Getting Paid Fairly | White Coat Investor (2024)

In This Show:

• Get Your Contract Reviewed
• Non-Compete Clauses in Your Contract
• Resolve Tools
• Milestones to Millionaire
• Sponsor
• WCI Podcast Transcript
• Milestones to Millionaire Transcript

Sponsor: DrDisabilityQuotes.com

Transcription – WCI – 373

INTRODUCTION

This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high-income professionals stop doing dumb things with their money since 2011.

Dr. Jim Dahle:
This is White Coat Investor podcast number 373 – Getting Paid Fairly.

Today's episode is brought to you by SoFi, helping medical professionals like us bank, borrow and invest to achieve financial wellness. SoFi offers up to 4.6% APY on their savings accounts, as well as an investment platform, financial planning and student loan refinancing, featuring an exclusive rate discount for med professionals and $100 a month payments for residents. Check out all that SoFi offers at whitecoatinvestor.com/sofi.

Loans are originated by SoFi Bank, N.A. NMLS 696891. Advisory services by SoFi Wealth LLC. The brokerage product is offered by SoFi Securities LLC, member FINRA/SIPC. Investing comes with risk, including risk of loss. Additional terms and conditions may apply.

All right, welcome back to the podcast. We're in the middle of summer here. It's smoking hot all over the country. I hope you're having a good time, those of you with kids, with the kids being out of school for the summer. And for the rest of you, I hope you're getting a chance to do at least one nice vacation, go to the beach, go to the mountains, do something cool this summer.

I know we've had lots of fun this summer and we have more fun yet to come. By the time you hear this, I'll be back from our big Middle Fork of the Salmon float trip and hopefully all went well there. But I'm certainly looking forward to that as I record this before that trip.

QUOTE OF THE DAY

Our quote of the day today comes from Sir John Templeton, who said, “The four most dangerous words in investing are, this time it's different.” The more you learn about the history of finances, the history of the markets, the more you'll realize that while history doesn't repeat, it certainly rhymes.

Thanks everybody out there for what you do. We've got a great guest today. I say guest, but he is a partner. This is somebody we work with and we have a financial relationship. If you hire Resolve to help you review or negotiate your contract and you go through our links, we get paid, that helps support the mission of the White Coat Investor.

But we've also negotiated a discount for all their services for you that you don't get if you go directly to them. You get 10% off if you go through our link, which is basically whitecoatinvestor.com/resolve and you use the code WHITECOAT10, you get 10% off all their services. So it's a win-win-win for everybody.

By the way, don't forget we are having a sale right now. This is our biggest summer sale. This is our biggest sale of the year, really. It's 20% off everything we sell. We're talking about our online courses. We're talking about swag and books in the White Coat Investor store. All that stuff is 20% off from June 24th through July 3rd, 20% off on all our courses.

If you want the real estate course, you're going to save hundreds of dollars on it. Because it's our most expensive course, you save a whole bunch of money. You want one of the Fire Your Financial Advisor courses, the student version, the resident version, the attending version, the CME version, it's all 20% off. If you want the continuing financial education courses, they're all 20% off. We've got one of those for every year. And those qualify for CME, just like the CME version of Fire Your Financial Advisor. So you can use your CME funds to buy those. But right now, they're 20% off through July 3rd. So go check those out right now.

Is there a code they need to use for that, Megan? SUMMER20. Put SUMMER20 in and you get 20% off the course. It's super awesome. You can go to the store, you can buy both books if you want to give them out to your students or residents or anything like that. You want to get some t-shirts, you want to get some stickers, you want to get a WCI mug, whatever you want. It's 20% off from now through July 3rd.

All right, let's get Kyle on the line. I thought this interview went really well. I hope you enjoyed it as much as I did. And I'll see you on the far side.

INTERVIEW WITH KYLE CLAUSSEN OF RESOLVE

WHAT IS RESOLVE?

My guest today on the White Coat Investor podcast is Kyle Claussen. Kyle is an expert in contracts, in particularly physician contracts and negotiation and review of those. He is the CEO of Resolve, which is our partner, one of our most important partners in this space. And we work together to help physicians get their contracts reviewed, which I think is pretty much important for any physician contract, as well as making sure doctors are getting what they deserve, which is a real problem with doctors.

I've talked before about the fact that the range of interest specialty variation in income is way more wide than most doctors think it is. In fact, it's wider than the range between the inter specialty variation of the averages of position compensation for the various specialties.

And so, it's important to make sure after these years and years of training to get paid what you're worth. And we're going to be talking with Kyle about that, as well as what you can do to maximize your income throughout your career. Kyle, welcome to the White Coat Investor podcast.

Kyle Claussen:
I appreciate you having me on.

Dr. Jim Dahle:
We've worked together for quite a while. We've done webinars together. There's a webinar in the Facebook group. If you spend time in there, you can check that out and learn more about Kyle and about Resolve. But we're going to be talking today with an even larger audience, with the podcast audience, about some of these issues. Tell us a little bit about your experience. You're an attorney. You are originally from Minnesota, is my understanding.

Kyle Claussen:
That's right.

Dr. Jim Dahle:
How did you end up in this space?

Kyle Claussen:
Well, my wife is an ophthalmologist. And so, I get to live some of this vicariously through her. Resolve was actually founded by a physician who was giving kind of these business and medicine talks at the University of Missouri. And that's how I got my start in it, they needed an attorney and obviously a high level of interest for me personally. That was 10, 13 years ago now at this point. And the deeper you get into this, it's hard not to have a passion for it if you care about physicians and you care about fairness and transparency, because there's not much of that in the market right now. And that's really what we're striving to help with.

Dr. Jim Dahle:
Why do you think there isn't much transparency here?

Kyle Claussen:
Well, I think healthcare is obviously a real big business at this point. The shift in the market in the last five to 10 years, most physicians are now employed. Healthcare is almost 20% of our GDP. And like any business, labor is a cost that they would love to keep down. And so, transparency doesn't necessarily help that, especially when physicians drive almost all of the revenue in healthcare. It takes your license to do any tests, to drop any scripts. All of the revenue, not just physician services, comes back to that patient encounter. I think from a business standpoint, it behooves them not to have that transparency, but we think that's really important. And that's what our company and what our site is all about.

PRIVATE PRACTICE VS EMPLOYEE

Dr. Jim Dahle:
There's been a trend over the last few decades. Fewer and fewer doctors are self-employed. We're becoming an employee profession. I think the latest numbers I saw were something like 77%, 80% of doctors essentially don't own their jobs. What do you see as the consequences of that trend over the last couple of decades?

Kyle Claussen:
Well, the physicians have certainly given up that control. The autonomy, the ability to own, whether it's ancillary services or just have control of your schedule, who you're going to hire, who you're going to work with. I think in theory, it was healthcare got too complicated and there were supposed to be efficiencies and we were going to centralize some of this stuff and have employers come in and help with that.

