other professional roles and other medical specialties like radiology have other staff contributing to their income and can build equity and good will in their business creating a saleable practice at retirement. Unfortunately, anaesthetists have nothing to sell when they retire.

Many anaesthetists we interviewed indicated that their ability to charge patients is also often affected by whether or not the surgeon they work with charges a gap, whether the private health funds are pressuring to set fees, and how comfortable the individual anaesthetist is about discussing fees with the patient.

INCREASED DEBT

‘The more you earn the more you spend’ is a well-known catch-cry. Many anaesthetists we interviewed agreed and said they also sometimes felt the pressure to ‘keep up’ with their friends and colleagues – often other medical specialists.

Burdened early with tuition fees and ongoing exam debt, many anaesthetists become accustom to relatively high debt levels.

Compared to other professionals, such as engineers and accountants, anaesthetists are also on lower training wages for a long time. Interviewees felt they were often behind the eight-ball compared to other professionals as anaesthetists are not fully qualified until they reach their mid-30s.

Once fully-qualified, many anaesthetists fall into the trap of spending what they earn; even with increased cash flow. With a habit of coping with heavy debt, including houses, cars, tax, private school fees, and overseas holidays, many anaesthetists must delay investing which can have a corrosive effect on their ultimate financial success. As a result, debt can spiral out of control, tax liabilities are often ignored, and savings are squandered.

FORCED TO GO PRIVATE OR REGIONAL

The lack of positions available in the public health system – particularly in Queensland – has forced many anaesthetists to prematurely consider practising privately or take a regional post. Some look into the Rural Obstetric and Anaesthetic Locum Scheme (ROALS) to guarantee job security7.

For those looking into private practice there are various options. Do you join a group or do you network and find a surgeon or two to work with on your own? A number of private anaesthetists commented that their groups receive calls on a regular basis from consultants wanting to join them ‘We get calls every week from anaesthetists wanting to join our group’.

The ASA provides seminars on setting up in private practice covering subjects like registration, billing, fees, and marketing8.

LIMITED TIME

Long working hours along with the demands of busy family life or extra study leaves most anaesthetists with little time to focus on their finances. For younger anaesthetists, retirement and planning for the future just seem too far away.

As a result, many anaesthetists either rush or avoid making major financial decisions which often leads to poor outcomes. Time poor professionals seldom pay sufficient attention to how they spend money on large capital items and interviewees indicated that they often make poor decisions on lifestyle assets such as cars.

Not taking the time to consider these decisions may mean that it takes you many more years of hard work to achieve financial independence than it should. For some, you will not achieve financial independence at all.

LIMITED KNOWLEDGE

Like many other medical specialists, anaesthetists also admit they are not financial experts.

Anaesthetists’ high cash flow means you have access to a range of investment opportunities, many of which may look sophisticated and attractive. Limited time (and many with limited interest or knowledge), to interrogate the opportunities can lead to investing without a coherent strategy; this can achieve disappointing and even counter-productive results.

Private anaesthetists also have the added burden of running a small business and the complications of budgeting to pay tax and other costs.

The Anaesthesia Continuing Education Coordinating Committee makes the point that anaesthetists do not receive specialist training in financial matters. ‘We would not expect our financial advisers to give us an anaesthetic, so it is sensible to seek expert advice on financial matters.’9

NO CENTRAL POINT OF CALLOur research shows that all medical specialists use a variety of un- coordinated professionals for financial advice– accountants, private bankers, lawyers, investment advisers, stockbrokers, and insurance agents.

Many interviewed commented that it would be more effective to have one point of contact to handle all financial management issues. In other words, a personal Chief Financial Officer (CFO) who can project manage all the various transactional advisers.

BEHAVIOURAL BIASES

A branch of science known as behavioural finance has evolved to study the interaction between human behaviour and economics10. This interaction can also affect our financial success.

According to this theory, human behaviours are hardwired and we often act in ways which are not in our best financial interest. Often, motivated by fear and greed, we respond erratically and irrationally, reducing our investment returns. Common investor behavioural biases that most anaesthetists would relate to include:

1. OverconfidenceMany intelligent professionals think that because they are good at what they do, they will also excel in managing their investments. Medical specialists have a tendency to overspend to fund an affluent lifestyle, assuming the cash flow will last forever.

2. Risk aversion

Academic research has shown that investors are more troubled by a loss than pleased by an equivalent gain. However, by being so afraid of losing money, investors can often reduce their opportunity for gain. In other words, sometimes not taking risk can be risky itself.

3. Regret

We tend to judge ourselves quickly if our actions do not immediately generate a positive response. Fear of regret can lead investors to hold onto losing investments for too long hoping they will ‘come good’. Alternatively, if you have invested soundly, as part of a long term asset allocation strategy for example, it pays to stick to your investment objectives rather than engage in costly, knee-jerk trading.

