Financial Planning for Doctors

I love listening to podcasts.  In a very busy world, I’ve found them to be something I can do even when life is crazy.  You can listen to them while you work out, commute to work, when writing notes, or as your unwind for the day.  Given my affection for podcasting, I’ve been looking for a way to podcast more consistently, and I am excited to tell you where you can find it!  

Ryan Inman, the host of the Financial Residency podcast, and I have decided to partner together for an ongoing series of podcasts that will air each and every single Wednesday going forward (unless it is a huge flop!).

Every Wednesday on the Financial Residency Podcast Ryan and I will be your co-hosts, and the first episode airs today (10/2/19)!  Going forward, what you’ll find on the site each Wednesday are the show notes from our episode for that day.   Make sure to subscribe to the podcast wherever you usually listen (iTunes, Stitcher, Spotify, etc).

In the month of October, we will discuss Behavioral Finance topics, which should be familiar to readers of this site.  In today’s episode, we discuss framing, and how that impacts your decisions at work, at home, and your personal finance decisions, too. 

How Framing Can Affect Your Financial Future

Have you ever thought about what influences your decisions? Are your choices based on your own mindset–or other factors?  

I’d like to dive into different personal finance topics and the behavioral aspect that makes them even more, well…personal!

The point of today’s blog is for you to gain some insight into how messages are crafted and framed for you, and for you to become aware of how you typically respond to messages.

A couple of questions for you to keep in mind is:

  • How do you interpret information?
  • Do you usually view life events in a positive or negative light?

Your viewpoint will have a profound impact on how you make decisions and your interactions with everyone around you.

There were actually studies completed in the 1980s by Amos Tversky and Daniel Kahneman, that kicked off the field of behavioral economics and finance.

They did a study that looked at lung cancer patients. The patients needed to have a resection of lung cancer. It was explained to the patients that if they survived the surgery, it would eradicate the likelihood of cancer returning.

That information was framed in two distinct ways to two disparate groups.

Group one was given the following information:

  • It has been a highly successful surgery
  • You have a 90% chance of making it off the table
  • You have a 90% chance of surviving the surgery (long-term)

Group two was given the same information. However, it was framed in a negative way.

  • You have a 10% chance of dying on the table
  • You have a 10% chance of mortality by having the surgery
  • The surgery would be highly successful if they survived the resection

Given those statistics what do you suppose happened?

Positive Versus Negative Framing

Remember, the group that was told there was a 90% chance of making it off the table?

They heard the potential results framed positively, so they decided to go ahead with the surgery.

And the group where the information was negatively framed (10% chance of mortality), only half of them decided to have the surgery.

It’s the same statistic from a different perspective, and it can impact everything in your life from how you connect with patients to personal finances.

It’s amazing how different the impact of a message is by how its framed.

I’d like to share a message that I recently heard. It went like this, what if you were America? I was negotiating with you to deliver this amazing technology, and it would increase your economy. It would change your entire world. It would change how you (and other people) moved throughout the day. However, it would kill 40,000 people a year.

Well, that amazing technology was the car, and nobody wants to give up their ease of transportation!

However, if the statistics were used to frame this amazing technology before individuals knew it was the car, the majority of people would decline because of the death count.

When something is framed in a negative way you’ll probably reject it, humans naturally prefer a positive spin. That’s why it’s important to reframe negative concepts. It might influence your decision making.

It benefits you to become aware of the positive and negative framing that surrounds you and the impact it has on your choices.

There are visual cues, audio cues, and communication that surround us at all times.

How you frame things impacts your life!

Framing Matters

Behavioral finance is all about how you perceive data.

It used to be taught in economics that people are rational. Everyone wants the best value for a hard-earned dollar. However, it’s with all the clever marketing, that may not be so true anymore.

As physicians, you are all highly intelligent and educated. You are also human, just like everyone else, you’ll have trouble with behavioral finance.

When you are aware of something you can make conscious decisions, and you are less likely to fall into various traps.

What if the information is presented deceptively?

There are so many ways we can be manipulated. Information can be presented in a way that preys on our fears. Our emotions can be used against us.

Think of all the money that is spent understanding human behavior. I’m recalling a big box store that placed cameras on eye level. They were tracking customers to find out which display caught the most attention.

That shouldn’t surprise you. Google knows all about you and your preferences!

Are You Aware?

Do you understand the pitch that’s directed at you?

Are you able to tell if it’s in your best interest or not?

Do you stop to analyze how something is being worded?

Big business wants to figure out how to frame a message that will appeal to your emotions. It’s their job to know what visual cues or colors will elicit an emotional response from you.

They want to frame their message to grab your attention…so you will buy what they are selling.

They want their products to tempt you!

Rising & Falling Markets

Let’s talk a minute about bear markets.

Do you panic and imagine that doomsday is approaching?

Suddenly, you want to sell your stocks, and index funds–everything in your portfolio. It might surprise you to learn that that bear markets can be framed in a positive way.

The markets go in a cycle, so a correction will eventually happen (market history says it always has).

It’s an opportunity to buy stocks on sale, as opposed to thinking negatively that you are losing money. If you are recently out of residency, and there was a “recession” (or in positive framing: a “correction”), you’d be in a position to buy stocks on sale, especially early in your career!

You could say, it’s time to stock up on your investment choices. Someone near retirement might have a different risk tolerance and a different view.