But I don't think that that has played out the best for physicians. I think there's a lot of burnout. I think there's some organizations that do it well, but most don't, from where I sit. And I think you see that if you talk to enough physicians like we do, that there's becoming an increasing lack of trust, I think, in the systems to do the right things for them and to make sure that their careers are protected.

Dr. Jim Dahle:
What advice do you have for a physician that wants to own their own business, that wants to be a partner, that wants to be in solo practice, they're coming out of training and they still want to have that kind of traditional thing?

Is that an option? Should people consider that right off the bat? Or do you think they need some time as an employee first and then maybe go out on their own after that? What advice would you give to a young doc that thinks they may want an ownership position down the road at some point? What advice would you give them?

Kyle Claussen:
Yeah, I don't think private practice is dead. Even if it's 77%, that still means that there should be at least one option in every market that is a traditional private practice. And in my experience, almost every practice is hiring at all times because there's such a shortage.

And so, if you really have that want to be in private practice, my suggestion would be to try to find a good private practice to join, a mentor. There's not a lot of sole practitioners right out of training. I think for a lot of reasons, there's some just learning the business and medicine that has to happen.

If you are going to go the employer route first, get your feet wet, maybe pay off some student loans and then come back and open a private practice. I think you just need to be really careful in your contract on things like non-competes and the tail coverage components and just that transition point if that's your plan five years down the road to make sure you still have those options and you're not walking yourself out of a market.

But it's certainly there. And I talked to a private practice yesterday in a negotiation. He framed it as we are an endangered species and we're also a hunted species where usually we protect things that are in the minority position, but private equity and health systems continue to gobble those up. So I think you can find them, but I think you have to do your homework.

Dr. Jim Dahle:
The general rule, I think people assume that when you have ownership, you're likely to make more money in the long run. Do you think that's still generally true?

Kyle Claussen:
I think that is generally true. I think when we talk about, I know we're going to talk about salary and data and compensation here in a bit, but I think there's always been some skepticism on who's reporting to those surveys and whether or not the really high earning private practices are willing to kick their data into those pools or not. And so, I think there's always some sample bias that happens there. But in our experience, yes. And when we're evaluating partnership offers for people and you're seeing the P&Ls and you're seeing the revenue that they're generating, absolutely, there's really good revenue streams in being an owner.

Dr. Jim Dahle:
Yeah. You may look at more physician compensation data than anybody in the country. What's your sense? If you had to pick a percentage, how much more do you make when you own the business versus when you're an employee as a doc? 30% more, 40% more, 20% more? What would you say on average?

Kyle Claussen:
I think there's probably 20%-ish is probably a good rule, but I think there also is a big variation by specialty. Because if you're in a surgical specialty and you can own a surgery center, the number is probably larger than if it's family practice, that type of thing.

But I do think, and this should be an expectation, is that if an organization can shave 10% to 20% off, they need that profit, if you're Optum or HCA to show to your shareholders, or if you're nonprofit, at least in theory, you're utilizing that for other things. So I don't think that should be surprising that if you own the business, that there would be an extra 10% to 20% sitting there for you.

Dr. Jim Dahle:
Yeah. That's been my experience in emergency medicine. I've looked at some of the contract management groups. And essentially, it looks to me like, I use the word skim, it's kind of a negative word, but they skim about a third of what the doctors generate to go to the business. It's not going to the doctors. Two thirds of it is paid to the doctors and one third of it is used elsewhere.

And then I look at the overhead for my group, which is in the 4 or 5, 6, 7% range for emergency medicine. And I go, “Well, shoot, there's 25 to 30% there that is going somewhere else when you don't own your business.”

I think most docs are willing to do at least some of the work of ownership in order to get that additional money. But I've been surprised. I've run into lots of people and they're like, “I'm more than willing to give that up to not be an owner. To not have the risk of ownership, to not have the hassle of ownership,” which is not insignificant, and just enjoy a relatively carefree life practicing medicine.

But I think you're right, as you mentioned at the beginning, about those issues with autonomy, with control over the practice, that stuff starts mattering, especially in mid-career. You care more about having that control. And I think this does lead to a significant burnout.

Doctors not only being paid less than maybe they're generating, but not having the control over how much they work, how much they take call, who they're working with, so on and so forth. I think that's had a big impact on physician burnout rates over the years.

Kyle Claussen:
Yeah, I agree. Anytime you look at those burnout surveys and what factors are listed, it's almost always lifestyle, scheduling, who I work with first, and then compensation being fair comes down the rung two or three. I would agree with you on that.

COMPENSATION

Dr. Jim Dahle:
Yeah. Let's talk a little bit about compensation. And it's funny that we use this word compensation. In any other industry, we call this salary or pay or something like that. In medicine, somehow that's taboo, and we have to call it compensation. I don't know why. But do you have any idea why that started, why we started calling it compensation?

Kyle Claussen:
Well, the only distinction I would make is that a salary to me sounds like it's just a flat number. And most physicians are not just paid a flat rate all year. It depends on work overviews or collections or something else. I do think there is a distinction between just a base salary versus what my W2 shows at the end of the year.

Dr. Jim Dahle:
Right. Although in tech, we'd call it salary and bonus.

Kyle Claussen:
Yeah, that's right. Yeah, that's right.

Dr. Jim Dahle:
At any rate, I often get pushback when I talk about salary surveys, these surveys that you can get for free from Medscape or Doximity each year. And I have doctors tell me that as a profession, we are under-reporting what we're making, that this is not accurate data, and we're under-reporting it purposely. And so, nobody should believe these surveys. What do you think of that? Do you think that's true? Do you think that's not true? How true is it? etc.

Kyle Claussen:
I think there's partial truth in it. I think anytime you look at those surveys. Any data set's only as good as the number of samples that are inside of it. And so, a lot of those, if you actually dig into them, they're fairly small sample sizes. I think the other problem is it's unverified data. For the most part, it's just people submitting a Google form or something else, to say, “Hey, this is what I made.”

And that's true, even though some of the large surveys, the MGMAs, the Sullivan-Cotters, the things that are out there. I do think it's who's reporting. And I also think there may be some hesitation on putting in full numbers.

That's the one thing that we think is unique about what we do, is that everything… Not everything, 99% of the information on our side is verified. We've looked at it. We've seen it in the contract exactly what those terms are. And so, I think there's always a question if you look at those surveys, why the ranges are so large. You talked about intra-specialty fluctuation. You can look at a Doximity survey versus our data or MGMAs data, and there can be a $100,000 difference between those. That's a big deal. And so, I always say data, you kind of look at it as a grain of salt. Get as much of it as you can, and make a good decision from there.

RESOLVE TOOLS

Dr. Jim Dahle:
Yeah, that's a good segue. Let's talk about these new tools. And we're hosting these tools at White Coat Investor. If you go to whitecoatinvestor.com/salary, we partnered with Resolve to bring these tools to you. And they're super cool tools.