CASE STUDY – LUKE AND JOHN

  • Luke and John started in a private practice group two years ago.
  • Both still do one public session a week.
  • Both are 36 years old and earn about $650,000 per year.
  • Both are married with three young children at private schools.
  • Both have a $750,000 mortgage on a house worth $1.3 million.
  • Both their partner’s work part-time earning approximately $80,000.

Luke

  • Luke and his partner sought financial advice when he was in his final year of training.
  • They have planned ahead for his private practice tax payments, saving 40 per cent of his gross billings in their offset account.
  • He bought a $70,000 SUV when he started in private practice.
  • They will keep their existing house and pay the mortgage quickly.
  • They are budgeting for private secondary school fees, an investment portfolio and annual family overseas holidays.
  • They are both maximising their super contributions of $25,000.

John

  • John and his wife haven’t sought financial advice.
  • He didn’t allow for his tax payments, as a result has taken a loan for $200,000 to pay for his first year’s private income tax and arrange to pay the ATO in instalments for last year’s tax.
  • He bought an Audi Q7 Quattro for $150,000when he started in private practice using a chattel mortgage.
  • They have upgraded to a $2 million house.
  • Their mortgage has increased to $1.5 million.
  • They often find themselves with cash flow problems depending on when he receives his fees.
  • He is sometimes overconfident when it comes to finances.
  • They do not have the cash to contribute extra to super.

Consequences in five years

  • Although John lives in a more expensive home than Luke, his overall net asset position is far less than Luke’s and he has significantly more non-deductible debt.
  • Luke’s net asset position is $2.9 million. John’s is$1.7 million.
  • Because of John’s high loan repayments and more opulent lifestyle, his annual cash flow is significantly less than Luke’s who lives within his cash flow and has less debt.
  • Luke’s after tax annual cash flow is $150,000 more than John’s.

CASE STUDY– MIRANDA AND BELINDA

  • Miranda and Belinda work in the public system part-time and do one day private per week.
  • Both are 43 years old and earn about $200,000 per year.
  • Both have two children at private secondary schools.
  • Both their husbands are medical specialists and earn$500,000.
  • Both develop breast cancer within three months of each other andboth take six months off work.
  • Both have $1.5 million in debt – home, and investments.
  • Both use their income to pay private school fees, fund holidays and entertainment.

Miranda

  • Miranda and her husband sought financial advice from parents initially and through a financial adviser as senior registrars.
  • They have recently bought a new family home to be closer to the kids’ schools for $2 million with a mortgage of $600,000.
  • They have life, trauma and income protection insurance.
  • They reduce costs of an annual holiday with homes for exchange.
  • They maximise contributions into a self-managed super fund of $25,000 each year and their super fund is now worth$600,000.

Belinda

  • Belinda and husband have sought ad-hoc financial advice.
  • They bought a new home for $2.4 million and owe $1.6 million.
  • Only Belinda’s husband has income protection and trauma cover.
  • They were involved in a failed investment in trees in an attempt to reduce tax and owe $150,000 on the loan.
  • They ski twice a year, once in NZ and once in Europe or Japan.
  • She is only receiving employer super contributions of$10,000 and their combined super fund is $400,000.

Consequences in two years

  • Miranda receives $500,000 tax free for her breast cancer.
  • Miranda pays down her mortgage to only $100,000.
  • Miranda’s and her husband’s superannuation is now $800,000 (due to both Miranda and her husband maximising the annual contribution limits).
  • Belinda and her husband’s superannuation is only $500,000.
  • Without Belinda’s income, Belinda and her husband’s annual cash flow is negative $5,000; their mortgage is still $1.4 million and they owe $150,000 for the failed managed investment scheme.
  • Miranda’s annual cash flow remained positive at $145,000.

CHOOSING A FINANCIAL ADVISER

If the issues in this paper resonate with you, you might like to speak to a financial adviser. But choosing a financial adviser who is right for you and your situation can be difficult. Below are some questions which you may like to consider when selecting a financial adviser.

  • Does the financial adviser have a solid understanding of the medical profession and in particular the issues anaesthetists face?
  • Does the financial adviser look at your whole family situation including your spouse, your children and extended family if necessary, not just your individual situation?
  • Does the financial adviser work with you to manage your cash flow now to build income producing capital outside your professional income?
  • Does the financial adviser work with you to carefully manage your lifestyle expenses?
  • Does the financial adviser work closely with other professional advisers to ensure you have a collaborative financial approach?
    • Accountant
    • Private banker / business banker
    • Insurance broker – life, business and general
    • Lawyer – estate planning, family, and conveyancing
    • Real estate agent / buyers agent
  • Does the financial adviser listen and consider your past, existing, and future goals and desired outcomes?
  • Does the financial adviser understand the differences between working as a medical specialist in private practice and the public system? Do they keep up to date with the ongoing changes?
  • Does the financial adviser demonstrate they understand how superannuation, insurance and estate planning impact you in the context of your overall financial situation now and in the future?
  • Does the financial adviser specialise in providing advice-based solutions based on your needs not product-based solutions?
  • Does the financial adviser offer a transparent fee for service, rather than commission-based advice?
  • Does the financial adviser offer regular reviews of your affairs to ensure you stay on track?

