Speaker 0 00:00:02 <inaudible>
Speaker 1 00:00:08 What's up, everyone. Welcome to the finance for physicians podcast. I'm your host, Daniel Raimi. Join me as we dig into what it looks like for physicians to begin using their finances as a tool to live better lives. You can learn more about our
[email protected] let's. Jump into today's episode. What's up guys today, I'm talking with a good buddy of mine. Justin Harvey. He's a fellow certified financial planner. We actually chatted back in, um, the episode on, uh, charitable giving. And so he's, he's definitely a good buddy of mine. Also knows the physician, um, sort of situation very well. His firm is dedicated to working with a physician it's called Annecy success. He also has a podcast called anesthesia and pain management success. If you haven't heard that before, definitely go and check that out, but we're going to be talking today about some of the stories and experiences that we've seen in our work with physician family. Some of them are, you know, good things. A lot of them though are just kind of mistakes and avoiding them and, and stories around that. So ideally you can take some of these and apply it to your situation and hopefully be in a better spot. So without further ado, we'll jump into today's episode.
Speaker 2 00:01:17 Hello everybody. It's Justin Harvey. I'm here with my good friend, Daniel Ren. Daniel is a CFP, also focuses on financial planning for physicians. He's one of those guys that like to keep on speed dial. Whenever I run into something weird or strange, or I need a second opinion. He's been focused on physician financial planning for a number of years based out of Lexington, Kentucky. Dan, thanks for joining. Yeah, yeah. Good beer. And this is going to be another cross posted episode. He has a podcast over at finance for physicians. If you haven't please check it out. This podcast, APM success. It's certainly a partner and collaborator with the work that Dan is doing. Uh, really excited to talk to Dan today. We're just going to share some war stories from the trenches of physician, financial planning, some crazy things, some awesome things, some terrible things that, uh, we, I think have a unique window into. So Dan, I'm excited to dive in today.
Speaker 1 00:02:03 Yeah, this will definitely be fun. And just
Speaker 2 00:02:05 Recapping before this, before this conversation, unfortunately, probably the best and juiciest stories we might not even be able to share just because of it's difficult to change the substantive facts enough to be able to preserve client confidentiality. So obviously anything that we talk about today is going to do that in an appropriate manner, but, uh, I want to start off there's some good, some bad, some ugly let's start off with the good there's immense value frequently that comes from working with a financial advisor who understands the physician financial trajectory. Dan, I know you have like some really big wins, some capital W's in the win column. Uh, tell me about some of the things that you,
Speaker 1 00:02:42 Yeah, we've had winded, as we were talking about before we started, we've had a lot of wins, but a lot of them have not been like knock it out of the park home runs like we get a lot of singles and doubles and I think that's kind of a misconception. Sometimes if you look at like our, what I would consider our most successful or balanced clients, a lot of them are just kind of hitting the singles and the doubles and, and it's not very exciting or sexy or, you know, headlining, but a lot of, some of the wins that we have seen have been avoiding a big, you know, big hole, obvious errors, you know,
Speaker 2 00:03:18 And that the value of that by the way, is not to be understated because, uh, between the errors that I've helped clients avoid, I'm sure you have too. And the errors that we've witnessed, they're huge. There are five figure, six figure mistakes, sometimes more they're cumulative the cumulative impact of them. And so it's important to not downplay.
Speaker 1 00:03:36 Yeah. So we've had several, a lot of student loan kind of biggies. We've seen a lot of these are kind of tied in with the whole like avoiding errors. And so I had a one, one specific example that comes to mind. I had a clients, the hospital was paying the student loan on their behalf. And so that's, I guess a little bit of a risk there because there's a little bit of removed it's removed from the client. And so the client was just like, it's getting taken care of my hospital's taking care of it. It's fine. And so we happened to be, I don't even know why we were looking at the payments, but we happened to be digging into the payments. Maybe there was a red flag, I can't remember, but it turns out that there was quite a few payments missing in the record of their payment history, from the hospital, the numbers didn't match.
Speaker 1 00:04:20 And so we dug in and verified through the hospital that the payments were actually made. And then the student loan servicer, I won't name, but it took them a year probably forever of calling and ultimately verified some of them, but not all of them. And the client basically got frustrated and tired of fighting, which made me kind of boiled my blood a little bit, but we had to kind of let some of it go. But basically they're like, we don't have record of those payments and we're just not going to deal with it. So we got a few of them covered, but not all of them. So you got to keep an eye on your servicer, especially when a third-party is paying
Speaker 2 00:04:57 A hundred percent. And honestly, I just tell people at this point, I've heard so many of those types of stories. I just tell people, literally, anytime you talk to a servicer, especially if PSLF is on the line, just record the call, keep a Bulletproof record and assume that something that you ask to happen is not going to happen and you're going to need to prove it. And if you assume that and you go in with that sort of mindset, then you'll be protected. And, you know, I can't, there's a handful of times that come immediately to mind where I was on the, as a third party on the call with a loan servicer and my client. And we're trying to do something very basic. That's part of how the plan functions to preserve PSLF and the servicer again and again, and again, is instructing the client to make a decision, basically to remove themselves from a capped income based payment plan, to go onto an uncapped plan, which would cost them tens of thousands of dollars, more in pursuit of PSLF and the servicers instructing them very factually. Like this is what you need to do. If you want to move towards PSLF it was wrong. It was a hundred percent wrong. Had I not been on the phone and frequently deal with this? Like they talked to servicers who very matter of fact, we say, here's what you need to do. And it's the diametric opposite, unfortunately. And it just, you know, you said boils your blood earlier. That's that's, that's how I feel.
