The job interview...clinical competency vs. life skills

Whether you are a practicing physician that is considering a move or a graduating resident or fellow seeking your first posting, the process you follow before the interview may prove as important as how you perform during the interview.

As a practicing physician you may feel very confident in your clinical skills.  Your record as a doctor and your successes in practice will certainly play a prominent role in the decision process of any potential employer.  But interviewing for a job is as challenging a process as preparing for a clinical procedure or diagnosing a patient.  And though you may have had a great deal of experience in the latter, it has probably been a long time since you have approached the former.

As a graduating physician your life has been all about learning medicine.  You have had very few life style decisions to make.  Most have been made for you with the demands of the residency or fellowship.  Every clinical decision has been made in an environment of mentorship and back-up.  As confident as you may feel, the coming interviews will probe your ability to approach medicine with no safety net.

So, how does one prepare for the interview?  What skill sets will serve you well when you find yourself sitting in the arm chair in front of the desk rather than the high backed chair behind it?  What questions should you anticipate?  What will the interviewer be looking for?  What is important?  What will make you the perfect candidate for the position?

At the end of the day, your interview will be comprised of two major areas of inquiry:  Your clinical proficiency and your level of personal and professional drive.  Surprisingly most doctors feel most comfortable discussing their clinical competency.  A practicing physician brings to the table a solid record of accomplishment and time in grade.  A graduating physician is fresh from an intense period of knowledge accumulation and test proficiency.

Yet, most interviewers will spend the majority of their time probing non clinical issues.  It is likely that clinically unqualified candidates will have already been screened out.  You will be competing in the arenas of ethics, morality, judgment, motivation, and ambition.  Fully 70% of a hiring decision revolves around selecting the right person and 30% hiring the right doctor.  Keep that in mind as you budget your time standing in front of a mirror on the day before the interview.

Next month:  Tough questions that have no right or wrong answers.

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Who Should Buy an Annuity? 

by J. David Lewis, NAPFA-Resource Advisory Services, Registered Financial Advisor, david.lewis@resourceadv.com

In the last couple of months, we have spent quite a few hours helping an elderly lady obtain cash from an annuity, when she and her attorney were unable to locate the salesman who received a commission for selling it to her as an investment.  My belief is that annuities are not bad things, when understood and used for the purposes they are intended.  The problem is that they are often sold for reasons that have little or nothing to do with an indefinite stream of income, which the word "annuity" implies.

The concept is simple.  To insure a specific cash flow for the remainder of your life, no matter how long you live, an annuity is the solution.  You give an insurance company an amount of money and they guarantee a stream of income.  When you die, if they have not repaid all you gave them, plus whatever it earned in their portfolio, they keep the remainder to pay those who live a longer time and support their profits.  If you die in a short time, your heirs could lose a lot.  If you live a long time, you can come out much better.  The certainty of being sure of "cash flow for life" is an attractive option when the decision is made clearly.   

A few of our clients have 403(b) retirement plans that require their participants to buy annuities with a significant portion of their accumulated accounts at retirement time.  Those sponsors appear to be attempting to protect their retiring employees from mistakes with their nest eggs.  It is a reasonable requirement. 

Social Security is a form of annuity.  We all pay in for most of our lives.  Social Security pays monthly income for the rest of our lives.  Social Security income stops at death, except for the smaller part spouses can receive until their death.   

To reduce the risk of heirs losing money, insurance companies offer optional terms that continue to pay heirs for a specified number of years, even if the buyer dies very early.  Although this choice reduces the monthly income, it should generally mean someone receives at least some return on the "investment." 

Here is an example.  A husband, age 62, and wife, age 54, have $500,000 that could be used to buy an annuity stream of income for as long as either lives.  They have many options for investing this money.  For comparison, we used Vanguard's website to test various annuity ideas.  Vanguard has a reputation for low cost investment options.  We stipulated that the monthly payments will continue for twenty years, even if they both die earlier, and that the survivor will continue receiving the full monthly payments as long as they live. For the $500,000, Vanguard's annuity will pay $2,223.88 per month for twenty years, plus as long as either of this couple is living.    

If both die within the first 20 years, the insurance company will pay $533,731.20, which is the total of 240 payments at $2,223.88.  If we think of this like a mortgage, the $33,731.20 additional in payments is interest through the years.  It calculates to an annualized return of 0.67% on the $500,000.  Of course, if either lives longer than twenty years, the return gets better.  Once the $500,000 has been received, the rest is return on investment.  Here is a table to illustrate how the annualized return improves if one of this couple lives beyond twenty years: 

From 1926 through December 2008 the annualized return for the S&P 500 Index was 9.6%.  Long term government bonds returned 5.7% over the same period.  Notice that December 2008 was at a very low point in the recent bear market.  A well balanced portfolio should provide returns somewhere in this range over twenty to fifty years.    