The first one is a physician's salary comparison. This is what's happening in the WCI Facebook group, on the subreddit, in the forum, in the FEW, in all of our online communities. People are always like, “What are we getting paid? What can I get paid as a neurologist, as a GI doc, whatever.”

We want to get that data to you. We think having this data makes it more likely that you will be paid fairly. Whether you're getting a new job, whether you're renegotiating your salary, whatever. We want to get this data into your hands. If you go to whitecoatinvestor.com/salary, you can get started on these tools.

But the first tool I want to talk about is this physician's salary comparison. And it can be useful even if you provide no information whatsoever. This is what I call the base level of this tool. And if I put in my specialty of emergency medicine, I get three contracts, recent contracts that Resolve has seen that tell me what emergency doctors are getting paid.

For example, I've got this one from Texas. This is for a contract, I think starts in December, full-time contract, the doc is getting paid $374,400, no signing bonus for a full-time job. There's another one in Indiana, starts in August, $372,401 with a $75,000 signing bonus and a $14,000 relocation bonus. And another job in Texas that starts in August for $331,200, that's full-time with a $10,000 signing bonus and a $10,000 relocation bonus.

Just for a very quick “What am I worth for a medical student or for a resident?” You are a first year resident, you're like, “What am I going to be making when I get out of here?” This is a fantastic tool. Even at this base level, all you got to do is put in your specialty into this thing and it'll kick it out.

And I think this might be a useful tool even for medical students who are trying to decide “What do I want to go into?” Well, what does a neurologist make versus a neurosurgeon? You can put those both in and get literally real data, current data of what these sorts of doctors are making. So, it's a pretty cool tool. Thanks for making that, Kyle.

Kyle Claussen:
Yeah, we're glad you like it. We think it's really important. I think that's the question that comes up on every, like you said, Facebook group, Reddit feeds, all over the place. It's, “Hey, what do you think about this, that or the other?” We just think you shouldn't guess. You should just know. What's out there, obviously, this data is anonymous and de-identified. You're not going to know that it's Dr. Smith's or whoever else. We take that part pretty seriously. But having access to some baseline information, we think is really important.

Dr. Jim Dahle:
Yeah, this data is valuable. You can get a certain amount of data from a free Doximity or Medscape survey. But by the time you get it, it's a year old. You don't get the variety you see with this. And it's all self-reported rather than being verified. And so, this is a lot more useful.

All right. If you go one step further, and I call this level two for this data, and you give Kyle your email address, you get some more cool stuff here. You actually get a lot more data. Instead of just seeing three recent contracts in your specialty, you get to see pretty much everything in your database. That's what you get to see with this tool, which I think is very cool.

You get to see dozens of contracts. I think when I tried it most recently, I got three or four pages of emergency medicine contracts all over the country, what they're getting paid, signing bonuses, etc.

This is still totally free. All you've given up is your email address here. But you get way more data. You get the base salary, you get the signing bonus. You can choose what states you want to look at. If you want to zero down the data, obviously, if you try to get data in Utah, it's hard. Utah is a very interesting emergency medicine market. You can almost get no data in Utah. But for most surrounding states, I put in Nevada and Colorado and I got dozens of recent contracts. So I thought that was pretty cool. And so, you get availability of some of your filters.

Now, there is a step three, of course, and this is actually a product you guys offer for sale. This data obviously has value. Tell us about this offering, this data only product that you offer to people.

Kyle Claussen:
Yeah, we think that the best results of negotiation come when people have access to information and really when they have multiple offers so they have some leverage. Well, we know that everybody doesn't always have multiple offers and so they don't know what they should be comparing.

We feel if you can see, in emergency medicine, if you can get access to 200 plus contracts that we've looked at. If you can see the details of those things, not just the base, but if you can actually hop in and say, “I want to know if there was a non-compete. I want to know if they got offered tail coverage. I want to know all these various factors. CME, vacation, all that stuff.”

And then take the second step because your employer is likely going to cite some survey that says, “That's great. You've got other offers, but MGMA says this.” We think that you should have access to both of those. Every single detail in the contracts that we have, plus the MGMA snapshot that will show you what a work hour view number should look like at the 75th percentile versus the median. You can combine all that and be fully armed for less than $200. We think that that's a pretty great ROI for you. If you can't get a $200 increase over a three-year contract, I would be shocked.

Dr. Jim Dahle:
If people want to go buy MGMA data, they can buy it. But last time I looked at the price, it was over $3,000.

Kyle Claussen:
Yeah. And we think that that's one component of it, but we think you actually need more than that. Because when we look at MGMA starting salary for some specialties, I looked at cardiology before this meeting. It's $384,000. If you look at the contracts that we have, which is the equivalent, starting salary is $451,000. So there's a $75,000 difference, whether that's who's reporting, whether that's because it's in real time.

There's a lot of factors on why those numbers are different. But if you're walking into a job and you say, “Okay, I'm willing to take the $380,000”, when everybody else around you is earning $450,000, you're going to feel awfully disappointed. You can pay off a lot of student loans every year for $70,000. Again, that's why we think it's a tremendous value and we're really excited that you guys are highlighting it.

Dr. Jim Dahle:
Yeah. Okay. With this first tool, with this salary comparison tool, this widget, when you have the data package, you pay the $199, you get the data package. What additional information do you get that you can't get just for giving you your email address?

Kyle Claussen:
Yeah. First of all, you get the access to the MGMA snapshot. That's a data set that you don't get for just the email, which we think is really important, but also you're going to be able to drill down into each contract. And so, we're showing you the base salary. The signing bonus and relocation allowance.

If you want to see production bonuses, work RVU pay rates, quality bonuses, CME, paid time off, whether they're paying for dues and licensing, malpractice information, non-compete information. It's all the other things that have value to you or should have value to you. You're going to be able to see all of that as well. It's kind of the full behind the curtain. You get access to all of it for that paid feature.

Dr. Jim Dahle:
Okay. There are a few no-brainers in the physician personal finance space. There's a few no-brainers. Most docs ought to be doing a backdoor Roth IRA each year. It's kind of a no-brainer. You ought to be getting disability insurance. It's a no-brainer.

Buying this is a no-brainer. If you're actually negotiating a contract, it's $199. It's $199 to have the data you need to make sure you're being paid fairly. This is a no-brainer. Every White Coat Investor should be buying this package. This is such an easy sale. I cannot make this any easier for you. whitecoatinvestor.com/resolve. It's the $199 data package. Even if you don't want them to review your contract, if you don't want them to negotiate anything for you just go get the data, $199, no-brainer.

All right. So let's talk about the other widget. This other widget is cool, too. The physician contract scorecard. And this is cool too. And again, like the other one, it's got three levels. If you don't want to give your email address, here's what you get. You can go there and you can put in your compensation.