Speaker 1 00:06:08 Yeah. They're not working for the, for the client. So you gotta think about who's working for who and whose interest they're looking out for. And a lot of times it's just ignorance. I think, uh, we had another student loan, a story with a, uh, well, this has been several actually, uh, the Sur, they just completely miscalculated the payment because it's income-based calculations. And so in those situation in several, like I said, a few of them have been like several thousand per month under calculated. This is where it actually benefited the client, the errors, but several thousand per month and in a few of these situations, so what the client was like, what in world? Because we always are, double-checking the payments and we raised the issue and they're like, uh, Oh. And so, uh, what we suggested to them is we're like call the servicer and say that you just want it to make sure there wasn't an error and what's going on.
Speaker 1 00:06:57 And, and so they did that and the servicer was like, no, no, no, no, it's correct. It's correct. And I'm like, okay, take note of that, save all your documents because I double check their documents to everything they submitted was legit. Like, I couldn't understand where the air came from. And so it was just a blatant air, I guess. And, um, they called the servicer to try to make good with it. And they just said, no, it's not an air. And a favored the client by a ton. I had another one that was, uh, interesting and tied into PSLF, but I guess it wasn't directly a PSLF issue, but this client got, there was an air with their employer and they overpaid them by $50,000 one year. And I don't know what happened. They were in training. So maybe it was just that they misclassified them is not in training.
Speaker 1 00:07:42 I'm not sure, but they knew that the air was happening in the moment. And so they were responsible and saved kind of the difference. But what happened is this kind of train wreck pursued afterward is like you get the PSL income verification, then the PSLF paint completely wrong. And then the W2's are wrong and the tax returns wrong. And then it's got to, it was just that absolute mess of a situation. And that one unfortunately was not there. Wasn't really, we did as good as we could. We found, they knew that the air was happening and brought up the issue. It took the employer just like six or eight months to fix it, which is nuts. And that kind of stuff happens though,
Speaker 2 00:08:19 Especially with these big health systems is like turning a cruise ship. And this is why I'm always beating the drum for independent physician practice. If, as a doctor go to a doctor whose job it is to make sure that that is happening the right way. I mean, obviously I'm biased here, but it doesn't take six months rather than running it up the flagpole at court.
Speaker 1 00:08:35 And this was a big ship. Let's just say, this is the biggest ship. If you can.
Speaker 2 00:08:39 We like to not name names on this show because we don't want to hear from any lawyers in the lines, Dan, I'm sure as an investment advisor yourself, you've run into situation. I've asked you come with ideas. Hey, I'm thinking about opening a Robin hood account and trading GameStop or some other we'll call them harebrained schemes or other things that perhaps might be riskier than one of your clients realize. Have you ever interacted with it?
Speaker 1 00:08:59 Never. No. I think that's probably more like a daily kind of thing. Not quite daily, but definitely weekly where we're hearing of things that are, I would call like ultra risky investment opportunities that maybe sometimes they're aware of the risk. Other times they're just kind of not completely unaware of sort of risk, but I would kind of categorize that as the ultra high risk kind of bordering on gambling sorts of deals that you see out there and they come and could come in the form of like a business deal, uh, from your buddy or like a really a high risk stock play, or even like options and crazy call put strategies and that kind of thing. Uh, but there's, um, I've had several clients lose quite a bit of money. I've had a few make a little bit of money. I don't have any like home runs where people actually hit it big on the really ultra high risk sorts of situations. But I've definitely had quite a few. I think you had a good one where you had a story of someone really losing quite a bit of money in that kind of thing. Yeah. Yeah.
Speaker 2 00:09:59 One of the first filters that I always implement when I'm doing investment due diligence is liquidity. Like if somebody wants to do something, how easily can we undo that investment? And if it's, if it's locked up for six months, a year, five years, seven years, like some of these, uh, you know, closely out like private equity or venture are that we want to understand that we want to make sure that we can afford to not do anything as the slowly goes to zero over a five-year period. And one of my clients had, you know, brought to me a real estate deal where there was this somebody who was investing and improving and leasing up apartment buildings somewhere in the Southwest. My client says, Hey, I'm interested in doing this. What do you think? You know, 50 K a hundred K minimum. And that was a meaningful part.
