You’ve worked hard to establish a financially healthy life and want to ensure it stays strong. For that to happen, wealth management must become part of your strategy.
Wealth management looks different for everyone, but it’s intricately entwined with financial well-being. How you handle this strategy depends on your goals for elements such as financial planning, asset allocation and management, risk management, and estate and tax planning.
Over all of those pieces you’ll find an umbrella term of “wealth management.”
Understanding what categories are involved in that term can help you make wise financial choices to safeguard your assets and ensure they continue to grow.
Understanding Wealth Management
Wealth management is a holistic approach to optimizing financial resources and achieving long-term goals. It’s not one piece of your economic puzzle: it’s the whole box.
Putting the pieces together requires a strategy that includes planning, protecting, and growing assets.
Why Wealth Management Is Important
Imagine you were given all of your future salary in one lump sum today. For an average physician who makes about $363,000 per year and has a 20-year career span, that would amount to over $7 million.
If that landed in your bank account and you had to live on it for the rest of your life, you’d be very cautious about your spending, saving, and investing choices.
But that’s precisely what happens when you live on an annual salary. Each paycheck — and what you do with it — has a compound effect on your future. If you spend your money frivolously or without intent, it disappears, leaving you wondering what you’re doing with all your hard-earned cash.
Wealth management changes that path.
When you know the value of each dollar, you’ll be able to make informed choices regarding spending, saving, and investing. And when you understand the importance of asset protection strategies, you’ll be better protected from potential risks and uncertainties. As financial challenges arise, you’re better prepared to handle them.
Core Components of Wealth Management
What is this multi-faceted strategy, and how can you use it on your behalf?
Since you’ve already reached a level where you’re comfortable with your finances, you know the foundation aspects of planning: budgeting, cash flow, and risk management.
You’ve probably already begun thinking about retirement and allocating income toward that stage of life. And you’ve seen the impact of tax planning (or not planning) on your income, so you’ve developed strategies to defer or decrease tax liability.
But wealth management goes beyond those foundational aspects of financial health. Let’s look at the core components of a well-structured wealth management program.
Investment Planning
A sound financial plan includes a thorough investment portfolio. However, there is no one-size-fits-all investment strategy. What works for someone else might not work for you, and vice versa.
Investment planning encompasses your current financial situation, including debts, monthly bills, income, and risk tolerance level. These pieces are integrated into your financial goals to develop an active investment strategy that helps you set and realize achievable targets. If necessary, the plan outlines strategies for adjusting spending and saving to achieve your goals.
Keep Reading: The Beginner’s Guide to Investing for Doctors
Tax Planning
High-income earners pay extra attention to tax planning. Consistent evaluation of planning opportunities can ensure you maximize your tax deductions — and minimize the taxes you’re liable for.
Wealth management strategies take your financial goals, taxable income, and expenses, and combine them to find the best ways to shift your tax bracket. By lowering your taxable income, you reduce your tax liability.
Keep Reading: The Beginner’s Guide to Tax Planning for Doctors
Asset Protection
Asset protection is the discipline of structuring your assets so they are maximally shielded from future potential liabilities. With an asset protection plan, you create a barrier between creditors and your valuables.
This step in wealth management isn’t just about having the right insurance policies, though. It includes the business structure you use to determine your tax liability and professional requirements. Many physicians establish their practice as an LLC (Limited Liability Corporation) rather than a sole proprietorship to separate their personal and work funds.
This step is also where you learn how to optimize state and federally exempt assets, carry the right amount of insurance coverage, and determine if a trust or other legal tools are appropriate to own part of your balance sheet.
Keep Reading: Asset Protection for Physicians: Your Information Hub
Insurance Planning
Accidents and unforeseen events happen, and it’s challenging to consider all of them. But with insurance planning, you’re covered for everything from daily operational issues to catastrophic events.
Insurance planning looks at your day-to-day and potential future situations, and develops a policy to protect you from financial and reputational harm.
Depending on your business risks, you may add short- and long-term disability, cyberliability, Business Operations Protection, and umbrella coverage to your collection of insurance coverage.
Education Planning
If you have children or grandchildren, one of the most beneficial things you can do is plan for the financial elements of their education.
The cost of college and university continues to rise, and housing costs due to inflation must also be considered. Wealth management includes planning for your children’s education as early as possible through strategies like the 529 College Savings Plan.
Financial Modeling
Today’s computer modeling technology lets you create in-depth financial models using current and predicted changes to determine how an investment strategy might impact your wealth.
These tools provide accurate information to drive major decisions, such as whether taking money from your 401(k) would be wise to pay for a big expense, whether you’d be better off taking out a loan, or how choosing one investment over another might pay off in the future.
Estate Planning
Estate planning is a strategy used to distribute your wealth according to your instructions after you pass. Wealth management takes those distributions and helps them grow using a variety of tax planning, investments, and risk management techniques.
Together, the two complement each other to ensure you don’t just leave behind an inheritance — you create a sustainable legacy for your loved ones.
Flexibility
The finance industry has evolved substantially since the Digital Era. Things like fintech and cryptocurrency didn’t exist in your parents’ generation of investment strategies.
