Peer reviewing doctors’ views on money

The Medical Post conducted the Physician Finance Survey online in May with 536 doctors participating. The results are slightly weighted for physicians age 50 and older, who were 58% of the respondents. Here we look at the survey results, along with reactions from three doctors who are smart about finance: Dr. Paul Healey (top), who runs the Physician Financial Independence (Canada) Facebook group with his physician wife Jane. Dr. Mark Soth (middle), a practising academic intensivist in Ontario and the man behind the blog Loonie Doctor. Dr. Stephanie Zhou (bottom), an addictions physician at Toronto’s Sunnybrook Health Sciences Centre in her second year of practice. She teaches financial literacy to University of Toronto medical students and has helped other med schools develop their financial literacy curriculum. Her YouTube channel where she uploads lectures is here. Top info sources When it comes to financial advice, where do you go first to source information? 52% Financial advisor 31% Trusted online content (financial institute website, etc.) 6% Social media (Twitter, Facebook groups) 6% Friend 3% Book 2% Investor’s group Your financial plan 86% Have a financial plan in place 93% Use their plan to make informed financial decisions 72% Did not change their financial plan over the last year during the pandemic What essential components does this financial plan include? 91% Investments 87% Retirement 54% Estate/trust, etc. 32% Debt management Our panel of three physician finance experts were mostly reassured by what these results tell us about how Canadian physicians think about their financial plan, including that 86% of doctors surveyed have a plan. “You would want the vast majority—if not all—physicians to have a financial plan—so it is good that this number is high,” Dr. Soth said. Dr. Soth was also reassured that they nearly all use it to make decisions. “There is no point having a financial plan if you don’t follow it. And your financial plan really shouldn’t change much because of things like pandemics; it should be a long-range financial plan.” Dr. Zhou said she definitely agreed that it’s important to have a plan for anything you do, especially investing. “The plan will help keep you disciplined—especially now that there is so much market exuberance. There are a lot of get-rich-quick schemes that are being pushed around. So it’s really important to be disciplined when you’re investing.” Dr. Healey said he was happy to see the 32% prioritizing debt management as part of their financial plan. “The financial industry doesn’t do a great job helping young physicians get their debt under control. Financial advisors generally get paid for selling investments, and debt gets ignored. I was gratified to see that.” Your professional corporation 67% Have a professional corporation What drove your decision to have a corporation? 78% Accountant’s advisory and planning support 40% Other deduction benefits beyond income tax deferral 37% Self-researched tax planning 32% Peer recommendations How quickly did you start it after going into practice? 14% Immediately 11% Within the first year 11% Within one to two years 64% After two years Are you using your professional corporation for: (click all that apply) 73% Investing surplus earnings into managed investment products 36% Investing surplus earnings through a self-directed brokerage account 17% Borrowing funds for any purpose 15% Purchasing rental properties 9% Purchasing a commercial clinic location Are you using your professional corporation for: (click all that apply) 73% Investing surplus earnings into managed investment products 36% Investing surplus earnings through a self-directed brokerage account 17% Borrowing funds for any purpose 15% Purchasing rental properties 9% Purchasing a commercial clinic location Dr. Healey said he was concerned about the 40% of doctors who said their decision to have a corporation was driven by “other deduction benefits beyond income tax deferral.” He said: “Well, that is a misconception: There are no deduction benefits that you can’t get with a sole proprietorship.” So basically some doctors seem to think they should incorporate because there are certain business expenses you can deduct that you wouldn’t be able to do as a sole proprietor but, in fact, there is no difference in what you can deduct as a corporation versus as a sole proprietor. Dr. Healey thinks doctors are having more realistic discussions about the value of incorporation. “It is not a magic sword that is going to get rid of taxes.” Loss of income splitting Dr. Soth sees a slowing of interest in incorporation among physicians overall. “It seems like fewer people are incorporated than would have been a few years back. And it is not happening immediately with starting practice—which I think makes sense because with the income-splitting benefit of incorporation going away, the main benefit is tax deferral, which really is a benefit in addition to your other registered accounts like your tax-free savings account and your RRSP.” He notes that it takes people a bit of time to pay off debt, make major purchases and top off those accounts before they have money to leave in a corporation for tax deferral, so this change makes sense. Dr. Zhou cautions against incorporating immediately out of residency no matter what. “Usually residency finishes in July for people—which is in the middle of a tax year. So your annual taxable income will tend to be lower because half your income is staff income, half your income