Speaker 2 00:10:39 That's probably, you know, 12 to 15% of their net worth at the time. And they were on the risk scale. I'd say they're probably a three on a scale of one to 10. And they were brought this deal actually by one of their very close friends who may trust it had gone to college with, and this friend had made a lot of money with this developer doing this strategy of improving these apartments and then leasing them up at higher Lisa's higher rent rates. And then, you know, capturing that Delta. And I told my clients flat out, like, you're a three on a scale of one to 10. This is like a 34. It's not even on the scale. How do we reconcile? Yeah. And so just so you know, kind of where this falls cause they, you know, they didn't have that kind of understanding.
Speaker 2 00:11:19 And the liquidity was a big part of it. And the fact that it was only one building, it was a big part of it. Like what if an asteroid hits the building or some other weird thing happens or there's issues with mold or, I mean, I don't, I don't do a lot of like, you know, multi-family residential due diligence, but the liquidity thing alone was red flags for me. And so I talked them out of it. Now this, this buddy was talking to his other buddies and I know there were some others that did decide to participate and it was a deal that it ended up really going South. And the market was moving against this, um, type of residents in this geographic region. And they ended up losing significant amounts of money. Uh, some of them, it was like a big chunk of their nest egg. And so this is a perfect situation where I don't usually run into these, but this is one that sticks out in my mind as talking to somebody out of something that has low liquidity and ended up losing a lot of money and would have significantly impaired their ability.
Speaker 1 00:12:12 Yeah. I think the key there is like a percentage of your net worth, I think is important. Like if you're going to do the ultra high risk sorts of deals, you might oughta, you probably ought to limit it to a certain percentage of your invest investments or net worth. You also don't want it to, I don't think like if I'm doing that kind of a deal, I would not want it to be at risk of taking my retirement. Like it shouldn't, if it's a Holter high risk deal, it doesn't need to be like, you rely on it for your goal to be a hit. And then if you are going to do it too, you got to do the due diligence, like you said. So I run into a lot of people that aren't even, so I'm not like experts at deals. We're not as financial planners.
Speaker 1 00:12:53 We're just kind of whole pokers, really. I mean, a lot of what we do is just kind of ask, uh, you know, questions about what's been done so far, have you done the, you know, whatever. But, um, what I find is a lot of people are not able to be doing the due diligence themselves. And that's a kind of a red flag in itself is if you aren't able to understand the deal enough to know whether or not it's good. That's probably like, you know, that's a red flag in itself. You need to be able to understand the working
Speaker 2 00:13:20 That, uh, something that you and I have both done is looking at contracts. And I love the contract landscape because it's a moment in time when you can do something that's like really exciting and that massively helps your financial picture. Potentially. I know that I've actually heard stories that you've shared in the past about some wins that you had in that area. How do you approach helping a physician look through a contract? And do you have any specifics?
Speaker 1 00:13:42 Yeah, we, so we tip, we typically almost always recommend like a contract attorney or contract consultant review the contracts from the kind of legal perspective. So we're always not always, almost always though looking at the contract, but we look at it from a little bit of a different perspective. We're more looking at how it affects the plan and the compensation and the benefits and that kind of thing. Sometimes we'll spot stuff, but we're, we're not as qualified to kind of like read into the legal language. Uh, but an example. So we just had one, actually not, not too long ago, like the other day, the contract, uh, initial contract proposal for the client was, um, you know, X dollars salary, whatever it was $300,000 base salary. Plus they were offering a, a $75,000 student loan payment, uh, what they called it, but basically a payment to the, for the student loan us like a stipend for the student loans or something along those lines.
Speaker 1 00:14:37 And when you, so I, I suggested that kind of caught my attention, the student loan stipend, first of all, because it was a five Oh one C three hospitals. So I'm like, Hmm PSLF we got to make sure this is not going to cause this client in the payment's going to be very, very low the first year, maybe second year, too, especially with COVID forbearance. Like the first few months are going to be really low $0 payments. And so it turns out we kind of looked into it a little bit more. So the rules for this particular hospital were that it had to be paid directly to the, um, loan servicer, the stipend. And I think that they were going to do 25,000 a year for three years, maybe something like that, but they weren't that they were going to require it have to be directly to the loan servicer for good reason, probably because they want to make sure it gets paid to the, they want to make sure they're used for the purpose.
Speaker 1 00:15:22 Uh, then we asked, you know, can it get paid directly to the client? And they're like, yeah, we'll pay it directly to the client, but they need to verify payment of the loan for the equivalent amount. And so we're like, no, no, no, no, that's not gonna work. So just to clarify why that's a problem, basically with PSLF like anything above the scheduled payment is like tossing money out the window. And in this situation it was like tossing money out the window that you also get taxed on. So it was like, it would actually make this person, it would make him like worse off, uh, having this stipend, then he would have been without it at all. And so, uh, I was like, I started by saying maybe, you know, try to explain this to them, ask for some alternatives. And so they were having trouble, uh, getting traction.