Conclusion

This paper highlights the common issues anaesthetists currently face and their impact on your ability to manage and build financial independence. Financial advisers who understand these challenges and how they impact on your financial success or failure will advise you most appropriately.

Medical specialists – including anaesthetists – will benefit greatly from having a long-term relationship with a trusted financial adviser who understands your individual situation, co-ordinates your financial affairs; and provides professional advice, based on fee for service not on commission.

ABOUT THE AUTHOR

Brian Pert is a director and adviser of Pert & Associates. His mission is to help clients use their wealth to achieve their most important life goals, such as establishing legacies for their families, contributing to their communities and pursuing their passions.

Brian is a certified Financial Planner, a status that requires comprehensive knowledge and continuing education. He has a degree in economics and has been advising clients on financial independence for more than 15 years.

ABOUT PERT & ASSOCIATES

Pert & Associates is a boutique firm with offices in Brisbane, Sydney, and the Gold Coast. Pert & Associates’ number of clients is limited to ensure they provide a high level of personalised attention and direct access to the adviser’s expertise.

Firm clients include medical specialists, pilots, professionals, small business owners, and high-net worth individuals.

REFERENCES

Anaesthesia Continuing Education Coordinating Committee – Welfare of Anaesthetists Special Interest Group, Financial Issues 2011.

Australian Bureau of Statistics (Catalogue 4102.0) Australian Social Trends 2003.

Australian Government Department of Health and Ageing, Rural and Regional Health Australia – [cited 16 September 2013]. Available from: www.ruralhealthaustralia.gov.au/internet/rha/publishing.nsf/Content/Nati onal_Rural_Locum_Program

Career Advice and salary guide, Open Universities Australia [cited 16 September 2013]. Available from: www.open.edu.au/careers/healthcare- medical-pharaceuticals/anaesthetists

McNamara, S. Working as an anaesthetist, MJA Careers. The Medical Journal of Australia, 2011, 18 July; (2).

Roberts, Dr L. (March 2013) Workforce, a hot topic: what is the College doing? ANZCA Bulletin p12-13.

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2002.Nobelprize.org.Nobel Media AB 2013.[cited 17 September 2013]. Available from: http://www.nobelprize.org/nobel_prizes/economic- sciences/laureates/2002/

  1. ABS, Catalogue 4102.0
  2. www.open.edu.au/careers/healthcare-medical-pharaceuticals/anaesthetists
  3. The Medical Journal of Australia, Number 2, 18 July 2011
  4. The Medical Journal of Australia, Number 2, 18 July 2011
  5. Roberts, Dr L. (March 2013) ANZCA Bulletin p12-13
  6. Roberts, Dr L. (March 2013) ANZCA Bulletin p12-13
  7. Australian Government Department of Health and Ageing, Rural and Regional Health Australia
  8. Anaesthesia Continuing Education Coordinating Committee – Welfare of Anaesthetists Special Interest Group, Financial Issues 2011
  9. Anaesthesia Continuing Education Coordinating Committee – Welfare of Anaesthetists Special Interest Group, Financial Issues 2011
  10. “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2002”. Nobelprize.org. Nobel Media AB 2013.Web. 17 Sep 2013

IMPORTANT INFORMATION: This document has been prepared to provide you with general information only. It is not intended to take the place of professional advice and you should not take action on specific issues in reliance of this information, in preparing this information, we did not take into account the investment objectives, financial situation, or particular needs of any particular person. Before making an investment decision, you need to consider (with our without assistance of an adviser) whether this information is appropriate to your needs, objectives and circumstances.

Pert & Associates is a Corporate Authorised Representative of Paragem Pty Ltd, AFSL 297276. Level 1, 10 Bridge Street, Sydney.

This publication is general in nature and is not comprehensive or constitute legal or medical advice. You should seek legal, medical or other professional advice before relying on any content, and practice proper clinical decision making with regard to individual circumstances. Persons implementing any recommendations contained in this publication must exercise their own independent skill or judgment or seek appropriate professional advice relevant to their own particular practice. Compliance with any recommendations will not in any way guarantee discharge of the duty of care owed to patients and others coming into contact with the health professional or practice. Tego Insurance Pty Ltd is not responsible to you or anyone else for any loss su­ffered in connection with the use of this information.

By Tego Insurance on Saturday, April 7th, 2018 in General. No Comments

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