Tune into to hear Dr. Steven Podnos, principal of Wealth Care LLC, fee only investment advisor and physician share his wealth of experience and knowledge about:
- The tricky way some financial advisors mislead about fees and the difference between fee only and fee based practices.
- Common physician retirement planning mistakes
- What to do if your retirement plan is high cost and under-performing
- Common mistakes physicians make when protecting their assets and how to avoid them
Josh Mettle: Hello and welcome to the Physician Financial Success Podcast. My name is Josh Mettle, and this is the podcast dedicated to advising physicians how to avoid financial landmines. Today, we’ll be talking with Dr. Steven Podnos, principal of Wealth Care LLC, a registered investment advisor and fee-only fiduciary firm.
Dr. Podnos was awarded his bachelor’s of science and his medical degree at the University of Florida. His postgraduate training included a residency and fellowship at the University of Texas Southwestern Medical School, and he’s currently boarded in internal medicine, pulmonary medicine, and critical care medicine.
Along with a 20-year private practice of pulmonary medicine, Dr. Podnos earned a master’s in business administration from Regis University in 2003. He’s a certified financial planner, and as certified retirement plan specialist, he’s overseen investment accounts for over two decades. To top it off, Dr. Podnos is also a lieutenant colonel and flight surgeon in the US Air Force Reserve Medical Corps. Happy day after Veterans Day to you by the way, Steven.
Steven Podnos: Thank you.
Josh Mettle: And welcome to the show. I am truly excited for our chat. I would love to just jump right in, and what strikes me as I read about your professional background is how diverse it is. I would love to hear just a little bit from you about your journey and how you came to serve physicians with Wealth Care LLC.
Steven Podnos: Josh, let me say first thank you very much for having me on the show, and I have listened to a number of your podcasts, and they’re great. You’re doing physicians a great service.
Josh Mettle: Thank you.
Steven Podnos: Sure. Well, you know I was practicing medicine in the late ‘90s and beginning to get a little disgruntled with a lot of the changes that have gone on continuously, and I started a hospitalist program using my pulmonary group. I had to deal with the hospital financial people and felt at a disadvantage, which led to an eventual MBA. While I was studying business, I came across an article talking about fee-only financial planning, which I’ve never heard of up to that point. I was stuck talking to stockbrokers, and insurance agents, and other “advisors” and usually feeling somewhat taken advantage of.
I went and talked to the only fee-only planner in the county and became intrigued that it seemed a model much like medicine ‑ very ethical, advice-related, really little to no conflicts of interest, so I began the CFP, certified financial planner curriculum, and opened a part-time practice around 2001, 2002. And as I got busier and busier, I had to kind of make the decision to change careers, which my group was wonderful enough to let me do.
Josh Mettle: Well, I find your path intriguing and unusual, and I suspect it gives you a specialized knowledge that few others in the financial planning field could possibly have. Can you tell us just a little bit about how your unique background contributes to your ability to give advice and to counsel your clients today?
Steven Podnos: Sure, Josh. Well I mean part of being a physician I think in a sense of being a trusted advisor. I think that’s incredibly important in giving financial advice as well. The whole element of trust is important. I’m lucky enough to have a lot of experience both in running a medical practice and being a physician, so I know a lot of the issues that are certainly unique to physician issues, although they really extend over to all types of families and all types of businesses, it’s very common problems and issues in families.
I raised a family myself. I have three grown children, which gives me some experience with the physicians with educational planning and raising children. Certainly, our private practice was a business, which gave me some business experience. I think all of those parts of the background certainly help.
Josh Mettle: Absolutely. Specifically for younger physicians, you have traveled the path that lays before them. I think that definitely would give you a unique perspective. To that end, let’s talk a little bit about the differences between the field of medicine and financial advising. One of your articles is titled, The Physician Financial Adviser’s Hippocratic Oath, so tell us a little bit about that article and what to be cautious of with most financial advisers.
Steven Podnos: Well, Josh, first I would say there’s a lot of similarities in the only ethical financial planning in medicine. The classic way medical students learn to deal with patients is to do with what’s called a SOAP note, S-O-A-P, so we take a subjective data, what’s the patient complaining about or what’s the financial issue a family may be having. You do an objective evaluation of a patient by examining them and looking at their labs and past history. In financial planning, you look at investment statements and estate planning documents, insurance spreadsheets, as the objective part of the phase. Then in both medicine and financial planning, you make an assessment and recommendations. The plan that follows in terms of how to help solve the problems and issues, whether it’s medical or financial, so there is, I find, a tremendous amount of overlap there.