If this couple loaned someone $500,000, as a well secured 30-year first mortgage on their home and the interest rate was 4.25%, the monthly payments would be greater than the annuity - $2,459.70.  They would be 92 and 84 at the time of the last mortgage payment and their heirs could inherit the remaining balance, if they didn't live that long.

So, an investor in an annuity's stream of income essentially gives up the possibility of returns from a diversified long term portfolio.  In exchange, they should get peace of mind from the certainty of that monthly cash flow.  For many people, this peace of mind is well worth the potential portfolio return they forgo.  In the last twelve months, we have helped at least one person we consider relatively sophisticated understand this logic.  They decided to buy the annuity.  So long as they can understand their potential choices, we believe an annuity can serve a role in helping them enjoy their wealth.  For that client, we consider the project a success.  

Harvesting organs under a presumed consent law...a slippery slope indeed.

The tentacles of government continue to wrap themselves around our day to day life...and death...in increasingly tight coils. Here is the latest "initiative." It would seem that New York assemblyman, Richard Brodsky, D - Westchester, has decided that organ donations are not meeting demand and the government needs to step in and right this wrong.

His 18 year old daughter received two kidney transplants and owes her life to the donors. I am happy for his family. As an Illinois resident, I have noted on my driver's license that I wish to be an organ donor in the event of my untimely death. I have also made my wishes known to my family. But I also recognize that not everyone takes these simple steps and the wait for an organ can run to years.

But the legislation that Assemblyman Brodsky is proposing gives me pause. He wants New York to become the first state in the nation to enact a "presumed consent" law. Under this controversial concept, a hospital would require no prior authorization to harvest organs from a deceased patient. Family members would no longer be able to override their loved ones affirmative prior consent to organ donation. But more importantly, a hospital would presume the deceased's consent to donate their organs unless they have left specific written instructions to the contrary. You die...they harvest...no appeal...no delay.

Now, I understand the spirit of this approach. Many people would not object to saving another life through the donation of an organ after their death. But they never take the steps to enable the procedure. But this Big Brother approach to harvesting body parts has some troubling implications.

Presumed consent if taken to its logical conclusion could force individuals to become donors against their will. And a truly frightening extrapolation would have hospitals withholding aggressive life saving treatment if harvesting organs could serve a "greater good." Would the next step be a government panel established to mandate the harvesting of a needed organ or portion of an organ from a living patient? After all, we can live with only one kidney and part of our liver. Could the value of a potential organ donation eventually enter into the health care rationing formula?

Most Americans were brought up to believe that charity comes from the heart. That's assuming of course that the government allows them to keep it.

Does Home Ownership Still Make Sense?

By Harry Salzman, Salzman Real Estate Services, MD Preferred Real Estate, harrysalzman-42854@rps-mail.com,

On November 9, 2010, Realty Times, a respected national source for information about the current Real Estate market, published an article titled, "Value in Homeownership", based on  the recently released 2010 National Association of REALTORS® Profile of Home Buyers and Sellers survey. The article made several good points which are pertinent to our local market. Here are some comments that our readers might find interesting.

Is there value in owning a home? The NAR survey shows us that today's homeowners are living in their homes longer, and after several years of price declines, are now seeing a rise in home equity gains.

Early in this decade many buyers jumped on the investment bandwagon. They bought and sold quickly, walking away with inflated profits. But as the real estate bubble burst, many speculators found they had bought at the top of the market and so, as prices fell, foreclosure rates skyrocketed. Historically, however, homeownership is a good, long-term investment, and one that brings many rewards.

NAR President Vicki Cox Golder explains, "Sellers who purchased at the top of the market and had to sell in a short time frame were hurt by the price correction, but the vast majority who were able to stay for a normal period of home ownership generally built enough equity to make a trade-up purchase. Despite swings in the housing market in recent years, the fact is most long-term owners have seen healthy gains in the value of their property. This underscores two simple facts - home ownership encourages stability, and the longer you own, the better your investment. Many of the house 'flippings' and quick gains which occurred during the boom period were abnormal, driven by risky, easy-money financing that should never have been allowed in the market."

