A recent survey found some surprising results regarding where doctors have their personal wealth invested and who is making the investment decisions.
Charles Blair, DDS,
John McGill, MBA, CPA, JD
More than 600 doctors responded to our recent reader survey regarding how they were managing and investing their personal and retirement-plan wealth.
Of the responses, 66 percent were general dentists, 20 percent were orthodontists, 5 percent were pediatric dentists, 3 percent were oral surgeons, 2 percent were periodontists, 2 percent were endodontists, and 2 percent were prosthodontists.
Our survey first asked doctors when they last had their personal finances, or "financial plan," reviewed by a professional adviser. The results of our survey, broken down by age category, can be found in Table 1.
The percentage of doctors having their finances reviewed by a professional adviser increased significantly as a function of age. While 30 percent of doctors in the 30-39 age group had never had their personal finances reviewed by a professional adviser, this figure dropped to 22 percent for doctors age 40-49, and 20 percent for doctors in the older age categories.
Furthermore, it was reassuring to find that a significantly higher percentage of younger doctors were having their finances reviewed by a professional adviser on a regular basis. In our 1993 survey, 42 percent of the doctors age 30-39 and 27 percent of doctors age 40-49 indicated they had never had their personal finances reviewed by a professional adviser. These percentages dropped dramatically to 30 percent and 22 percent, respectively, in this year`s survey.
The frequency of the personal financial review by those using a professional adviser was fairly constant over time, as 40-43 percent of doctors in each age category had their finances reviewed during the past year. In the 1993 survey, fewer young doctors had their personal financial situations reviewed annually. Moreover, the vast majority of doctors in every age group had their personal finances reviewed within the last five years, ranging from 70 percent of those in the age 40-49 category to 63 percent in the age 60-69 category.
Surprisingly, the percentage of older doctors having their personal finances reviewed on a frequent basis dropped dramatically in the current survey. Twenty percent of these doctors indicated that they had never had their personal finances reviewed, more than doubling the 9 percent figure in the 1993 survey.
While the 1993 survey revealed that 77 percent of these doctors had their personal finances reviewed in the past five years, this figure dropped to only 63 percent in this year`s survey. Unfortunately, doctors in this age group have the most to gain by having their finances reviewed regularly, since many strategies are available to substantially reduce both their income- and estate-tax liability.
We recommend that every doctor develop (together with his or her spouse) a written game-plan to reach their financial goals. More importantly, this plan should be reviewed preferably on an annual basis, but at least every two years, to make sure that the doctor stays on course.
We also asked doctors what type of professional advice they were using to assist them with their personal finances. The doctor`s responses, broken down by age category, can be found in Table 2.
Responses varied significantly based upon the age of the doctor who responded. Younger doctors (age 30-39 and 40-49) primarily relied on a certified financial planner or investment consultant to guide them (36 percent and 35 percent, respectively), while older doctors primarily relied on the advice of their CPA (41 percent). Older doctors also placed greater reliance upon the advice of stockbrokers, tax- and estate-planning attorneys, and practice-management consultants than their younger counterparts. Interestingly enough, a surprising 4 percent of younger doctors relied upon their insurance agent to guide them with their personal finances, while none of the older doctors used them for advice.
Where is your personal wealth?
We also asked doctors for the current mix of their personal wealth among each of the asset categories listed in Table 3. The table shows, based on different age categories, how doctors` personal wealth is allocated.
This survey revealed that younger doctors had a higher concentration of their personal wealth invested in cash-type accounts, stock and bond mutual funds, and real estate than their older colleagues. Ownership of stock and bond mutual funds decreased significantly as a function of age with 17.1 percent of total assets held in these categories by doctors age 30-39, and only 4.6 percent in the 60-69 age category. Likewise, the total percentage of the doctors` wealth invested in real estate also dropped in the later years, but to a much lesser degree. As expected, the percentage of assets in retirement plan and IRA accounts increased dramatically over time, from 24.5 percent of total assets for doctors age 30-39 to 41 percent for doctors age 60-69.
Compared to a similar survey in 1993, the percentage of assets in cash dropped dramatically (from 19 percent to 10.5 percent) for doctors age 30-39 as did the percentage investing in real estate (from 43 percent to 27.6 percent), while large gains were registered in mutual fund holdings (17.1 percent now compared to 9 percent previously) and retirement plan and IRA assets (24.5 percent now vs. 12 percent previously). These variances decreased as a function of age so that there was little change in the percentage of assets held by doctors age 50-59 and 60-69 compared to the previous survey.
We also asked doctors who made the investment decisions regarding their retirement plan as well as other personal assets. The vast majority of doctors made their own decisions regarding their personal (non-retirement plan) investments, as Table 4 shows.
Clearly a high percentage of younger doctors are assuming full control of their personal investment decisions, as almost 88 percent of doctors age 30-39 invested on their own. On the other hand, 32 percent of doctors age 60-69 relied on either a fee-paid adviser or broker to assist them with their personal-investment decisions.
In comparison with our 1993 survey, the overall percentage of doctors making personal-investment decisions rose from 75 percent to 80 percent. Meanwhile, the percentage relying on a fee-paid adviser grew from 9 percent to 14 percent, while the percentage relying on a broker or other party dropped dramatically from 16 percent to 6 percent.
Who makes retirement fund investment decisions?
Table 5 shows that while fewer doctors went solo in making retirement plan investment decisions, these independent doctors still constituted the vast majority. Interestingly enough, the percentage of doctors responsible for making their own retirement plan investment decisions was highest among the age 30-39 category (75.4 percent) and decreased as a function of time, while the percentage of doctors using a fee-paid adviser or broker grew among older doctors.
We also asked doctors how they carried out their retirement plan and personal-investment decisions. The survey results can be found in Table 6.
The percentage of retirement-plan and personal-investment decisions carried out through full-service brokers increased as a function of the doctor`s age, along with the use of discount brokers, while trading via the Internet and directly through mutual funds was the most popular with younger doctors.
Overall, 31.6 percent of all investment decisions were carried out through full-service brokers, 27.8 percent directly through mutual funds, 24.3 percent through discount brokers, 14.2 percent through the Internet, and 2.1 percent through other means.
For more information about this article, contact the authors at (704) 424-9780. Biographies of the authors appear on page 8. Dr. Blair is a member of the American Academy of Dental Practice Administration.