I'm going to go there and I'm going to put in $400,000 for an emergency doc. And I hit a button that says calculate rating. And I get the rating and it says satisfactory. If I put in $250,000 and calculate my rating, it says needs negotiating. If I put in, I don't know, put in $100,000, it still says needs negotiating, but that's what you get for the base level. It kind of gives you a one-shot look of whether you're getting paid fairly.

But if you give up your email address, again, I know it's a huge ask here to give up your email address, but you can get some more data there in that respect. You can put in a little bit more of your contract data and get some more detail there, which is pretty cool.

But let's talk about what you get if you actually buy the data package. This $199 no-brainer thing I've been telling you about. Here's what you get with this particular tool, this contract scorecard. You get to learn about all this other stuff that's part of your contract and it will rate each part of the contract so you know where to focus your negotiations. So, what are all the things this scorecard goes over, Kyle?

Kyle Claussen:
Yeah. It's an ability for you to summarize data. If you don't want to look through the 200-plus emergency medicine contracts, if you just want to say, “Hey, I've got a non-compete that has 10 miles as a radius, and this is roughly where I live population-wise”, it'll let you get this quick overview to say, “Hey, if I need something to bring back to my employer, I have a snapshot that says, hey, I did this on my own, but I'm looking at hundreds of contracts and I've got five areas that are red.”

Kind of like when you go to get your oil changed and they're flagging these things for you. That's the idea. It gives you that quick overview. I think it's really good for folks early in their career as well who may just not know what should be in a contract and what shouldn't.

The other thing that I would say on the data piece as well that we didn't talk about is because data refreshes on our site weekly or daily, you're going to get these updates that come out to you whenever new data points come in. But the surveys also come out once a year, and they happen to be changing right now.

If you haven't looked at your contract in a year or two years, the new 2024 surveys are just coming out and are live, you're going to be able to see the distinction between last year and this year. If family medicine has gone up 10% the last two years and you haven't renegotiated, that's something you ought to know. And so, that's again, another reason why we think this information is so important.

Dr. Jim Dahle:
$199 is like the hourly rate for many physicians. We're talking about one hour. And of course, if you're self-employed, that's even a deductible cost. Yeah, it's just a no-brainer to get this information. I cannot emphasize that enough.

But it's cool. This tool is really neat. You go through your total compensation and signing bonus, and you can calculate a rating on that. And you can just look at your signing bonus. You can look at your bonus rate and the bonus threshold. You can look at the relocation bonus. You can look at your tail coverage. You can look at your non-compete time period and distance and see how that compares. You can look at your amount of paid time off. You can look at your CME time off and allowance.

Basically, this tells you which parts of your contract are fair and which parts aren't. They either tell you that it needs negotiating, that it's average, or that it's satisfactory, which means you're above average, and you actually probably aren't going to have much negotiating room on that point.

So, it's super helpful. As you arm yourself for negotiation with a current employer or prospective employer, I just think this is wonderful what you guys have put together. So, thanks so much for doing that.

Kyle Claussen:
I appreciate that.

NON-COMPETE CONTRACTS

Dr. Jim Dahle:
Let's talk about some stuff. And some of this we talked about. If you saw the webinar Kyle and I did for the Facebook group, you probably heard some of this stuff. But the hottest topic right now in physician contracts is non-competes. And as we record this, we should put the date on this because it may be different a month from now. Can you talk about the current state of non-competes on June 5, 2024?

Kyle Claussen:
Yeah. The current status is that sometimes they're allowed and sometimes they're not. And so, that's not a great answer for anybody trying to review those and analyze those. But the FTC came out with this ruling, and that's what's gotten a lot of attention from people. But it's not in place today. It doesn't become effective until September. There are lawsuits and challenges that are happening to that.

And as of right now, it's just like it was in 2022, where it's based on state law. Some states have banned non-competes, but that's very few. Most states allow non-competes on physicians for reasonable terms. So if there's a reasonable time, reasonable distance, that's what a judge would look at in an enforcement of a non-compete.

And so, it's kind of a stay tuned status right now to see what happens with this. We're obviously very hopeful that they leave the rule in place, that they wipe those out, because we think it'll add tremendous flexibility and movement in the physician market.

Dr. Jim Dahle:
Yeah. And the vast majority of physicians want to see non-competes gone. There's a few physicians, most of which own a practice and hire doctors, who think there may be a place for some sort of fair non-compete in the marketplace. What's your response to owner doctors pushing back on that?

Kyle Claussen:
Yeah, I can understand that. If I'm a practice owner, I want to, especially in some specialties, if I turn over a bunch of patients to you, and all of a sudden, you leave me and walk across the street, nothing can prevent those patients from following you. So I need to have some way to protect myself.

I just think that there's a lot of ways to retain the employees. And I think the best practices will do that. And I don't think that you have to have the non-compete as the way to do it. I think you can just be a good employer. You can offer good fair comp and fair benefits and have good paths to partnership if you're in private practice, because once they become a partner, they're obviously not likely to leave. And if they do, you can still place those restrictions from a non-compete status, on partners for the sale of a business. That's one of those things that even the FTC thinks is an exception and should be an exception to the rule.

Dr. Jim Dahle:
What do you think are the tools that an employer ought to use instead of a non-compete? For example, you got to pay back your signing bonus or something if you leave within a year, that sort of thing. What kind of tools do you think they ought to be using in a fair contracting process?

Kyle Claussen:
Yeah. I think if you're taking large incentives up front, I think it makes sense to stay for a certain amount of time to make sure that those are earned. I also think that if I'm an employer, and I know that I have plenty of volume, there's a lot of patients that need to be seen on this, that the way to keep people happy is to pay them fairly and to staff their practice the right way.

I don't think physicians are of the mindset where they want to bounce around. Most want to build a practice, they want to be stable, as long as they're being treated the right way. Even non-contractual ways are probably the best way to do that.

But certainly, we're going to see employers react to this. If non-competes are wiped out, in the states that that's already happened, you do see liquidated damages or employers trying to lock people in for three, four or five years before they can leave without this financial penalty. There will be adjustments by their legal teams on how to still try to put some handcuffs on people.

Dr. Jim Dahle:
What do you think the economic value of a non-compete ought to be? If somebody's willing to sign that I won't open a practice within 10 miles for a year after I leave you, what's the value of that? Should they get paid 10% more for being willing to do something like that? Or is there any way to put a value on it?

Kyle Claussen:
Practices already put values on buying out of a non-compete. They'll say that it's worth roughly one year's compensation. Obviously that varies by specialty. If that's the case, if it's $250,000 for a family medicine physician, I would want to make sure I'm getting paid a little more each year to be able to turn around and pay that off or to buy myself out of it. Yeah, I think 10 to 15% maybe is the right rule.

