How Doctors and Lawyers Make Easy Financial Prey

Being a doctor or lawyer is a well worn path along the road of the American dream. You go to grad school and get the big job with great pay that confers a level of societal prestige and cocktail party nodding when you’re asked “What do you do?” that few other professions can match. Why then are there so many doctors and lawyers with deep financial problems? Why do we see countless examples of these folks working well into their 70s?

Imagine you are a bird of prey looking for an attractive meal. Do you go for the small agile animal wise to your ways or the large and unaware one that will feed you for a week? The legion of financial helpers that scour the public record for newly minted JDs and MDs think similarly. There are plenty of honest real estate, financial, and sales professionals out there. However, there are also a good number that are masters of the cold call, badgering, and full court press to separate you from your money and make you less financially secure for their own gain. I’m going to show you how to protect yourself from these folks by looking at the areas of your life that they target.

Status Spending Sales Pros

If you hold the privilege of being a licensed member of one of America’s two most popular mass affluent professions, you will be pressured from every corner to announce your membership through your material possessions. The very first temptation once you get your first big salary job is going to be your choice of house.

Real estate buyer’s agents get paid based on a split of the commission with the seller’s agent, which is based on the home’s sales price. Since what they get paid is based on how much you spend and not how good a job they do, what is their incentive? A good agent will overcome these conflicts of interest and do an ethical job, always doing right by their client. However, there are some that will drive you towards the high end of your price range with psychological nudges like, “this is well within your price range” or “there’s no question the bank would qualify you for this home.” You’ve finally arrived after so many years of schooling, why not show the world you’ve made it with a really nice home?

The problem is if you use conventional affordability metrics like 3 times your income for the house price, you have already dug yourself into a hole. A big house requires maintenance, lawn care, cleaning professionals if you don’t have time to do it yourself, and very high property tax payments. For doctors and lawyers anything more than 2 times your income say five years into the profession is going to set you on financially wobbly ground.

Another status spending category is transportation, both on the land and water. One time this head of surgery drove up in his old Toyota, and the security guard demanded to see some identification. Having left it at his house, the surgeon tried to explain who he was. The guard was so sure that a high profile surgeon would never drive such an unflattering car that he refused entry to the parking lot until he got confirmation from another employee the man was who he said he was. Even the Average Joe has expectations of what kind of car a doctor or lawyer drives.

When you are a big time professional making serious money, you are going to spend a lot of time at the office. When you get out of your car, you are going to see the other cars of the people you work with and it’s only natural to want to belong to the club. Why drive a Toyota or a Honda when you can afford so much more? Furthermore, you’ll rationalize this thought patter and say, “I deserve a nice car because I work so many hours.” So when you go to the dealership and speak with the sales manager, they aren’t going to steer you to their certified pre-owned vehicles when you stop by. Once they find out you’re a doc or lawyer, you are going to be shown the nicer luxury vehicles. Why? Because they know you can afford them and qualify for the loan because of the solid income.

The same is true for other luxury goods like boats or vacations. Any sales person you speak with will try and convince you to go with the higher cost option when they discover your occupation. This is really dangerous for your financial health. If you are a teacher or police officer you don’t have this pervasive social pressure to buy the nice things.

Why is it that doctors and lawyers are especially prone to status spending? If you look at the length of the educational career that’s necessary to get to the point where you can make serious money, by the time you get there you want to reward yourself. You’ve been scrimping and studying for your entire life and once you can finally qualify for every loan you’ll sign your name to, why not go ahead and live a little? There is a sudden wealth effect for these professions that doesn’t exist in others that makes them very dangerous jobs for your pocketbook.

The Cold Calling “Financial Advisers”

New recruits in high pressure brokerage offices are given a list of people from the public record in the community that are known or assumed to have high incomes, namely doctors and lawyers. They can get commissions of up to 12% for what they sell you, so they are very comfortable having a low success rate if they can get a few suckers each month. Here are some of the pitches they will use.

“Hello Dr. _____ , I wanted to see if you had an investment plan in place because we have this great fund that’s performed at a 25% annualized rate the past three years and I can get you in up to a max investment of $50,000 for the next two weeks and I wanted to see if you might have time to discuss this over coffee at your office?” This guy is probably selling a super risky fund that was the only one at the firm to survive with a really good performance record. The others could have been shut down because of bad performance but he doesn’t have to tell you that. If he gets you to invest, he just got paid 5.75% of whatever amount of money you put in, and he might get more business from you as well down the line. The guy making this call had a to pass a pretty easy examination and that’s it. He doesn’t have to have any special expertise on the markets or investing, just pass this random licensing exam. A professional in medicine or law might assume that others have to go through similar levels of educational rigor to be able to give advice to others, but not so. The financial advice world is the Wild West were anything goes.