"The primary exception to the disappointing 'house-flipping' trend was in the case of experienced investors, many of whom paid cash and who are making renovations or improvements after a careful study of properties, neighborhoods and market demand," Golder said. These savvy buyers are still making money.

However, even in its current slow state, the Real Estate market is far from dead. Surveys show that Americans are still buying homes, primarily because of the desire to own a home, the desire for a larger home, a change in family situation, to take advantage of the home buyer tax credit, to make a job-related move, or to take advantage of the current over-supply of affordable homes.

And today, homeowners are staying put longer. A typical seller has been in their home for 8 years, and the survey shows that first-time buyers are planning to stay for 10 years, and repeat buyers for 15 years.

Even with the recent decline in home prices, the typical homeowner who purchased a home eight years ago has experienced a median equity gain of $33,000, a 24 percent increase, while Homeowners who have been in their homes for 11 to 15 years have seen a median gain of 40 percent. So, considering these facts, it's easy to see why the decision to buy a home for the long-term is once-again coming into favor with the public.

A Regulator's Conundrum

There are two ways an FDA regulator can err.  He can approve a drug that turns out to be a bad drug that hurts people.  That is very bad and can be a career ender.  Or, he can fail to approve a drug that might have helped a lot of people and done great good.  This is unfortunate but not likely to be a career ender.  In fact it will probably not raise any congressional eye brows at all.

In a recent Forbes article, former FDA Commissioner Alexander Schmidt aptly summarized the regulator's conundrum:  "In all our FDA history, we are unable to find a single instance where a congressional committee investigated the failure of FDA to approve a new drug.  But the times when hearings have been held to criticize our approval of a new drug have been so frequent that we have not been able to count them.  The message to FDA staff could not be clearer."

One can see the hardening of the regulatory arteries everywhere one looks.  The FDA recently announced that it is rethinking the "510K" approval pathway for medical devices.  This streamlined process moves approximately 3,500 devices through the pipeline each year.  With new demands for data, many small developers are either moving off shore or abandoning the U.S. market all together.

It may surprise some that the FDA's mission in law requires only that they show that a new drug is safe and effective.  But, as in many bureaucracies, we have mission creep.  The agency has been steadily expanding its mandate to a point where it is now common practice to require pharmaceutical companies to demonstrate that a new drug is not only safe and effective but that it is superior.  It would be bad enough if such requirements where objective and measurable.  But in reality the process is often arbitrary and capricious. 

The Uncertainties of Life and How to Address Them
By Ronald W. Rogé, MS, CFP®, R. W. Roge & Company, an MD Preferred Company RogeReport@rwroge.com

The Difference Between Knowledge and Wisdom

In planning for the future, one of the key things an advisor brings to the table for his clients is a sense of perspective. Central to that mission is differentiating between what's important and what's not important. This requires a blend of knowledge and wisdom, which are related but different. Knowledge, for instance, is knowing that technically a tomato is classified as a fruit; wisdom is knowing not to use a tomato in the fruit salad.

While knowledge accrues from learning, wisdom is derived from experience. Or, to put it another way, wisdom is the constructive application of knowledge. In part, wisdom may derive from experiencing failure, which can provide some of life's most indelible insights. That experience is what the successful advisor adds to the mix in working to identify the critical variables in the equation that can lead to long-term financial security. That includes estimating the value of a host of economic, financial and psychological metrics, including inflation, a client's retirement tax bracket and tolerance for risk, to name just a few.

Forecasting With Uncertainty

A typical financial plan has about 30 variables. That may seem like a lot, but it's actually works out to be advantageous.  Experienced advisors know this because we have the luxury of being able to review plans written 10, 15, even 30 years ago. From this record we know that, most of the time, our projections for many of these variables will be a bit off (occasionally, more than a bit). But the goal is to always try and reduce the margin of error for each variable. That's where wisdom and experience come into play. The experienced advisor knows that of those 30 variables, some will be above and some will be below our best educated guess. In that sense, the estimates of these variables will tend to balance one another out and reduce the overall margin of error in the forecast for the entire plan.         

For example, back in 1986, we may have used as our baseline a 4% rate of inflation, derived from an average spanning 50 years, and a 7% rate of return on a balanced portfolio, based on historical rates of return and a client's risk parameters. Today the inflation rate is closer to 1%, which alleviates the performance burden on the portfolio by requiring perhaps only a 3% to 4% rate of return to meet asset accumulation targets. So while these numbers are currently below their long-term norms, the client's plan is nonetheless currently working because the current "values" of these variables are still complementary.