Speaker 1 00:16:07 And ultimately in this situation, I ended up just talking with the hospital executives myself and I was like, here's how it works. It's basically like throwing money away. Can we restructure it? And I think this one's kind of a very recent, I don't, I don't know what the outcome is. I think that they're going to work, work with it and readjust it. But I have a feeling that they'll make this one work in some cases. So I've had that specific situation come up probably five or six times. In some cases it's gotten to the point where I'm like, listen, you need to decline the bonus. Like straight up, tell them don't pay it to me because of all the, we tried all the options and they're just not here in, uh, uh, in the times I've had to do that. They finally were like, okay, something must be out. Like either this dude's lost his mind or, or, uh, w maybe there's something. So, cause this, and that's a budget neutral thing for them. Like they don't, it's not going to change their costs. They're just trying to make sure it goes to the right place. But in my experience is once they understand what the deal is, they're like, Oh, okay. That doesn't make any sense. And that's like a, that's like a $75,000 swing. I mean, that's straight up big time difference, impact for just one individual.
Speaker 2 00:17:18 Yeah. Yeah. That's a great example. I think those student loan only payments from five Oh one C3 is always looked at under a microscope. It's one of those things you kind of have to wonder, why is this not part of the institutional intelligence to say we are like, literally every doctor that works for us qualifies for PSLF. And so if there is an instance in which we can compensate them in a way that's not like directly to their loan servicer, that's probably beneficial. So anybody out there working for five Oh one C3 be aware of this, I think that's a great point. Play out the ultimate of the math problem and understanding if you're on production, what do you need to do to hit certain targets, to get a certain result in compensation? Conversely, if you're on a salary or salary plus bonus, you're kind of capped out and understanding what are you leaving on the table?
Speaker 2 00:18:03 And one of the really powerful things I've been able to do for some of my clients is help them understand if you're producing, let's say a million dollars of collections from your patients based on procedures you do through the year. And you're getting a salary of 250 plus maybe a $50,000 bonus. If you hit a certain metric, that's $300,000 total, which is 30% of your collection. Now I might also happen to know that perhaps a standard percentage of collections would be 40% or 42 or 45%. So if your compensation mechanism is a salary plus bonus, and you're doing collections up in the 900, 1000001.2 range, then you're going to be leaving money on the table based on how you're paid. So as you're negotiating, rather than saying, Hey, I want a bigger salary say we can align incentives to say, you know, the doctor makes more when the practice makes more and you're, you're operating on a percentage basis at this point. And that can be I've. I've had one client in particular where we changed this mechanism. We went from base plus bonus 2% of collections and based on flat production, it was a hundred thousand dollars a year differential. So understanding that math problem and working it out based on the variables in your situation.
Speaker 1 00:19:12 Yeah. The only thing I would kind of throw out in regards to that as kind of an alternative we've seen sometimes I guess people are, have super low tolerances for fluctuating compensation. And so I've seen it where they're kind of like too much in the, uh, sharing incentives realm for their tastes. And they're like, I just want guaranteed compensation set up. And so, you know, you can kinda sometimes request to shift back the other direction. Now, typically the more you go that salary route, the less you're, um, you end up making, but it is a more secure form of compensation. And some people prefer it. Um, even knowing that they're forfeiting money, but there's a lot of complexities in the contracts there with physicians, especially now some, some institutions have kind of like standards. They're like, we will not change our what, and there is no negotiate. And maybe there, it seems like in our, in, in, in my experience, most of them are even sometimes when they say they're not,
Speaker 2 00:20:09 Yeah, I'm thinking about, I've had some, I'll call them very qualitative, like having nothing to do with numbers, types of conversations with clients that have been jarring eyeopening. And really, and I'm sure you've run into this with any conversations. You're the one that comes to mind. As far as the Holy cow, I can't believe this never came up type of category. And you mentioned one, I don't want to hear in a minute, but I was sitting down with a client. It was one of our first handful of meetings. We were basically, I was doing the financial plan and then we're kind of sitting down after we've crunched all the numbers and I, the conversation basically starts like, what's what matters to you? What's important. Where are we going? Not only as, you know, uh, investors, but as people, as professionals, as a family, as spouses and the husband, you know, describes well, you know, I I'd like to be retired by age 53 and I want a savings rate of X.
Speaker 2 00:20:53 And I want to make sure that this much is going into these types of accounts every year. And I feel like if we can be doing that, that I'm going to be feeling confident and good about life. And I'm just kind of looking at the wife, and this is one of these really fun dynamics as you get to sort of ask the question of both spouses and then, you know, sort of create the space for the other spouse. Who's probably less financially literate and maybe less, they feel intimidated to even have a seat at table in this. So I turned to the, in this case, it was the wife and said, you know, well, how about you? Like, what's on your mind? Where do you want to go? And what do you envision life like? And she's starting to cry at this point. And she's, she's like I'm losing sleep.