In terms of that specific article, I was focusing on one of the most shocking things to me was when I went into financial planning was the confirmation of just how unethical most of the field is, so that I find that the overwhelming number of “advisers” out there are really salespeople. They are hired by various brokerage houses, or bank brokerages, or they may be “independent” but are selling a product. That’s how they make their living. It’s set up an adversarial relationship with the client. They come out ahead by selling things that pay them the best rather than doing what is best for the client.
In addition, you find that the overwhelming percentage, and I’m talking well into the high 90s, of “advisers” are really not giving any real advice other than buying some investments for the client. They’re not asking about family issues and goals and such. They’re really just figuring out what’s the quickest way to get some money and buy something that pays commission.
I put in this article. I said, “You know physicians have to take a Hippocratic oath to do no harm and to put the patient ahead of their own interest. Wouldn’t it be nice if financial advisers had to do the same?” It turns out there is a group in the country of less than 2,000 planners that have taken the fiduciary oath and are fee-only. That has to be differentiated by a trick called fee-based that you’ll often see. But fee-only planners and especially if they belong to an organization called NAPFA, which is N-A-P-F-A.org, or dot com, they have sworn to be fiduciaries, to be paid only by the client to give impartial client-centered advice.
Josh Mettle: Explain to us and just make abundantly clear to our listeners if you would, the difference between fee-only and fee-based, and maybe even if you could put a practical application together for me so a particular client maybe you’re dealing with and how the compensation package or strategy or what the advisor would receive would differ between the two strategies.
Steven Podnos: Sure. In a fee-only environment, typically the advisor will charge an assets-under-management fee for managing assets. There may or may not be a separate fee for actually developing a financial plan, but this is disclosed upfront. It is transparent. It is separated from the purchase of any investments at all. It’s very clear there are never products purchased that are paying the advisor a back-end load or a surrender charge or a commission or a trip to Hawaii or anything else like that.
Fee-based is in my mind a trick. Fee-based is planners who would like to have fee associated with their titling, but it is in fact allows them to come up with whatever compensation scheme pays them the best.
They may have seen fee-only or fee-based planners who had clients come over to me and what you see is that they’re charging a fee, maybe a wrap fee or a flat fee per year. Then on top of that, they’re buying investment products that are paying what are called 12B-1 fees or other benefits to the brokerage house or to the broker or both, along with the fee they’re charging the client. Fee-based advisors also retain the right to do straight commissions with sometimes very high cost to the clients. I think it’s a very misleading term, and it’s done so on purpose.
Josh Mettle: If someone were fee-based, then part of their compensation may be wrapped into the total return of the portfolio and may be shielded in some way so that hypothetically my statement at the end of the quarter, at the end of the year says that I made an 11 percent return. But in reality there was a couple of percent or however many basis points somewhere shielded off, so that I didn’t see it and it wasn’t full disclosure. Did I get that right?
Steven Podnos: In a sense. I mean what I have found in general with both brokerages and “fee-based planners” is there is a tremendous effort to obscure returns and costs. It is common to look at these 30, 50, 60-page brokerage statements, and you can’t find any word in there what any of the costs have been, what any charges have been. They’re all internal. They’re all kind of deducted out of purchases. It’s really very misleading. It’s also very unusual to find a real performance that’s accurate. Then they show that the account value is going up but not telling the client compared to any benchmark or compared to goals, how the portfolio has done. This is obviously all done on purpose. Again when you see fee-based, to me it is a specific effort to mislead the clients in thinking that they’re getting a fee-only planner.
Josh Mettle: Very interesting. And so, from any of the fee-based type planners out there that you’ve ever run across or any of those types of programs, can there ever be a middle ground in your experience where they’re not charging fee-only but they still are charging a reasonable fee in regards to the return they’re issuing the client.
Steven Podnos: Josh, I’m sure there are. I’m sure there are ethical people out there. I have no doubt. I can’t say that I have come across one so far, but I’m sure there are. It’s in every field. I think the problem is, is that you’re setting the client is setting themselves up for failure. You’re walking into an ethically challenged environment, where in a sense that “fee-based” or straight-commissioned planner or advisor or broker is essentially – it’s you or them.
Josh Mettle: Right.