Planning for Uncertainty

What about those non-numeric variables, those big unknowns that can affect our lives?  As many of you know, my wife Rosanne is a pioneer in the area of financial geriatrics. Many years ago, Roe was among the first to alert our clients that their parents were living longer and that we needed to adjust plans accordingly. In addition, Roe was early to identify the new socio-financial wrinkles our clients (both younger and elderly) were beginning to experience, such as adult children moving back in with parents and (in some cases) bringing along grandchildren in the wake of a divorce, or a 50-year-old son moving back in with his 80-year-old mother after losing his job.  Many clients are now supporting their children with supplemental income because of job losses or insufficient income. So how does one go about planning for these uncertainties?

The Extra Cushion

 We know that the big question that paralyzes people when it comes to planning is.  How can I plan for my future, given all of these planning variables and the unpredictability of life?

After wrestling with this question for many years, I believe I have a reasonable answer. Instead of planning to be 100% funded in retirement (in effect, be financially independent) to age 100, we now recommend that clients be funded 115% to 120% to age 100.

This extra 15% or 20% cushion is meant to anticipate the X-factor of life's unknowns. Should you experience, say, what we call Boomerang Kids (adult children asking to move back in with you), you can write a check to help them continue to live on their own. Should you need to supplement your health plan, you can easily accommodate the added expense without jeopardizing your financial security. And, should you live beyond age 100, the cushion will help you celebrate that happy milestone with nary a concern.

But building that cushion requires that all of us to give up something today in exchange for that added security tomorrow. And what if none of these unknowns comes to pass?  Well, then, the beneficiaries of your estate will be very happy that you lived a happy, healthy and uneventful (no X-factors) life. They will also appreciate your generosity and know that the assets you leave them will help them build that extra cushion in their own life's plan.

Keep in mind that all plans are dynamic and need to be monitored. Any major change in lifestyle, retirement, marriage, death, divorce, etc. should trigger a call to us followed by a plan update.      

Share What's On Your Mind

As we continue to learn and build our knowledge base, you can help us by sharing what's on your mind. What do you worry about? What keeps you up at night? How's your business? How's your health? What's keeping you from moving forward?

Health Insurance Actuaries...they keep moving the goal posts

Insurance companies are businesses. They are for the most part corporations. Corporations are owned by stock holders. Stockholders hold stock because they expect that the company will be run intelligently and make money, thus providing a return on their investment. If there is no profit, there will be no stockholders and the company will cease to exist.

Most companies are allowed to ply their trade without much fan fair or government interference. Unless of course one considers the enormous taxes most have to pay to a wide array of government entities. But the more successful a business becomes, the larger it grows. Until you have massive corporations like General Motors, General Electric, Boeing and Citi Group.

The nation's insurance companies have become very large, very powerful and very profitable. If you set aside for the moment the issue of profit in a capitalist society, one is left with the question of how these companies became so large and how they run their businesses and remain profitable.  Many people in this country do not understand that the insurance companies do not make their profits from the premiums that their customers pay to them. The national average of payout to premium for health insurance is 99% or premiums collected. Insurance companies make their money by investing cash reserves. So, how do insurance companies make sure that they do not actually pay out more in claims than they receive in premiums?

Enter the actuary. These are the guys with green eye shades, pop bottle eye glasses and elbow pads. They spend their days staring at computer screens compiling mountains of statistics about everything from house fires to chickenpox. Their job is to determine in advance how much a policy holder is going to cost on average so that the insurance company knows how much to charge on average in premiums. If he guesses wrong the insurance company is going to eventually have trouble staying in business.

If a potential customer with a potentially costly medical condition seeks coverage, the actuary computes how much that individual is likely to cost to insure. The number will be higher than for a healthy person. If a sixty year old man wants coverage it will cost on average more to insure him than it will to insure a 20 year old. And in most cases it costs more to insure a man than a woman all else being equal. Throw into the mix life style issues like smoking and sky diving and the job of an actuary is complex and demanding.

But what would happen if the insurance companies were compelled to ignore the work of their actuaries? What if they had to ignore a persons health when they came seeking coverage? What if they were not allowed to charge more to one class of people than another based on the work of their actuaries? What if they had to ask for permission from their policy holders each time their actuaries determined that premiums had to go up to match payouts? Welcome to the world of government regulation.