Speaker 2 00:21:28 All I can think about is the fact that we just bought this house that costs $1.1 million, and we're not able to get competitively priced life insurance. And I'm just terrified that the, you know, my little boy and little girl that we're raising are gonna grow up without a dad and that I'm not gonna be able to afford this house and I'm going to be destitute. And that's all I can think about. And the husband is sort of like his eyebrows are ratcheting up and up and up as she's sort of like unloading this significant emotional burden. And this is one of those things. I, it really left a dent in my psyche and never take this for granted, but there's alignment between, you know, husband, wife, or whatever. I'm sure Dan, you've probably experienced this with your own spouse. I know I do that third party asking two people the same question and allowing the space each of those police or those spouses to answer the question.
Speaker 2 00:22:14 Honestly, sometimes it just, it totally changes the paradigm in which you're functioning. And obviously at that point, we were able to talk about financial security, talk about risk control and insurance and how we wanted to address that. But had it not been for that conversation, it's easy to say, Oh, okay. Yeah, savings rate of X let's do this and that. And maybe I would have talked about insurance, just the process of planning, but certainly not addressing the deep, emotional distress that my client was going through. That I, as an advisor is that's critically important for me to understand that I want to definitely, probably first Rick, my attend to be able to make a client feel cared for and understood.
Speaker 1 00:22:49 And so then once you get your life insurance, you have to make sure that the beneficiary reign and stay good. Right? Yeah.
Speaker 2 00:22:55 Tell me about that. Yeah. I had
Speaker 1 00:22:57 An interesting one at my early in my career. I worked for a big insurance company and selling life insurance and we had, this was not someone I worked directly with, but I was in the office when it happened. Cause it kind of was a commotion, but this, uh, lady came in, um, you know, middle-aged lady kind of like excited, uncomfortable, but excited and raising a little bit of commotion and, and then goes into somebody's office, has a meeting and then leaves like, Whoa, what happened? That was just awkward. It was weird. Uh, and so it turns out that the, that was the ex spouse of the ex-husband's life, life insurance beneficiary. He had passed away in an ATV accident, forgotten to change the beneficiary on his life insurance ex spouse coming in to collect on the $500,000 life insurance policy, uh, that she had known all along.
Speaker 1 00:23:47 Interestingly, this was the kind of interesting, uh, potentially like you're skeptical. You're like whether you wish he involved in it, you know, if you ask, but, uh, you know, the husband had gotten, they had gotten divorced. He had forgotten to change the beneficiary on his life insurance policy and had died in an ATV accident, ex spouse coming in to collect Emirates basically. And she's going to get it like, there's nothing you can do. He had, so we were so curious. We're like, what about the current spouse? And of course he was married, had children. We're like, Oh my gosh, it was like worst case of everything scenario. Uh, but they have to insurance company will pay the ex spouse. If they're listed as the beneficiary, doesn't matter how much, what should have been done or what the right thing to do was they're going to pay what the beneficiary designate says.
Speaker 1 00:24:32 And so you have to be careful with that. I've seen ex spouses, I've seen parents still, while you're married, I've seen children, one child named when it should have been, you know, all the children I've seen the guardian named that's a little risky, you know, people are not sure they don't want to name the children cause they're not, they don't want them to get such a large sum of money. But then so they'll like all named the guardian. But the problem with that is guardian can do whatever they want with the money. So you have to be careful with who you name as beneficiary and keep an eye on it every so often
Speaker 2 00:25:00 Are those things that's like annoying administrative stuff that doesn't matter. It's not a big deal until it's a huge deal and it's too late. Right. That's definitely warrants, you know, periodic checking the temperature, making sure, okay, here's what we got listed. Is this still, and this is part of my sort of annual review. I'm sure it is to Dan, make it, trying to prevent that essentially. And especially if there's a divorce that happens that it's born keeping everything up to date, never letting it go too long before asking
Speaker 1 00:25:23 And those questions. Yeah. We've seen a lot of a house. I think the house we were sharing, some of our stories of, uh, I guess this is more of like a, avoiding some mistakes with house purchases and that sort of thing for whatever reason, maybe that's just across everyone, but that seems to be a common one. We run across regularly in our practice. Is that true with you?
Speaker 2 00:25:43 It's true. Especially for the early career, you know, I'm just finished training and moving across the country to take my first job. And I want to go from, you know, paying $900 a month in rent to, you know, a $6,000 a month mortgage in some cases, uh, it's a transition and one that should be navigated intelligently.
Speaker 1 00:25:57 Well, but it's, you can see on the one side, it's like, I've rented. So I've been renting for years and years and I've been in training for years and I've just now finally like finishing and I'm tired of renting. Cause it doesn't, it's not as it's stinks to rent, like, and you got gotta move and it's not your place. And you're like, finally I have the money and you're going to make plenty of money. It's like, finally I have the money to buy a nice place. And so if I'm going to do it, I'm going to do it right. And I'm going to find the right place. And so that's all kind of the psych psychology going into it, which is makes a lot of sense. And it gets all crunched up. It's like, the timing is just terrible. It's like, everything happens in like a month almost. It's like you finish, you move. Especially when you're moving. It just adds to, and you've got to look for a house it's difficult qualify because you have tight finances sometimes. And then you pull the trigger on a house you're not 100% sure is in the right area, in a practice that you're not 100% sure it's going to work out. And there's just a lot of risk there. And that decision. So naturally that's where a lot of mistakes happen. Yeah.