GETTING YOUR CONTRACT REVIEWED

Dr. Jim Dahle:
All right. I want to scare White Coat Investors into making sure they get their contracts reviewed. This is something doctors do, once, twice, three times in their career. I think it's money well spent, a few hundred dollars to get your contract reviewed. And so, this is part of why we partner with Resolve.

By the way, if you go to whitecoatinvestor.com/resolve, you get 10% off all their services. That data package we talked about for $199, it's actually $179.10 if you go through that link. It's even cheaper than that, but so are all the other services. Thanks for supporting the White Coat Investor by working with our partners in that respect.

But what are some horror stories that you can share with doctors who didn't have their contracts reviewed and then ended up wanting to leave or having to leave and didn't realize what the contract said?

Kyle Claussen:
Yeah, a couple of them. The first one I'm going to go to is a compensation issue. We do have clients that will sign contracts very early because they're going to their hometown. We've had organizations sign positions in med school even before they matched into a program.

Anytime that people are signing that early, they're even usually less educated on this topic than people that are maybe listening to this that are finishing training. We think that not knowing your value, we've seen people underpaid by $200,000, $300,000 a year. And so, that's a huge problem when you are thinking that you're getting this huge raise and it's a number you've probably never seen before in your life.

Let's say you're being offered $300,000. Well, if you're a dermatologist who's supposed to make $450,000 or $500,000, that's a major issue. That's number one is you're just going to lose out on a lot of what I'm going to call lifetime earnings and getting to those financial goals quicker.

The second one is we have seen folks get locked up for periods of time with no out in the contract, meaning there's no without cause termination, no ability to terminate, for two or three years. And when clients are completely unaware of that, a lot of physicians come in saying, “I'm only going to be here for a year. I have a spouse that's finishing training. We're going to move at that point in time. Or I want to go do something different and I'm already planning for that.” To find out later that you're no longer able to leave. And if you do leave, you're in breach of contract. There are some large penalties that are out there.

The typical breach of contract remedy is to put the other party in the same position. And so, if the system has to go out and bring in locum coverage at a rate that's twice what they are paying you, that difference, that's your damage amount. And so, it can be a six-figure number very easily where we've had to try to work with organizations and find a settlement amount on the way out.

Education is half of it. To not understand your contract is a problem, but then two, to accept terms that are below market or that are really draconian for you. Again, I think that the price point, at least that we're at, shouldn't be an issue. I think it's probably like you said, a no-brainer from where we sit as far as making sure you understand what you're getting into. You can accept that risk. Even if they won't make any changes on the contract, you have to know what you're signing.

Dr. Jim Dahle:
Yeah. I feel like a lot of people get burned by the tail coverage issue as well. They don't understand that the contract says they have to pay for tail coverage. Can you talk a little bit about occurrence versus claims made and the need for tail and who should pay for tail and all that when it comes to contracts?

Kyle Claussen:
Absolutely. When you're in training, you don't have to worry about that. Nobody ever says you have to pay for a tail on the way out of residency. What tail means is that if you're on a claims made policy, a policy that says we cover you for any lawsuits that come in while you're working here. But as soon as you end employment with us, you're kind of on your own. Any claims that come in after the fact that's your exposure, well, nobody wants that exposure. So you go out and you buy a tail policy to cover that. Those costs on tail are usually one to two times the annual premium.

And so, in certain specialties like OB-GYN, for example, tail can be a six-figure number because the statute of limitations is really long. The longer you have to insure for, the higher the dollar amount.

And to not understand that, especially in certain specialties, and then to all of a sudden get hit with a six-figure bill when you transition is not obviously where you want to be. And most of your next employers are not going to want to pick up that coverage either. I think that's a misnomer. It's not that you can't negotiate it, but it's going to take away from something, whether that's your base salary or a signing bonus or something else, you're ultimately going to pay for it, whether it's cash up front or not.

Dr. Jim Dahle:
Yeah. What do you see as typical contract terms for tail coverage? Is it if you quit, you pay? And if they fire you, they pay? What's typical?

Kyle Claussen:
Yeah. There's about four options in my mind or four ways that this is drafted. It's either one, you pay for it no matter what. That's the worst case scenario. Best case scenario is they have an occurrence-based policy, which means don't need tail, or they cover tail 100% no matter what. In the middle, you'll see who walks away. Kind of the if you quit, you pay for it. If we let you go, we'll pay for it. That's one way to beat the middle.

And then the other way is to vest into it. So you vest into this plan, kind of like a retirement plan where you get credit every year towards that cost. And the longer you're there, the more the employer will pay for. And those vesting schedules can be anywhere from two years to 10 years. It really varies, but obviously the quicker, the better for the physician.

Dr. Jim Dahle:
And you may find, this is the experience I had, you may find your negotiating partner, opponent, whatever you want to call them, doesn't actually know this stuff. The contract that was first presented to me when I joined my group that I'm with, a group of great people, great docs, been very happy there for many years. But when it was presented to me, it said that I was going to be paying for the tail. My first question was, “Well, how much is the tail?” And the managing partner of my group didn't know the answer to this question. He had to go back and research it. It turned out it was something like $50,000 or $55,000. That was my tail.

I think annual premiums back then were like $16,000 for a full time emergency doc in Utah. They're cheaper now, but that's what it was. It was $50,000. And so, we negotiated that they'd pay if they fired me and I'd pay if I quit. That was the negotiation we came down to. But don't assume that the person you're negotiating with has all the answers. They don't always have all the answers. Sometimes they're just docs trying to make their way in the world, just like you are.

RESOLVE CAN REVIEW YOUR CONTRACT

Dr. Jim Dahle:
All right. Let's talk a little bit. If somebody decides they're going to come and hire you, Kyle, hire Resolve to review their contract, tell us what that typically means in terms of finances and services.

Kyle Claussen:
We try to have options for everybody. Anywhere from those free tools you talked about all the way up if you need help from an attorney for multiple offers. And it's anywhere from free to a couple thousand dollars. That's the price range. All that's transparent. You can go on to the white coat link to Resolve and see those numbers with the discounts. That part is fairly straightforward.

The distinction between just doing it yourself, analyzing the data, taking a look at this thing, looking at the scorecard and handling that is if you actually want changes made in the document, you want to talk to an attorney, have this conversation that you and I are having about what's normal, what's not normal. How hard should I push on certain things? Even though you're telling me this needs negotiating, how high on the list should that be for me? That's the service that I think most people value. As they want to talk to someone who's done this hundreds of times.

Having that negotiating partner with you, and somebody who even handle some of those conversations is also what a lot of our clients value. Physicians aren't trained in negotiation. And so, especially the first time or second time through that process and depending on employer, they like having an attorney to help interface, to ask the questions, to be able to talk to legal on why the language round tail should be done better or to be able to justify why outside activities should be written this way. And so, that’s where we come in. We feel like we can be that good partner with you through that process and get you to a signed contract.