Steven Podnos: The more they can extract from you, the client, the better their family does. I mean, I don’t see how you can possibly end up doing well in the long run or beat the odds. It would be like in medicine. If when I was practicing full-time, if you came to me and the antibiotic I chose to give you was based on how much the drug company was paying for the use of that antibiotic per week. Sure, I could remain ethical. I could give you the right one that’s right for you at the lowest cost, but the daily drip, drip, drip of incentive to do better for me is going to be tough to overcome in the long run.
Josh Mettle: That makes total sense. I like the way that you said that and I appreciate you really delineating the difference between the two. Let’s move on to another article that I found very interesting, and that article’s titled Six Common Physician Retirement Planning Mistakes. Would you mind giving us just a brief review of that article and covering a few of the common mistakes that you see physicians making?
Steven Podnos: Sure. What I find in general is one of the most powerful ways that physicians and other businesses can build wealth and retirement security is with retirement plans. Because essentially the government is helping you, letting you deduct the contributions that are relatively high tax bracket and then later when you take distributions or paying back in a much lower tax bracket from those retirees and there’s that both arbitrage of tax rates as well as, the fact that your earnings get tax-deferred for so many years. It’s just a spectacular way they build wealth.
And so, most physicians and other physician businesses and other businesses have retirement plans, but I’ve seen some big errors that cost them a lot of money. The biggest error is when they go to a bank, or a brokerage company, or a nontransparent investment advisor, and they get put into these plans that have very high costs, again many of which are usually hidden. There will be mutual funds on many of the insurance company brokerage plans that they call it pay-to-play. That it’s well known that these are mutual funds that no one would ever in their right mind buy because of performance and expenses, but they pay the insurance company a fee to be on the platform and then you’re stuck with those choices. I actually see these all the time because I have people that work for big corporations including physicians, and they’re stuck with these terrible choices.
The other mistakes that I see made are physicians and other business people will go to a brokerage house or an insurance company, and they’ll end up with a plan that is very inflexible in terms of employee costs. It’s just kind of a cookie cutter prototype, and you end up spending a lot more in employee costs and plan costs than you would if you went and got a customized plan with a third-party administrator and a transparent advisor.
And then, finally probably one of the big mistakes I see is that people don’t fund these plans aggressively once they are in place or they start them very late. Starting early and saving aggressively is one of the strong keys to being financially secure later on.
Josh Mettle: Steven, a question for you. You mentioned in your first point that there is this high-cost plans that are underperforming the market and that you have to pay to play to be on that platform. I’m just trying to follow the money there. Obviously, the client is getting a disservice and there’s a premium being paid, but is that premium being paid to the employer or is that being paid to the benefit manager?
Steven Podnos: Both. I would bet that many of your listeners if they pull up their plans, they’ll see what I’m about to talk about, and they will see that they have a very limited number of mutual funds that they can invest in in their retirement plan. If they look at the expenses, the expenses I’ve seen as high as 3 percent a year‑
Josh Mettle: Wow!
Steven Podnos: Internally on some of the mutual funds. What happens is because of these very high fees that the participants end up paying, the insurance company or brokerage will come to the plan’s sponsor or the employer and say we’ll do your plan for free because they’re getting these kickbacks from the mutual fund companies that essentially cover all the costs and profit. It’s very appealing to the sponsor or company or practice, but there is no free lunch. Of course, these plans not only are very expensive but they tend to be plans that again no one would ever buy.
Josh Mettle: Interesting. So that the employer may not actually be getting a direct check but they’re getting some sort of service or benefit in terms of waived fees. Scary.
Steven Podnos: Correct, correct.
Josh Mettle: I’m going to pull out my 401(k) statement as soon as we hang up.
Steven Podnos: You can almost guarantee that almost every 401(k) plan I’ve seen that has an insurance company attached to it, Manulife or John Hancock, Prudential, that’s the kind of general structure you’ll see going on.
Josh Mettle: Let me get your advice on that then because let’s say that I go into the account where I’ve got my 401(k) allocated, and in fact I pull up my statement and I see these high fees in the 200- to 300-basis point range. What is your advice for someone that is in that situation?
Steven Podnos: There’s two points of advice. One would be if you’re in a smaller company, I would go to the employer and say, “You know this is really not a fair and good plan. Is it possible you would look into a different company maybe one of the no load companies like Schwab or Fidelity or a third-party administrator custom-designed plan that could use low-cost investments.” That would be point number 1.