Speaker 2 00:26:59 I mean, and we, anybody who bought a house in like the 2005 to 2007 range, I know you probably know some people like this. And I do too, that it was, that was a time when the time of the Ninja loan, the no income, no job application, or you don't even have to prove to the bank, you make money, they'll give you a hundred percent of the purchase price of the house. Exactly. And in some cases, probably I bet there have been mortgages awarded the deadbeat, maybe not even. And that ended badly for people in that. I mean, imagine you're a physician who's finishing training, you buy a house in 2007 and the, for whatever reason your group gets acquired, it doesn't work out that you're not on the partner track anymore. And you want to move now, the house that you bought for 800 K is worth five 50 and you've got an $800,000 mortgage on it. So you need to cut a check for a quarter million dollars in order to get out from under it. That is,
Speaker 1 00:27:47 I think that is a, um, the younger group because it's been awhile, I guess. Like it's been a while since 2008, 2008 was the last, like big time real estate tank. And everything went down in pretty much all areas of the country a lot. And in certain areas that went way down like Las Vegas, uh, like some of the touristy areas in Florida had big, like 50% plus price, real estate price reduction. I had one client in particular that, uh, bought, they were in training in Florida, uh, and bought their house probably like zero down, zero, anything pulse, you're good and got the house, um, uh, just for training. So, and then they go into practice and move and, um, they're finishing in like 2008 bad timing, but 2008 timeframe. And so the house price, their house price basically had gone down by 50%. So like $300,000 house is worth one 50.
Speaker 1 00:28:43 So in order for, and so they financed a hundred percent of it. So their mortgage at that time is probably like two 80 something. So, or two 90, maybe even. So they owe two 90 on a house that is now worth one 50 and they're finishing training. It's like, and they don't have the resources. They're like, what do we do about that? So in order for them to sell it, they'd have to write a check for the difference they're upside down basically. So what they had to do, they had no choice, basically they had to keep it. And it is a rental house. You saw a lot of those in like the 2008 through 2014. Timeframe is like the forced landlords. There was a ton of people that had like one or two rental houses. Cause they were just like, and sometimes they would be like, yeah, I wanted to get in the real estate business, but peel back layers.
Speaker 1 00:29:27 It was like, they made a little bit of a poor decision and ended up in a house that they couldn't get rid of. And so they were landlords on that house and this was, I was working with them in my old firm. I don't know if they, the last time I talked to him, they still the rental house and had not quite, and this is like five years into practice. And because that's a big nut to crack there and it took a while for real estate prices rebound. But I guess the moral of the story is housing prices do go down sometimes even in areas that, uh, have very appealing metrics. Like even in areas, you don't expect them to go and sometimes buy a whole lot. And right now
Speaker 2 00:30:04 It's very geographically dependent. We're still understanding what COVID means, but there's definitely been a flight from it at least at a high level high tax jurisdictions. Yeah. In big cities. If I, if I can work from home and not have to deal with the 9% New York state tax or whatever, and that's been a big shift that we're still it's playing out in real time. So this, although 2008 feels like a long time ago. There's different versions of this in different geographies. That can be any given person's specific problem. One other thing Dan, that I wanted to cover, and I'm curious in your thoughts, have you, I'm interested to hear about a time when your client taught you something either like financially or something about life. I have one you could think about it. I had one, it sticks in my brain. I, I was really lucky when I first started my career to work with many people who make many millions of dollars, what we would call ultra high net worth.
Speaker 2 00:30:53 And by some funny circumstance, the totem pole on which I was at the bottom, my boss couldn't go. And my manager couldn't go to this meeting with this client. So I ended up getting in the taxi and going down to the law office and center city here in Philly and sitting in with a state attorney and our big shot baller entrepreneur client, who's probably got like a $90 million business, the estate attorney. It was this old gray Fox type. Who's like, Oh yeah, you know, we can, we do this all the time. Like, we'll break up the LLC. We're going to give a part of it to your wife, a part of it to your kids, put it all on trust. We'll have like the minority discount applied, basically reducing the face value of the components of the business. And then we'll shove it into this trust. And this is going to be this great tax move and we'll get a 30% discount versus sticker and it'll save you $7 million for some sort of whatever. And so I'm sitting there with my client and I'm in my suit. This is like my first meeting with a real human basically when you wore suits. Yeah, that's right.
Speaker 1 00:31:51 Yeah. I used to share with other people crazy. Yeah.
Speaker 2 00:31:53 And then the lawyer gets up and he's got to go use the bathroom. And the client turns to me, and this is really my boss's client, not mine. And he's like, Justin, I hope you're paying attention. Like this lawyer has no skin in the game. He doesn't care if this works or not. He wants to get a fee for creating a complicated, legal strategy that I can't understand. And he's, you know, this lawyer is 71 years old. And if this doesn't work in 20 years, he's not going to know or care, but I'm going to have to deal with it. And it was this for me, like a real, I mean, I was deaf, this was 11 years ago now. And it left a dent, uh, in, in my brain to say like, let's understand, follow the money, understand the incentive and understand the stakes.