Because we can’t predict everything that might happen in the future, flexibility is a key component of wealth management.
With flexibility, your portfolio can adapt as market conditions and your personal financial situation and goals change. Life happens, and your bank account can take a hard hit if you haven’t planned for unexpected costs.
Working with a professional ensures you have flexibility through different asset classes, liquidity, investments you can adjust as necessary, and continuous evaluation of your finances.
Building Wealth Management into Your Planning
If you haven’t started using wealth management strategies yet, building them can be as simple as looking at what you already have and optimizing it for your benefit.
When was the last time you reviewed your contract at work?
You may be entitled to new, different perks or compensation that could improve your financial situation. While a raise is always nice, other perks are also helpful.
For instance, if your employer is willing to cover your malpractice premiums, you can save thousands of dollars annually. Many employers offer a dollar-for-dollar 401(k) or HSA match up to a specific limit. Are you maximizing that “free” money?
Work with a financial advisor to review your contract, examine the benefits you’re entitled to, and see where they may help you reach your long-term wealth management goals.
It is also crucial to expand your disability and life insurance policies beyond the basics provided by your employer. These policies typically include minimal coverage.
Life insurance is usually term, ending when you no longer work for that employer. The death benefit might not be enough to cover what you’d like to leave behind to your beneficiaries. (Learn More: Everything Physicians Need to Know About Life Insurance)
Check the terms of your disability coverage, too. A solid plan includes both short-term and long-term disability, as well as careful consideration of the covered disabilities and exclusions. You’ll also want to analyze the percentage of your income paid out when the policy is enacted and ensure your budget can handle the reduced income that could be in your financial future. That’s where flexibility and financial modeling come in handy.
Finding the Right Guide For Your Wealth Management Goals
When you’re ready to get started with a thorough private wealth management plan, finding the right financial management provider to help you is a crucial first step.
With so many people and companies advertising themselves as financial advisors, how do you know which one is right for you?
Choosing a Wealth Management Company
First, look at the company’s financial service specialties — is wealth management listed?
If not, keep searching. If so, skim through the reviews and ask friends and family who have experience with that company.
A solid reputation is essential when you’re entrusting someone to help you with your financial decisions. Check on the wealth management firm’s fiduciary status, which ensures they are legally obligated to act in your best interests.
Once you’ve narrowed down a few options, it’s almost time to get to know the people behind the name. Before you meet with anyone, make a list of the most important requirements you have regarding your financial goals.
These could include:
- Retirement planning
- Investment management
- Tax optimization
- Estate planning
Get familiar with different types of investments and your preferences. You’ll want to know your risk tolerance level. Are you aggressive, conservative, or in the middle?
This will guide the financial advisor’s suggestions as they work with you to create investment strategies, letting them know if low-risk, low-return strategies are better for you, or if you’d prefer something higher-risk, higher-return.
Finally, evaluate your current situation and how it plays a role in your financial objectives:
- Are you healthy or sick?
- Looking at retirement from a close range or far away?
- Planning large expenses in the near future?
These are all necessary details your potential wealth management advisor will need to know.
Schedule a meeting with various advisory service companies that specialize in your requirements. The one you choose should understand your unique needs and financial goals and offer wealth management services and investment advice tailored to those needs.
For example, the financial situation of a new physician will be different than that of a career doctor near retirement. The financial planner’s suggested investment strategies should demonstrate that they recognize the needs of high-net-worth individuals versus those who likely have significant medical school debt and other financial obligations.
With all those steps in place, you can choose the advisor who creates a comprehensive financial plan that ticks all your requirements, and your wealth management journey officially begins.
Conclusion
As a physician with a potentially high net worth, your wealth management needs are complex and ever-changing. The financial advice you receive needs to encompass everything from tax-efficient strategies to flexibly shifting investment vehicles and handling assets under management as they grow.
At OJM Group, our professional investment advisors take a comprehensive approach to wealth management through customized strategies designed for your specific needs and goals.
Our financial advising team is ready to answer your questions.
Disclosure:
OJM Group, LLC. (“OJM”) is an SEC registered investment adviser with its principal place of practice in the State of Ohio. SEC registration does not constitute an endorsement of OJM by the SEC nor does it indicate that OJM has attained a particular level of skill or ability. OJM and its representatives are in compliance with the current notice filing and registration requirements imposed upon registered investment advisers by those states in which OJM maintains clients. OJM may only transact practice in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements. For information pertaining to the registration status of OJM, please contact OJM or refer to the Investment Adviser Public Disclosure web site www.adviserinfo.sec.gov.
For additional information about OJM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein. Please read the disclosure statement carefully before you invest or send money.
This article contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized legal or tax advice, or as a recommendation of any particular security or strategy. There is no guarantee that the views and opinions expressed in this article will be appropriate for your particular circumstances. Tax law changes frequently, accordingly information presented herein is subject to change without notice. You should seek professional tax and legal advice before implementing any strategy discussed herein.
Index Disclosure: An index is an unmanaged portfolio of specific securities, the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Investors cannot invest directly in an index. An index does not charge management fees or brokerage expenses, and no such fees or expenses were deducted from the performance shown. Index returns shown are price returns, which exclude dividends and other earnings.