Dr. Jim Dahle:
Yeah. When someone gets to the two thousand dollar level with you, they're basically hiring you to negotiate for them. Most people, as I understand it, if they're still doing their own negotiating, which I think most docs do, if they're negotiating with doctors, they're looking at what? $500, $600, $700, something like that for the contract review service.

Kyle Claussen:
Yeah. It's usually between that $500 to $1,000 range. That’s what they're after. A lot of people still want to have the implementation and the ability to come back and say, “Okay, even though I handled the negotiation, they made four or five changes. What do we think about that?” If you have multiple offers, price point is there to make it cost effective for you to just have that full access where you can get to pick and choose whatever you want to use.

Dr. Jim Dahle:
Yeah. $500 or $1,000 still sounds like a lot of money to lots of residents and fellows out there. But let's put this in perspective. $1,000 is half a shift for an emergency doc. $500 is a quarter of a shift for emergency doc. And you're talking about working for these guys for 10 years. It doesn't take much to make up the cost of contract review. That's why I call it a no brainer.

Kyle, what if you're not a physician? Can Resolve still help PAs, NPs, other health care professionals, non-health care professionals?

Kyle Claussen:
We can. Yeah. Our focus, we were formed to help physicians specifically. But we also understand that PAs and NPs have very similar concerns. We do have data right available on the site for them. We'll help you with those contracts as well. Data sets are a little more limited. If they go on, they're going to see fewer numbers than they would if it was emergency medicine. But absolutely, there's MGMA data there for you. There's contracts that you can take a look at.

We don't go outside of health care often. Occasionally we will help with a spouse, potentially if they have a contract issue or questions on that. But we really try to stay true to our core mission, which is empowering physicians and then other health care professionals alongside that.

Dr. Jim Dahle:
All right, Kyle, our time is getting short. Is there anything that we haven't talked about that you think that 30,000 or 35,000 people that are going to hear this podcast really need to know about the contract review process and about physician compensation these days?

Kyle Claussen:
I think it's just important to understand that even though there's a lot of discussion around how difficult finances are in health care and how these systems are maybe not having a ton of profit, that when we look at comp, it's still going up for physicians. And when you look at the new data sets that come out every year, when you look at the contracts on our site and see what people are negotiating, I think you should feel empowered despite all the static around that. I think you just have to be somewhat aggressive and make this a priority for you. We hope that your listeners find this helpful.

Dr. Jim Dahle:
Yeah, that's a really good point. There's this idea out there that keeps getting passed around that doctors are getting paid less, especially after inflation. They're getting paid less as the years go on. The data doesn't really bear that out.

Kyle Claussen:
No.

Dr. Jim Dahle:
At worst, they're keeping up with inflation. In general, if you go back to 1960, doctors are doing much better than they were 50 or 60 or 70 years ago. Don't let anybody bamboozle you into underpaying you because they think you're not worth as much as you are. At any rate, if you want to hire Resolve to help you with contract review or just get the data service or hire someone to negotiate for you, go to whitecoatinvestor.com/resolve.

Well, Kyle, thank you so much for what you do. The entire physician community owes you a great debt in helping to make this information more transparent and providing this very much needed service out there. We appreciate all the time and effort you and your team have put into providing the tools, both the free ones as well as the paid ones that can help us to do that. Thank you very much.

Kyle Claussen:
I appreciate it. Thanks.

Dr. Jim Dahle:
Okay. Always a pleasure to talk to Kyle. As I told him, and told you while we're together doing this interview, this is kind of a no brainer. Don't make the mistake I did. I didn't have my contract reviewed when I got it. Now I knew a thing or two. I was four years out and I've been pretty financially savvy. And so, I knew what the basics of a contract were. I wasn't totally clueless.

But I didn't actually have my contract reviewed by somebody knowledgeable. When I say somebody knowledgeable, I'm talking about one of two people. A national contract review firm like Resolve or a healthcare attorney in the state where the job is. Now I had my cousin who's an attorney, kind of an ambulance chasing type attorney that helps injured people. That sort of an attorney to look at my contract.

And in retrospect, that was a mistake. I didn't get burned because I'm in a group of great people and it was a great job and I've been there for 15 years. It didn't hurt me at all. I got away with it. But in retrospect, that was being penny wise and pound foolish. Don't make the mistake I did. Get your contract reviewed. What's $500 or $600? It's not that much money in the grand scheme of things and well worth it.

SPONSOR

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Right now, you also get 20% off everything WCI is selling. Use code SUMMER20. From June 24th to July 3rd, everything we sell, 20% off. Use code SUMMER20. You can go to whitecoatinvestor.com/courses to buy our courses. You can go to whitecoatinvestor.com/store to buy our swag.

Thanks for those of you leaving a five-star review and telling your friends about this podcast. It really does help us to spread the word about it. A recent one came in from n32728. He said, “Life changing. So grateful for Dr. Dahle and WCI. I went through most of residency making the wrong choices but luckily discovered his book and then podcast. Now my wife and I are student loan free and have a written financial plan. I recommend WCI to anyone that will listen!” Five stars. Awesome. Thanks for leaving that review and we're proud to have assisted you in changing your own life, quite honestly.

For the rest of you, if you're just starting to listen to this podcast and a lot of this is over your head, that's okay. You're going to catch up. This stuff's not that hard. It's way easier than dentistry, than nephrology, than cardiothoracic surgery, all this stuff you spent years learning. This stuff's way easier than that.

You can learn what you need to know about personal finance and investing. You can become financially literate. You can become financially disciplined. If you can acquire the combination of those two things in our modern society, it's like having a superpower. It's not only going to allow you to take all the financial stress out of your life and retire at a time of your choosing, but it's going to allow you to be a better physician, a better partner, a better parent. You're going to have resources you can use to help those around you. You'll be able to focus more on the things that matter most in life because money will cease to be a worry in your life.

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Participate in our White Coat Investor communities, whether it's on Reddit, or whether it's on Facebook, or on our forum, or in our Financially Empowered Women's group, whatever. Just participate with us, and you will quickly find that you will soon be helping more people than you are being helped. It's a wonderful thing when the community helps each other, and we all progress together.

Keep your head up and your shoulders back. You've got this, and we're all here to help you. See you next time on the White Coat Investor podcast.

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Transcription – MtoM – 176

INTRODUCTION

This is the White Coat Investor podcast Milestones to Millionaire – Celebrating stories of success along the journey to financial freedom.

Dr. Jim Dahle:
This is Milestones to Millionaire podcast number 176 – ENT pays off student loans and pays for fertility treatment at the same time.

This podcast is sponsored by Bob Bhayani at drdisabilityquotes.com. He's an independent provider of disability insurance planning solutions to the medical community in every state and a long-time White Coat Investor sponsor. He specializes in working with residents and fellows early in their careers to set up sound financial and insurance strategies.