is residency income.” The only reason she can see for doing it immediately out of residency is for organizational reasons. “So let’s say if you have a personal account and a corporate account, it kind of separates things. . . . I guess you don’t have to change automatic billing deposits to a separate account once you incorporate,” Dr. Zhou said. “But just in my experience, it wasn’t that hard to make those changes.” Lastly she noted that though our survey showed 64% of doctors didn’t incorporate until “after two years” in practice, one should be aware that that is a big range and it may have been five or 10 years out that doctors incorporated. Top financial goals Top 5 financial goals (50 and older) Increase retirement investments 90% Save more of my income 62% Start planning for retirement 57% Save money for my family (future education costs, etc.) 52% Live below my means 37% Top 5 financial goals (49 and younger) Save more of my income 67% Increase retirement investments 63% Save money for my family (future education costs, etc.) 62% Start planning for retirement 56% Live below my means 48% Our three physician financial experts didn’t have much to add to these results—generally saying, yes, these are the goals doctors should be focusing on. “Those are definitely worthy goals to have,” Dr. Zhou said. Dr. Healey said in general he argues doctors 49 and under should focus on managing their debt as the priority: “You need to get your debt under control.” Your financial institution Thinking back to when you chose your financial institution, how did you make that choice? (click all that apply) 43% Bank I/my family dealt with already 29% Better offer/pricing compared to other banks 26% Financial institution that has a relationship in the medical community 20% Referral/Word of mouth 8% Promotional offer 7% Ability to interact online What would make you change your financial institution? (click all that apply) 66% Poor experience with financial institution 43% Preferred pricing 27% Perceived expertise for the medical community 16% Ability to interact online 14% Promotional offer 13% Peer reviews Given that the highest response in our survey showed many doctors chose their financial institution based on it being the bank they or their family dealt with already, one might wonder: How hard is it for practising doctors to change their financial institution? “It can be done,” Dr. Soth said, “and usually whatever financial institution is trying to lure you away will try to facilitate that process to make it as easy as possible—but no matter what, there’s going to be identifying where the money comes in and out of, and paperwork and other organization to do with that. So there’s work: I can tell you I haven’t changed institutions and part of that is I just can’t be bothered to go through all that process again.” He said anecdotally he only really hears of doctors switching banks because of “major poor experience.” Dr. Healey also doesn’t find it surprising that few doctors switch banks. “Banks are sticky.… The better question is why did they choose you?” He added: “Bank accounts are the free appetizer that gets you through the door; the financial investments are the champagne and lobster that the banks are hoping to sell you. Free banking almost always comes with an introduction to the bank’s financial advisor.” “The truth is, all the big banks are very similar,” Dr. Soth said. “It is one of those things where you don’t want to sweat the small stuff. If there are minor differences in fees and what is offered by banks, that is small compared to how much you earn, how much you spend and how you invest it.” He says those are the big financial items to focus on. “Getting all wound up about a few dollars here and there from fees from a bank is probably not worth it.” Banks’ VIP offers Dr. Zhou agreed but added: “It’s possible that people are getting poor experiences because they may not necessarily know about the VIP offers for physicians. . . . You might find that your experience is much better when you are part of the bank’s private banking services, which most banks offer for physicians nowadays.” This refers to programs like CIBC Banking for Physicians, RBC Healthcare Advantage, TD Wealth Management for Healthcare Practitioners, Scotiabank Healthcare+ Physician Banking Program or BMO’s Wealth Management for Physicians. Dr. Zhou added she was much more satisfied once she personally switched to private banking. “As long as you let your private banker know you want to be well-informed around investments or you’re doing DIY investing, I find they don’t usually try to push you into getting products that aren’t in your best interest.” Your financial advisor 83% Have a financial advisor How often have you spoken to your financial advisor in the last year? 44% Every six months 38% Every three to four months 11% Once a month 6% Have not spoken to them in the last year In the last year, has your financial advisor helped you with (click all that apply) 87% Updating your financial plan 19% Creating a financial plan 17% Streamlining your personal banking facilities 15% Navigating a reduced income during 2020 due to COVID-19 interruption 10% Creating or updating a debt management/repayment plan What are some things you look for when choosing a financial advisor? (click all that apply) 79% Good communication with you 53% With a well-known financial institution 52% Credentials 51% Recommendations from colleagues Which of the following would you like more info on from a financial advisor? (click all that apply): 