Yet, however if you have a nonresponsive plan sponsor or they’re a very large company. They’re not going to listen to you. Then what I would do is recommend that you see sometimes there is one or two of the funds that is an index fund and very low cost, and it kind of just slipped in there. What I hope people will do is to wrest around that, to put the bulk of your 401(k) or your retirement plan money into that plan, into that fund and then invest your outside funds, nonretirement plan funds in the other asset classes that you want.
Josh Mettle: That’s great advice. Very good advice. Thank you for that. Okay so let’s talk about one of your other points, which is don’t start early enough and don’t fund aggressive enough. That’s one of the common themes on our podcast. Having traveled the journey as a physician and been at this for several decades and worked with many, many physicians, tell us a little bit about the counsel or advice that you give, particularly young physicians. Let’s talk about folks either coming into residency and fellowship and or are very newly attending and what do you tell them?
Steven Podnos: Well, I tell them that they want to try and live well within their means, that’s perhaps the most important advice I can give them. What you see is during residency, you’re not making a lot of money. It’s hard to stay even. It’s probably not crucial at that point. What is crucial is to make sure they have life insurance that is appropriate and disability insurance to cover catastrophic problems. What I tell them is as soon as they get out and their income jumps is to immediately get used to living on well below what they’re making because it’s a two-fold benefit.
One is that it lets you save a lot from the very beginning and second it keeps you from getting used to spending most of what you’re making, which becomes an increasingly severe problem as you get more and more experience and have higher and higher income. I’ll tell young physicians and pretty much all of my clients, I say you should be trying to save at least 20 percent of what you make, kind of from day 1, if not more. If you can do that over a long career, you are certain to do well in terms of having some retirement security.
Josh Mettle: I think you nailed it in terms of timing and in terms of the importance of hitting it early. The reason that I wanted to park on that, Steven, is that I think and I’ve found myself make the same mistake where the emotional payoff, the emotional return of buying something, whether that’s a car, a boat or what have you, some sort of luxury that maybe I didn’t need really need, you can get addicted to that. You can get so connected to that emotional charge, and you see people do it all the time. Maybe they describe it a little bit differently, but you get a letter in the mail that you’re going to get a pay raise. Before you bank the first check, you’ve bought the new car.
Steven Podnos: Right.
Josh Mettle: That is tied to an emotional charge, and that is an emotional gratification through purchase. Alternatively, you can develop the same sort of emotional charge from savings. I think that the pattern that you’re talking about is so important to identify in one’s self and understand why I do what I do and why it is that I’m out planning the next expensive car in anticipation of the money coming in and how that’s tied to an emotional charge.
But it can also be offset by starting early with savings and seeing how that account starts to grow. And then having some success in that and very soon, what I’ve found in myself particularly is that the emotional charge from saving not spending where I could and then watching my nest egg grow and watching my money start to work for me is a much stronger emotional charge. But if you’ve never get started down that path, the behavior is hard to break.
Steven Podnos: Yeah. That’s excellent advice, Josh.
Josh Mettle: All right. Well, thanks for bringing that up. Let’s transition. As I was reading, your background is so diverse but I was thinking of a story. You know my mother is a retired attorney that practiced landlord tenant law and asset protection for her clients, primarily for landlords and business owners. I’ve heard hundreds of stories about good landlords and business owners who lost their assets due to one insanely frivolous lawsuit or another, so I’ve been scared to death by the concept of frivolous lawsuits and losing your assets.
I think that physicians particularly need to have a higher understanding of those risks and take steps to protect their assets. I wonder if you’d walk us through your article titled, Are you Protected: Six Common Mistakes Made by Physicians.
Steven Podnos: Sure, Josh. As you’ve stated, the physicians should have in general a very high attention paid to asset protection issues, obviously primarily due to malpractice risk. It’s a somewhat unique risk in a unique profession that is a severe problem in many states, especially in Florida for instance where I practiced.
Just about every physician I’ve ever met practicing in Florida has had at least one lawsuit. It’s an incredibly common problem and asset protection is key. But there are other reasons to worry about asset protection. With anybody that has any substantial asset or future income, so I find that almost all of the families I work with it’s a significant issue, whether or not it’s appreciated. I do see a lot of mistakes happening in the planning process and then follow-up made that I think need to be paid attention to and getting good and impartial advice is crucial.
Some of the things I went over the article was I see two big mistakes in families with asset protection issues. One is that assets are titled in a way that expose them to creditors. The most common way you see this as an accident is just owning something by yourself rather than jointly in many states where a certain type of joint ownership gives you really good asset protection against individual creditors.