It’s also not a good idea to check your investments daily. They’ll fluctuate. You’ll get nervous. They’ll rise–you’ll see the circle of investment life. The people who constantly check their portfolio are more likely to jump in and make changes, too soon. This could negatively impact your portfolio.

You can check in once per quarter (to check your net worth), and rebalance once per year.  

Framing Tomorrow’s Market

Who knows what the market will do tomorrow?

Nobody knows what will happen to the market. If someone could tell us everyone would be rich.

The Magellan Funds were the only actively managed funds to beat the index. Over a ten year period, the passive investments or index funds have beat the active investors ( mutual funds and the people who are actively trading over 90% of the time).

That means if we had only 10 funds laid out only one is going to beat passive investing.

What are the chances that you’ll choose that one?

The majority of people don’t pick just one fund. They may have up to a dozen funds. I’ve had clients that come from other advisors. The problem is they’ll have approximately 40 different funds with a $150,000 account.

The problem is that if they were going to fully diversify like that, the account should be a $15 Million dollar account!

That’s an insane way to operate.

Let’s imagine that you just had three. What are the odds of that? Why pretend?

You’ll pay more fees, due to the expense ratios being one to two percent inside the funds. Instead of trying to actively beat the index, why not go with the index fund directly? It’s a fraction of the cost.

When you frame it positively, you’ll have up to a 95% success rate when you pick an index fund. In other words, it’s not worth thinking about it negatively (that you have over a five percent chance of not being successful.

It will also save you time. There will be no need to check your progress because it buys everything in the index.

It also keeps you on the straight and narrow, since it’s buying everything in the index, you won’t have to check things as often.

Something to keep in mind is that it doesn’t have to shake out perfectly. I’ve had guests that have screwed up for 20 years, then turn things around and are ready to retire in five years!

It will also depend on your income. If you have the income of an ER physician or Surgeon you can afford to make mistakes and pull yourself out of the flames.

As for physicians in other specialties

It will be harder for you to recover if you have big shocks to your portfolio.

FYI: A handy tool is the SPIVA Scorecard, which keeps up with the percentage of index funds (active versus passive).

Refuse to Become The Target

Did you know that you are a target?

You are the ultimate professional who has spent years in a focused, and rigorous education. Due to the nature of medical school and residency, you had little time for everything else.

As a physician, you have a reputation for reliability and you have a high income. That means you are specifically targeted by salespeople and insurance agents.

They will try to trip you up with framing things in fear.

Why?

It’s a manipulation of your emotions because fear sells, and they know it.

David Sandler created a training program, you can compare it to “Sales 101”. The first rule of thumb in sales is creating anxiety in the prospect (that’s you). It could be any sales, but it’s especially true with someone selling insurance.

What is the sales technique?

He’s calling it the submarine.

You’ll be taken through a process that is similar to walking through the segments of a submarine, we are talking about eight to ten sections.

Let’s see how this manipulation works:

  • Create anxiety
  • Introduce the prospect (remember that’s you) to pain points
  • After each introduction–they’ll close the door and won’t allow you to go back
  • By refusing to allow you to go back, and pushing forward, you aren’t given the time you need to to think through the process

It’s all about the framing, negatively in this case. These types of sales are all about feeding on your fear!

Why was this sales technique illustrated by using a submarine?

  • They’re silent
  • They are deep
  • They’re stealthy
  • Everything happens under the surface

If you think that sounds shady, consider the next reason they chose a submarine to illustrate their sales technique:

Other battleships are obvious and upfront, you can see them. They aren’t trying to hide their intentions.

What you see is what you get.

Unfortunately, most financial advisors are salesmen masquerading as advisors. It’s easy for them to trick their prospects because most Americans aren’t financially literate.

Financial literacy is a relatively new movement and we have a long way to go.

If you compare the amount of money spent on selling products versus what is spent educating Americans and creating financial literacy, you’ll understand why there’s a problem.

Let me ask you a question: has someone approached you about buying Whole Life Insurance? The first thing I’ll tell you is: STOP!

If you have a financial planner who says they’ll help you with your financial plan, then tries to sell you products like whole life insurance, you might want to think again.

Try meeting with a fee-only financial planner like the financial planners recommended on The Physician Philosopher, who has the fiduciary responsibility to act in your best interest, then make your decision.

Whole life insurance is a product that needs careful thought and due diligence before you dive in and buy it. It’s a terrible product that is meant to be sold, never to be bought.

What Does a Whole Life Pitch Look Like?

First, you’ll be offered an expensive steak dinner (all the better to soften you up).

Then the advisor (aka…salesperson) may compare whole life insurance to other products, of course they will all come out with too many risks (remember those pain points?).

Compared to the others the whole life insurance will stack up as the best option.

  • Did you notice the way the message was framed?
  • How the message was crafted?

As a new attending, if you haven’t experienced this sales pitch–you will. It’s a matter of time.

You are wired to protect want to protect your family, they want to instill fear in you, give you the subliminal message that you’ll leave your family in a financial lurch. They’ll attempt to prey on you.

What is our message to you?

Why are we telling you about framing?

Is it because we want you to buy our product?

No, what we want is for you to become aware of framing. How it’s affecting your everyday life, and how it affects your decisions.

If you are aware of how behavioral finance and framing work…you can make better choices and feel more satisfied with the financial outcomes!

Let us know about your framing experiences. Leave a comment below!

TPP

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