If you need to review your disability insurance coverage or to get this critical insurance in place, contact Bob at whitecoatinvestor.com/drdisabilityquotes today, by email at [emailprotected] or by calling (973) 771-9100.

Don't forget, as you hear this, we are starting a sale. This is a sale on everything we sell at WCI, all of our products, all of our courses, all of our swag, all of our books. Use code SUMMER20 to get 20% off all of this. This is our start of the medical year sale. So it goes through July 3rd. And you can go to whitecoatinvestor.com/courses to buy the courses. You can go to whitecoatinvestor.com/store to buy the swag and books.

It's all of our courses, though. It's the new Fire Your Financial Advisor courses. It's the established Fire Your Financial Advisor course, which by the way, has been updated. There's all kinds of new stuff in it. One of the versions also has CME. It's our No Hype Real Estate investing course. If you're interested in private real estate investing, whether direct or through syndications or funds or whatever, you can learn more about that. It also includes our Continuing Financial Education course, which again, is good for CMEs. You can use your CME funds to buy it, or you can write it off as a business expense. All of that 20% off through July 3rd, use code SUMMER20.

All right, we got a great interview today. I think you're really going to enjoy this one. Before we bring him on the line, I want to encourage you to stick around afterward. We're going to talk a little bit about mutual funds and ETFs.

INTERVIEW

Our guest today on the Milestones to Millionaire podcast is Josh. Josh, welcome to the podcast.

Josh:
Hey, thanks for having me here.

Dr. Jim Dahle:
Tell us how far you are out of training, what you do for a living, and what part of the country you live in.

Josh:
I'm an ENT, about seven years out of training in the Southeast United States and a relatively high cost of living area.

Dr. Jim Dahle:
Okay, let's talk about what milestone we're going to celebrate today with you. What have you done?

Josh:
I have paid off my student loans, which were just short of $300,000.

Dr. Jim Dahle:
$300,000 in less than seven years out of training. Very well done. You should be very proud of yourself.

Josh:
It feels pretty good.

Dr. Jim Dahle:
When I looked at the notes for this, I turned to Megan and I said, “Oh, people still pay off their student loans. How quaint.” Because so many people are going for forgiveness programs these days. Was that ever a consideration for you? Was there ever a decision you made of whether you were going to pay them off or go for PSLF or some other type of forgiveness?

Josh:
I think I looked at PSLF and I had filed paperwork while I was in residency in case that was going to be the option. But it came like my fourth or fifth year in training there. It looked like I was probably going private practice. And so even though I did the paperwork just in case, I figured it probably wasn't going to be the path I was going to take.

Dr. Jim Dahle:
And was this all done with your income? Do you have a partner? Are you married with kids? You get money from your parents. What's kind of the family situation and background?

Josh:
I'm married. I do have one kid. Wife worked as a full-time OR nurse up until we had a kid, now she works part-time. Majority income, though, coming from me there. No inheritances, no trust funds, nothing there. This was pretty much paid off by the physician salary that was working down here. I'm on my first job post-training. I think that's been a big key to the overall payoff that I was able to accomplish.

Dr. Jim Dahle:
Let's go back, if you can, 16 years. So you're seven years out of practice. Five-year residency?

Josh:
Yeah.

Dr. Jim Dahle:
Four years in med school. There was a time when you looked at med school and said, “If I do this, I'm going to owe $300,000.” Which 16 years ago to somebody who'd probably never made $100,000 in his life was an immense sum of money. Do you remember what was going through your head back then?

Josh:
Yeah. It didn't really feel like real money, to be perfectly honest. I think the numbers were just so big that it sounds, this is just something I'm going to have to deal with later. But to try to conceptualize that amount of money was, I don't know, just really feasible to a first-year med student who was starting to look at that.

I went to a relatively expensive private med school, even with some scholarship that deferred some of the costs there. I still was able to rack up a pretty decent size, above average size, loan amount. The amount of it, I don't think ever really sunk in until, I think until residency, until I realized that my income-based repayments were not covering even the interest.

Dr. Jim Dahle:
Yes. That is an unfortunate issue, isn't it? There comes a time when you realize “I'm now getting paid, but you know what? I owe five years of my current salary after tax.” It's a pretty sobering moment. When did you start becoming more money-savvy, become financially literate, if you will?

Josh:
I think I've had a decent round of that, but I just didn't have the tools in order to start tackling that. I've always been someone who's invested the amount of money that I could save, didn't have a taxable brokerage account, since I was a teenager. Not a very large amount in there, but something I've always invested in, low-cost mutual funds and Vanguard, since I had any bit of money. I did have that foundation there.

The question is really when I was going to start tackling the student loans and starting my income into place. Starting off as an attending, first year, okay, then I had to pay for a wedding. Even though we did a low-cost wedding, we were very conservative on that. That's where some of the money went there. Then that rolled right into having to pay for IVF and fertility treatments. That took the front line before I could even start really trying to tackle the student loans.

That really didn't even happen until I was two, two and a half years out of training, just because we've finally gotten the rest of our ducks in a row for me to say, “Okay, this is now time for me to really start getting the final plans about how we're going to hammer this out.”

Dr. Jim Dahle:
Let's go down a tangent here, because this is something super interesting that you said, which is the cost of having kids as professionals. This is a big deal. You spend a long time in training, and then you finally get around to starting a family in your 30s. And it doesn't always happen as we'd hope, or maybe as it would have at 19. But it's not something you can really put off. You can't stack it behind other financial goals. It has to come up front and center. Talk to us about that conversation you guys had about fertility treatments and starting your family and those expenses.

Josh:
Like I said, I got married my first year out of training, and we wanted to start having a family. But when it became clear that we were not having success on that, we started down the workup. The workup is expensive, and any additional funds that we had went to that. That got expensive pretty quickly, just with the testing.

We did wind up going down the IVF path, also expensive, with several failed transfers and treatments there. That's one of the things, is that not only is it expensive, but it's not a guaranteed thing. Thankfully, it was finally successful. We had a son in late 2021, and we are immensely grateful and happy that our IVF journey was successful. But that was a trying time for both me and my wife.

That was a priority, because there's a time-sensitive nature to that. Loans can be refinanced. We can deal with that later. But there's the “ticking” biological clock. We don't have forever to try to sort this out, especially if we want to potentially have more than one kid. But that was always our goal. It became hard just to have the one, and so it was just trying to get a run on the scoreboard, so to speak. We were just trying to get in the game. But it took several years of fertility treatments before we finally had our son.

But yeah, that became the big financial thing that me coming out of residency thought, “Okay, we'll just get married and start having kids and go from there.” I was not expecting that. But I don't think I'm alone, especially with, as you said, trying to make a kid later in the 30s, that this is a real thing that a lot of us have to deal with.
Dr. Jim Dahle:
Now, if you had to estimate it, I doubt you've added all this up, but if you had to estimate it, how much did you spend from the time you started until your son was born?