The classic example would be a physician wife and a non-physician husband. Physician wife puts all the assets in the husband’s name to keep them away from malpractice exposure, but now you have all these solely held assets held by the non-physician husband exposed to his risk, to their joint risk, and a tongue-in-cheek, to divorce, everything is owned by the other party. Instead, they really would have been fine for the most part just owning it together or in a structure than having it in a single person’s name.
Along those lines, the same lines, one of the biggest mistakes I see is people think that their revocable living trust offers them asset protection. I will commonly see families go, “Oh, well our stuff is held in trust, so it’s protected.”
Well a living trust, which is pretty much what everybody is talking about is revocable, meaning you can put things in and take things out, and so can a judge. It offers you zero asset protection. I find families are consistently surprised by that but it’s in fact the truth. Given a lot of the changes in the state tax law in the last few years and such, there is very little reason for high-risk people and families to own things in living trusts until they’re very advanced in age in my opinion. I can’t practice law, but in terms of the balance between protecting assets and estate planning, that’s my opinion.
People also think corporations protect their assets, so a physician will say, “Well, I’m incorporated in my practice, so I’ve got asset protection.” Well, that really protects your assets zero. It is protecting you from liability of the other shareholders perhaps.
Josh Mettle: Right.
Steven Podnos: But it offers no personal asset protection. Then perhaps one of the biggest mistakes people make also, is not to have enough insurance, not to risk share. You can go into the market and pick up a million dollars of what’s called umbrella liability insurance, which covers you for all risks other than your specific business, when there’s automobile risk or homeowner’s risks or nonspecific general risk, you can pick up this insurance for $300 per million per year. Families will sometimes have not enough or none. That’s an issue usually addressed right away.
Josh Mettle: How do you recommend holding assets? Or I don’t know that your scope goes that far, but maybe it does and so, if I was a physician client and had maybe a primary or a secondary and maybe a rental property, or I own the building that my office was in, how would you advise or how have you seen those assets most successfully titled and protected?
Steven Podnos: Usually what I see people do is they seek to separate the liability of real estate from other personal assets especially if the real estate is rented, so you have another tenant there whether it’s a rental condo or a rental home, whether it’s a vacation home that’s rented or your office. You would like not to have a creditor of that particular real estate be able to come after your other personal assets.
What we’ll see commonly done is the real estate is put into a protective structure like a limited liability company or even sometimes a family limited partnership or such. That’s probably very, very commonly done.
Josh Mettle: You know I think the thing with asset protection is that you have to decide how much protection do you want because there’s oftentimes an equal amount of headache that is associated with the protection. In other words, in my family, we hold our different rental units in family limited partnerships, and so we’ve got one 36 plex in one partnership and we’ve got a small group of homes in another. Of course, the business entity that’s producing income is in another.
All of a sudden, you turn around and you realize you’re filing taxes on 27 different businesses, and you’ve got 32 different checking and savings accounts. What have you seen or what counsel would you give in regards to what’s enough and how have you dealt with that personally?
Steven Podnos: It’s a very individual decision, it’s a good question. It really depends on what you think your level of risk is and how much hassle you’re willing to take. For instance, I could give you specific examples. If you have a vacation home that only you use, you probably don’t need a protective structure, but if you have a condo on the beach and you’re renting it out weekly to a bunch of different people, I think that’s an inordinate amount of risk to assume in your own name. I would usually recommend talking to an attorney about again, limited liability company or like you have family limited partnership. In many states, the LLC structure is really simple. Doesn’t require meetings or a lot of documentation once in place. It’s $150 a year to renew with the state, and it surprisingly can offer a great deal of separation between you and the real estate.
Josh Mettle: I think you said that perfectly. That was a great way to wrap. Steven, thank you so much for your time and for sharing so generously with our listeners today. If our listeners want to find out more about you, the services you offer, and maybe they just want to dig deeper in some of these articles that we’ve just scratched the surface on today, how do they go about contacting you and getting some more information?
Steven Podnos: Josh, the easiest way to see the articles or to contact me would be to go to the website which is, www.wealthcarellc.com. It’s spelled W-E-A-L-T-H-C-A-R-E-L-L-C dot com, and the contact information is there. There’s a lot of articles there to look at as well.
Josh Mettle: There are a lot of articles. There is some great information up there. Steven, thanks again. It was a pleasure and we look forward to connecting with you again soon.
Steven Podnos: Thank you, Josh. Thank you very much.