Speaker 2 00:32:30 Like who's going to deal with the consequences of any given decision. This is really true in finances. Like if something goes wrong, is your, is this advisor, is this person who is giving you a certain piece of advice or even a friend giving career advice or whatever are they going to have to help you deal with the consequences? Or are they just telling you what you think? And some sort of like complicated, sophisticated way that you can't understand? I think this is really true in finances. And I respected this entrepreneur who built this business from the ground up. And he basically was a multimillionaire, a multi-decade millionaire because of this instinct. Like if he didn't understand it, he didn't want to do it because he knew he would have to deal with the consequences. And this is true in like tax planning and some more advanced insurance stuff and pensions.
Speaker 2 00:33:14 And there's a lot of advanced financial planning ideas out there. And if you, as a practice owner, as a business owner, if you're getting pitched something and it doesn't feel right in your gut, this is my instinct to Dan is like, I have to just say like, I'm, I'm not into that. And even if it's technically correct, even if everything that lawyer said could have worked, that it could have saved $7 million in taxes, like I don't like the risk that, that introduces to my life and the stress associated with it. And I'm not going to go.
Speaker 1 00:33:40 I would have to say I have not been gifted with that natural ability to sniff out that sort of thing. And that's been something I've had to work towards is, is a kind of, uh, gravitating to I'm I'm I'm, uh, I'm, uh, prone to the shiny object like naturally. And so I've had to work on, uh, getting better at, uh, you know, the understanding aspect and not doing something until it's fully understood. It's easier almost to do it with clients, for me in my planning work than it is my own stuff. That's just kind of the psychology. I think when you're in that role is because I feel a higher pressure load to it's their stuff. Instead of mine, I'm just a high risk kind of a dude as well. So I'll, I'll kind of roll with some, uh, exciting, uh, ideas and try them out sometimes, uh, especially personally, um, it's just kind of fun for me, but I had completely agree with that, like in principle and that you have to it's, it's safer, especially when you're not experienced with things to default to no.
Speaker 1 00:34:40 Is my answer always, unless I completely understand it. If I have, if I don't understand it, if I can't explain it to my buddy, that you got to say no, until you understand it, that's true with a business deals with whole life insurance, like all his life insurance, complicated investment deals, people try to sell, like it's difficult. Like it's hard for us to understand it. Like, and we're dealing with them regularly. And if you can't understand it, uh, or if I can't explain it to you to probably default to saying no, because that's what the whole point of this whole conversation is, is like, it's not the people that are knocking it out of the park with a deal that their buddy brought to them. It's the people that are hitting like doubles and singles and avoiding the deal from that. Or that looks suspicious. It's the people that are avoiding the mistakes that are, that are really coming out ahead. I think in the long run, it's like playing tennis, you know, like you, you play with the, I'm not great at tennis, but like, I play with like a grandpa and he's like whooping my butt just cause I can't keep that gone balling and they do sit in it. Right. And so I make all these errors cause I'm trying to like hit it so hard, you know, but it's about minimizing errors. Yeah.
Speaker 2 00:35:42 Especially in the, you know, pretty much everybody who's listening to this podcast, many are going to have probably a couple of degrees and they're going to be pretty intelligent and uh, are going to be making a good income. And I'd say that's absolutely true is, uh, if you can minimize the unforced errors Lee pointed out, then you're going to do very well. And there's a lot of benefit taking this support. Like if I can't understand it, I'm pretty smart at baseline. And if even, especially if my trusted advisor can't explain it to me in a way that I understand or if they explain it and it doesn't feel right in my gut, this is me. I'm a gut kind of guy. I say, like jam all the information into your brain, process it and then make a decision from your gut based on the things that you know. And I just, I, I saw that in this entrepreneur 11 years ago and it's something that I feel very strongly as something I want to impart to my current clients. And also people listening to this podcast. I think that's a, this is just Justin talking. This is my personal philosophy. I think that we'll sell them, let you down. And if you, if you find yourself stepping out into things that you don't understand, you're more likely to get blown up in a way that you couldn't before.
Speaker 1 00:36:45 Now you have to be, you have to proactively increase your understanding too. So you, you gotta be careful not to end up with like a big old bucket of cash just because you're paralysis analysis. So all this stuff's a balance, you know, like at some point you gotta kind of take a little bit of a risk and step out. And, but like I said, like all these stories I can think of are very much, um, kind of like ignorant mistakes to avoid if you really kind of take a step back and look at it. Yeah.