75% Tax savings strategies 66% Planning for retirement 16% Managing debt 9% Incorporating 8% Managing/starting a practice “The biggest value (of having a financial advisor) is the planning aspect and helping you behaviourally make it through fluctuations in the market without making impulsive buy and sell decisions,” Dr. Soth said. “For that to work, there has to be frequent contact—particularly if there is a big market change.” How often should doctors talk to their financial advisor? Generally annually and, of course, more often if there is a major market event or a major change in your life (house purchase, marriage). Aggressive tax schemes Dr. Healey said he notes that the 75% in our survey who said that they want “tax savings strategies” from their advisors have realistic expectations. “Many physicians go looking for aggressive tax schemes when they haven’t even taken advantage of the basic tax savings offered by their RRSP, TFSA and corporation,” Dr. Healey said. “I have seen some aggressive tax schemes peddled to physicians. My advice is to be careful; some advisors will cook up these complex strategies but in the end, when (the Canada Revenue Agency) comes to the table, you might have to eat what the advisor has cooked.” Ask about their pay Dr. Zhou also said doctors should not be afraid to ask their financial advisor about how they are compensated—you want to be sure they are acting in your best interests. She also noted one other thing: “In Canada, everyone needs an MD to be a doctor, but in the financial industry, there are financial planners with a variety of acronyms after their name. And it can be very confusing for people. So what I would suggest is that people should look for the CFP (certified financial planner) and the CFA (chartered financial analyst) certification.” Recommended resources: The Investment Industry Regulatory Organization of Canada (IIROC) website has a glossary of financial certifications. “So whenever you are looking for, say, a financial planner, you type in their certifications, those acronyms,” Dr. Zhou said. “And then it’ll help you better understand what your financial planner is kind of certified to do.” The Canadian Securities Administrators (CSA). “This is like our version of the (provincial college) where patients can search up doctors to look up any disciplinary history or registration details,” Dr. Zhou said. “That’s kind of their version where you can kind of see if your financial planner is even registered to invest on your behalf. It’s important to do that kind of due diligence. Because you want to avoid fraud.” Debt after residency Thinking about the period when doctors finish residency, should one: 65% Pay down debt and start investing at the same time? 32% Pay down debt first? 3% Start investing first? The high percentage saying one should “pay down debt and start investing at the same time” upon finishing residency surprised Dr. Soth. “When I was a resident the number-one priority was paying down debt, period. But interest rates then were much, much higher. With interest rates being so low right now, there’s a good mathematical argument to paying down enough debt that you’re comfortable with—you can manage an emergency and there’s enough money there in your line of credit to pay for taxes (which you have to pay in quarterly installments)—and then work on investing at the same time if you’re comfortable with that.” The truth is people have different comfort levels with debt. “You always have to pay off enough debt that you’re comfortable with what you have,” Dr. Soth said. Dr. Zhou said she thinks many others like her who recently finished residency and are in their late 20s or early 30s, are both paying down debt and investing at the same time “in order to make up for the lost time.” She also said one thing to watch out for that she sees is residents or new grads investing their line of credit or investing on margin. “Paying down debt doesn’t sound very fun,” she said. “You never really see any exciting YouTube videos about paying debt, but you see a lot of ‘Top five stocks to invest in’ or ‘How I make X amount of money day trading.’ But actually paying down debt builds the discipline, which I think is one of the best traits of successful investing.” Paying down debt also helps you develop a good credit score, which is useful for buying your first home. Debt inequity She also notes that medical students are getting huge lines of credit—up to $350,000—but it is important to be aware “they are callable loans, which means that at any point when the bank wants that money back, they can just call it back and require you to pay it.” (Having a bank call a loan would only happen during a major financial crisis but that is also the worst possible time to be forced to sell investments to pay the debt back. Using a line of credit to invest is a bad idea if you don’t have the money to pay it back without selling investments.) Dr. Zhou is also seeing greater inequities in debt for those finishing medical education in Canada. “In the 2020 AFMC (Association of Faculties of Medicine of Canada) graduation questionnaire, 13.3% graduated with zero debt. But when you look at the data on a graph, the second highest category is over $200,000 in debt at 15.7% with the upper end of the range at $359,000 in debt by the time they finish med school.” She suspects we may see this level of debt gap between some med students and others widen over the next few years.

Peer reviewing doctors’ views on money

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