Another popular marketing pitch on high income professionals is the Variable Annuity. “Hello, Ms. _____, I am an adviser with _____ and I wanted to see if you had a retirement plan at your firm? I’m working with one of the world’s top insurance companies to provide an investment contract that guarantees you won’t lose money and can provide returns of up to 6% and wanted to see if I could bring dinner to your office to explain more about it?” These products are mostly total junk, but they pay the “adviser” up to 12% commissions on the amount you put in. They have no clue how to calculate the math as to whether or not this is a good deal, all they understand is that they’re getting PAID! They will try and talk it up and say it’s tax deferred and it’s good for retirement. While technically the product might have tax benefits and be designed for retirement, you have no business putting money in these things until after your IRA, 403b7 or 401k, AND/OR your SEP-IRAs are all maxed out. Ask the person on the phone to explain what these accounts are in detail. 95% of the time they won’t be able to tell you even basic information like contribution limits. Why? Because they don’t care about you. They have been given a widget to sell and all they know about is the little grey widget, and that they need to make you want it.

Another popular sales pitch is life insurance. Insurance agents will market this as a savings account that you can borrow from to fund big purchases over the course of your career, all while protecting your family from an untimely death as the principal breadwinner. Life insurance is absolutely necessary if you have a family, but term insurance is what you need not whole life. Term is the kind you buy for 20-30 years until you’ve had enough time to accumulate assets and put your kids through school. Whole life, like the other financial products I mentioned, pays BIG commissions to the sales guys that make the cold calls or write the random emails. Usually they get something like 50% of the first year’s premium and some kind of trailer payment for every year you pay your premium. There’s nothing inherently unethical about this, but it’s not advice it’s sales. An MD or JD will be an easy target because they need to cover multiples of their incomes and they can also afford the monthly payments. Therefore the policies will be much larger than for the typical worker and so will the payouts for selling them. The financial incentives for selling this product and all financial products to doctors and lawyers make them appealing targets.

Charity Events, Timeshares, School Fundraising Campaigns and More Target Doctors and Lawyers

Having excess income allows you to donate more to worthy causes, and that is an honorable thing to do. However, when people know you have money, everybody comes after you. Philanthropic professionals know the range of your income and will come asking for money. Random sales guys like timeshare salesmen will call seeing if you want to go on an exotic vacation to a beautiful condo twice a year. Your brother in law will see if you can make a donation to your nephews school fundraising drive, and that’s just the beginning.

The key is to avoid giving to any of the big organizations that will sell your information and badger you to no end. I had a relative in my family who gave $25-$100 to various charitable organizations on occasion and he needed to buy a shredder with all the volumes of junk mail that inundated him for the next 10 years. Give to what is important to you but make it a habit to say that you don’t respond to direct charitable appeals and that you make your giving decisions privately. It’s a good way to shut down eager fundraisers who are very good at getting you to give $500 here and there to random nonprofits that end up using only half the money towards their missions anyway.

Getting a Lead Blocker To Watch Out for Your Finances

If you a financially disinterested doc or lawyer, I would highly suggest getting a reputable accountant and professional financial adviser. The accountant or adviser can be your coach. Whichever one you have a better relationship with can act as a go between for you and all the legions of folks coming after you for money.

A legit accountant is going to be a CPA. Expect to pay as much as a couple thousand a year for their services, but whenever you have someone proposing an investment or big donation or big house upgrade, let them know you need to run it by your accountant first. That simple phrase will usually shut them up because they know the accountant will call BS. When you have someone that stands in between you and the hoards of financial sales people contacting you, you will have some protection against bad decisions.

A good adviser is going to be someone who is a fiduciary. That word is very important. Ask them if they are your legal fiduciary and if they don’t say yes, don’t do business with them. That word means they can get sued if they don’t give you what they think is the best advice. A lot of advisers today are similar to a surgeon that would recommend a procedure because they know they will make more money without regard for patient health . A fiduciary adviser is obligated to try and do the right thing for you. A good credential to look for is the CFP or CFA designation. There are a bunch of others but they are usually meaningless. A good financial adviser can handle your insurance, investments, and usually budgeting and spending questions.  Some advisers like just focus just on investing, and that’s fine but they should at least be able to point you to solid resources or websites to educate yourself on any personal financial matters.

If you are a MD or JD, follow the path less traveled and you will have incredible financial security for your family. Don’t buy big houses, fancy cars, and boats unless you are comfortable working well into your 60s. When people call you at the office or at your home with great financial pitches, tell them that you will have to contact your accountant or adviser before you make any decisions and that will protect you from a lot of the bad actors out there. Go ahead and hire a reputable financial professional that you intend to have a long term relationship with, especially if you are not financially inclined. Look for the right certifications (CPA, CFP, CFA) and avoid the folks that can’t tell you they have a legal obligation to act in your best interest. Take these simple steps and you won’t be easy prey.  You will more likely resemble an indestructible rhinoceros.