Speaker 2 00:37:10 So let's wrap it up. This has been really fun. Just re rehashing stories. I think like understanding, Oh, actually there's one last one, the CPA one. Did you talk about that already? I think this is a good one to wrap it up on,
Speaker 1 00:37:22 This is a good one. Cause it's like my ignorance. So like I said, I was going to getting into it. I've kind of had to learn a lot of these things. The hard way. I think a lesson I've learned over time is I don't know much, you know, I don't, I don't know as much as I've had to kind of run into brick walls and, and that sort of thing. So with a CPA, so I had a, I was an independent contractor in early career, like 10 or 15 years ago, that kind of timeframe and had, you know, taxes were pretty complicated then. And so I hired a CPA and it was actually somebody that was referred to me by several other advisors that I was buddies with and worked with him for a few years. He was very inexpensive, is like I was telling Justin like a couple of hundred dollars a year for my taxes that were actually pretty complicated.
Speaker 1 00:38:06 I think at the time I thought they were simple. I'm like I could do this myself because I was an ego, young guy didn't know what I was talking about. But in reality, looking back, they were actually pretty complicated. He did them for a few years, for whatever reasons, maybe it was just gut or whatever. I ended up just stop stopping, working with them and hired a different accountant. And, um, I got audited like the year after that. And it was a big audit. Like they really dug into my stuff. It was painful. I learned a lot of good things about how audits work. Uh that's but they, they dug into everything. Like it was, it was months and months and months of audit and it worked out okay. Like there was not any too bad of negative. I ended up having to write a check for $1,500.
Speaker 1 00:38:47 Turns out the issue was an air that, that accountant made with how they did the tax return. I'm not going to go into the air, but there was an error that was the first issue. Second issue, uh, that accountant ended up getting in trouble for stealing some money, uh, from another client shortly thereafter, a few few, uh, your years of after that. So I'm like, thank goodness. I stopped working with diag fast forward a few years from there, he gets into some, um, you know, major stuff like drugs and prostitution. And so I think, I think that they're in jail now probably, but what's so queasy about that story is so like my first accountant is I think in jail now, which is ridiculous, but first of all, everything kind of checked out, but there was a few red flags, so it was too inexpensive.
Speaker 1 00:39:34 Like it was very, very low, low, low costs. That was a little bit of a red flag. And then my gut started to go like going with Justin's got, you know, I just didn't, it didn't feel right. I had to meet, I met at his house. That was a little strange in this. This was in the time when everybody had offices and met kind of in conferences, I would go to his house. There was a few other sketch things that I'm not going to say because it just, uh, will incriminate. But, uh, there was a lot, there was a few other red flags, but basically moral of the story is it's work. Sometimes it's worthwhile to go with like a bigger firm, get a good accountant, I guess, system, whole story. Like if you're going to get, do your taxes on turbo tax or get a good accountant and it's worthwhile to pay a fair fee for a good service provider. And you know, sometimes there's some value in like having a little bit of a firm presence like don't work with, I mean, it's okay to work with the mom and pop, but like there's a little bit of risk there built in and that it's like out of somebody's home. And I had to learn that the hard way it wasn't ended up having, you know, an audit and check the right. Uh, you never know how things play out.
Speaker 2 00:40:38 So there's a lot of mistakes to be made out there. Yeah. And, uh, go with your gut. If things don't make sense, if your accountant is too cheap, if you don't understand a complicated strategy, your advisor or your lawyer is coming to you, you know, if, uh, if any of this is going on, get a second opinion and get outside, help understand that, uh, especially as an attending and especially if you're a business owner or practice the mistakes get really expensive and an error that a CPA makes instead of a $1,500 check it's could be much, much more than that. And I've been big five and six figure tax errors. So I guess that's the point of today's conversation is just to give you some context for all the different landmines out there. And if you see yourself as a do it, yourself are great.
Speaker 2 00:41:20 You need to be very engaged and there's still some professionals that you need to collaborate closely with. But if you think that feels very uncomfortable and you think that you might step on one of those landmines, frankly, it's the ones that you don't know that there that are going to blow you up. So even if you, even, if you don't think you will, you might, but qualified help. I'm just such a big pro. Obviously I'm biased in this, but it's, it's, I'm such a big proponent of if you make enough to engage for a luxury service, I mean, my clients by and large, don't paint their house and don't cut their grass. And I think that handling the tasks and strategies associated with their personal finances in a way that keeps them engaged, but not having to enact it themselves is just it's. So,
Speaker 1 00:41:58 Yeah, and that's, that's what a lot of our day job is doing, but like, like Justin was saying everybody's different. So you kinda gotta take this into consideration your situation. And that's part of the fun part about it is it's, um, you know, always evolving too everybody's situation changes, and sometimes you gotta be like me and just sometimes you gotta learn the hard way and, you know, make some mistakes and run into brick walls. And, but, you know, if you make the mistake just to make sure to learn from it, like that's key, the worst is to have to be making recurring mistakes. Well,
Speaker 2 00:42:26 Uh, Dan, it's been a pleasure speaking with you today. Thanks
Speaker 1 00:42:28 For joining. Yeah. Yeah. Good fun. Always as always. Thank you so much for joining us today. If you found this valuable, please give us a review on iTunes and share with a friend. Also check out our
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