The insurance industry is already one of the most tightly regulated industries in the nation. States regulate them, tell them how much they can charge for their services and who they can cover. And now the federal government is going to get in the game big time. Panels of elected politicians with no actuarial experience, who's jobs depend on the blessing of the electorate, are going to begin telling the insurance companies to ignore the statistics compiled by their actuaries and begin setting rates and policy based upon what the politicians believe is in the "best interests of the country."

Three Obstacles To Financial Success

by Brian Picariello, CPA, CFA, Traust Sollus Wealth Management, 609-779-6700, bpicariello@tswealth.com

Don't let procrastination or fear stop you from making the right plans

As a financial planner, I've seen what leads to wealth building success and what leads to failure.

Several of my clients are doctors and either own their own practices or draw a paycheck from an employer. What they all have in common is that they have taken different paths to planning their financial futures before coming to see me.

Some had been do-it-yourself financial planners and investors, some had never actually set down a financial plan in writing, and some had unsuccessful past experiences in using a stockbroker or planner  All of these people worked hard to achieve their educational and professional goals. All were intelligent and energetic. Moreover, all were acutely aware of their need to put a logical and workable personal financial plan and, in many cases, a business financial plan into action.  So, what kept them from taking steps toward achieving their wealth-building or wealth management objectives? Of course there are practical obstacles: many doctors keep long hours, not only for seeing patients, but to handle their paperwork. This takes a bite out of the time a doctor might devote to financial planning. However, in my experience, the more important factors are often emotional and behavioral ones. Let's look at three common obstacles to building wealth that can inhibit any one from taking action to achieve his or her financial independence.

Procrastination

There's a lot of truth to the observation that says people spend more time in a year planning their vacations than they do thinking about and managing their personal finances. Some people feel they are so busy with business and home and family obligations that they just do not have the time to spend on their finances. They never actually forget that they should be paying attention to their financial futures, so they feel the stress of not taking the time to for planning. But they have an emotional block that prevents them from getting around to this critical task.

Why? Sometimes a person may be embarrassed to ask for help, because it would show he doesn't know as much about how to handle his own money as he does running his business. Other times, it may be nothing more complicated than having trouble following up on good intentions. We all know folks who have trouble putting their "New Year's Resolutions" into action. They're perpetual procrastinators. Think of the people you know who say every January that they're going to start going to the gym to work out but never got around to it. I often find the same can be true for such people when it comes to devoting time and energy to determine their wealth-building goals and identifying the steps for achieving them. Many of these individuals never complete a personal or business financial plan.

Another person might be overly cautious and worry about making a wrong decision. No doubt after reading stories about how other people's money turned to nothing after they trusted a Bernie Madoff many a heedful doctor thought her money would be safer under the mattress. Yet another person might have a fear of the unknown. This person fears a financial plan may highlight her inadequacies and show that her financial goals are untenable, unrealistic; in fact, someone might laugh.

Fear of not making the right decision

Some people I meet have made very poor financial decisions at one time or another in their lives that have cost them a great deal of money. Frightened at the thought of making more embarrassing and costly financial mistakes, the person becomes like a deer in the headlights each time the idea of choosing the right investment or financing option arises. These people avoid making choices that they need to make to ensure the financial success of their families and their businesses.

I remember a small business owner, and a medical practice is a small business, who had taken a big step in hiring his first CFO/controller, only to find that she was not up to the task. Her actions hurt customer and vendor relationships and cost the business money. But faced with the prospect of repeating his mistake, he put off firing the controller and hiring a replacement. As a result, there were no improvements to customer or vendor relationships. His hesitation was costing the business opportunity and making the owner work harder, since he had to stand in and do the work of another person in trying to patch damaged relationships.

Fear of Loss

One of the most understandable emotional issues that stand in the way of personal and professional financial success is fear of failure: What happens if something goes wrong? How will I be able to recover from a bad investment? We had a case at my financial planning firm where a physician client wanted help in evaluating possible strategies for growing his business. We analyzed his options, determined the action steps required to carry them out and evaluated the cost/benefits of each.

Crunching the numbers revealed that his most promising option required a $1 million investment in diagnostic equipment to expand his practice. While he could recognize the logic-it takes money to make money-the physician balked at risking large sums on his business. The physician needed support from his financial planner, acting in the roles of business coach and CPA, to show him that the risks were not as great as he feared and that it was a sound business plan. Eventually, the doctor overcame his fear of risking his hard-earned money and agreed to the investment; since then, his business has grown as the financial planner predicted it would.

Now that you can identify these emotional and behavioral obstacles, I hope you'll be able to see whether they stand in your way, keeping you from making smart financial planning decisions for your company and yourself.