I don't know 100% for sure, but it might be going close to $100,000. I wouldn't be surprised if in the end, based on all the several rounds of retrievals and Prozac embryo transfers, the medications for every single one of these cycles and everything really adds up. I think in the end, probably be looking close at $100,000.

Dr. Jim Dahle:
Yeah, and nothing covered by insurance.

Josh:
Correct. And I think thankfully I was making enough at that point that we especially spent over the time that I didn't get any tax deductions from that amount because it was done over several years. But yeah, none covered by insurance. Nothing was covered, anything on that. And no, I wasn't able to write off any of those expenses.

Dr. Jim Dahle:
Yeah, given your income, I'm not surprised. Maybe I ought to add that to the list of things that new attendings have as expenses that come up. I talked about beefing up your emergency fund and replacing the beater and maxing out your retirement accounts and paying off student loans and those sorts of things. Maybe fertility ought to be on that list because it's so common.

Josh:
Yeah, I think that to be perfectly honest, even when we started getting into it, I thought, “Okay, we do IVF at one time.” I didn't realize that this was something that was going to take years and this amount of time and effort, anything into it. I honestly was just naive regarding it all. And I'm not anymore, but…

Dr. Jim Dahle:
You're an expert now.

Josh:
This is something that is something that you're going to be looking at planning on and your financial goal that if you want to and you haven't started trying, it may be something to have contingencies for. I do think that's worthwhile.

Dr. Jim Dahle:
Well, congratulations on your son. That's pretty awesome.

Josh:
Thank you.

Dr. Jim Dahle:
Okay, so you got that big financial goal out of the way. Next, you turn to student loans. Tell me about the conversation you and your wife had about this $300,000 in student loans that you had, it sounds like, probably on minimum payments up until that point.

Josh:
Yeah, I was doing income-based repayments up to that point. And then my wife deferred to me when it came to what I was going to do with this. I managed the finances for our family. I talked to her about it, but she's like, “You do whatever you think is right.” I wound up using a White Coat Investor link to refinance the First Republic Bank, which is now no longer existing. And I refinanced the student loans in February of 2020.

Dr. Jim Dahle:
So painful.

Josh:
Right before COVID hits, I refinanced there for a five-year payoff at a ridiculously low interest rate. At that point, I felt pretty comfortable there. And then of course, the world shuts down one month later after I've now signed up for these bigger payments to try to pay this down and then completely miss the student loan holiday.

In the end, I have no regrets about getting it done and paying it off. It was a five-year payoff plan, but if I had paid off within four years, I got some interest payments recouped. And so the plan was, once I refinanced in February 2020, to be doing that within 48 months. That's why in January of this year, in the 47th month, I wrote a big old check and we closed that account.

Dr. Jim Dahle:
Awesome. What rate did you refinance to? Do you remember?

Josh:
I think it was 1.95%.

Dr. Jim Dahle:
Fixed or variable?

Josh:
Fixed.

Dr. Jim Dahle:
Fixed, 1.9%. Here's the consolation. You had to pay these things off anyway because you're in private practice. And 1.9% is not all that different from zero.

Josh:
And to be perfectly honest, that's why I paid it off at the 48 months and not sooner. I could have paid it off sooner, but you talk about, “Could you invest? Did I decide to invest that money?” And said, yes, I did. I put money in a taxable brokerage account and instead of paying that off just because it was as you said, pretty close to zero, I definitely decided to extend that, but there was an end date and that was four years into that. And so, that was coming regardless and I just paid off the rest then.

Dr. Jim Dahle:
What can you tell us about your income over this time period, the last seven years?

Josh:
I was on a three-year partnership track at my practice here, starting associated about $200,000 a year when I came out of training. My practice still had a very good productivity bonus. Me working hard, kind of grinding it out, was able to increase my income each year, probably about $250,000 by the end of the first year, $350,000 by my second year, and a little over $400,000 by the end as an associate.

During that time, and that's still when I was doing that loan refinance after three years being a partner and income definitely went up after that as well. But I was able to still as an associate, still be able to have more money from the productivity bonuses to have the ability to pay this off.

Dr. Jim Dahle:
Yeah, it sounds like you had options. You could have paid this off faster.

Josh:
I could have.

Dr. Jim Dahle:
You've been doing some other things with your money. Tell us about what else you've been doing with your money over the last five years or so.

Josh:
I have invested in a surgery center where I operate. I'm a part owner there. I've maxed out my 401(k). I do some survey work and some minor consulting things that allow me to have a small amount into a solo 401(k). Not a lot goes into that.

And then the rest of it goes into a taxable brokerage account. Like I said, I've had that since I was a teenager. But yeah, when I had the options and in 2020 to be throwing money at student loans or putting it in during the COVID crash in 2020, I was throwing in the mark in the COVID crash. And certainly no regrets on that front.

Dr. Jim Dahle:
Yeah, very much a balanced approach.

Josh:
Yeah, yeah, certainly. I did drive my Honda Civic until I became a partner though. I did have that there. And now I drive a slightly nicer car.

Dr. Jim Dahle:
Yeah, other than the fertility expenses, it sounds like you very much had a “live like a resident” period.

Josh:
Yeah, we moved to a higher cost of living area. And we did have an increase in expenses from residency to that. Our rent tripled right off the bat and everything there. But we didn't really do too much else in terms of expenses or anything else there, really except the fertility treatments which were the big hefty expenses. And that certainly gave us options to be able to sit on the student loans and go from there. We did build a house right before COVID as well. So we were able to move into that and build a house together where now we're raising our family.

Dr. Jim Dahle:
How's it feel? You took a balanced approach. These things were clearly not killing you. You didn't feel this huge weight to get rid of them in two years or anything. But how's it feel now that they're gone?

Josh:
It feels pretty good. But like you said, it wasn't weighing on me like it could have. It's kind of nice to have checked that box. I think that the nice thing is that I had freedom to do these things and ability to pay this off when I wanted to. But it's really nice to be done with that. I think you've said before that you're not really done with medical school until you've paid off those loans. And I feel like I'm done with that now. And it feels nice having said that and that I'm not working with that borrowed money anymore. This is mine now and I have more options for that.

Dr. Jim Dahle:
Yeah, it's pretty cool. All right, what advice do you have for somebody that's maybe coming out of training now, they owe $300,000, they're trying to decide how to balance, how to find a balance, what to spend their money on, what to use, what financial goals to work on first. Maybe they have fertility issues, maybe they don't, maybe they got some other debt, whatever. What advice do you have for that person when it comes to balancing life with paying off loans and other financial goals?

Josh:
I think one of the big things that allowed me to have the options that I have was that I found the right job. I'm a big proponent for private practice, and as you said, being an owner. I think that's what's really allowed me to have some of the financial freedoms that I've had.

I did my due diligence in selecting the practice that I started at a residency. I haven't changed jobs. I became a partner here. Really looking at the finances of the job that you're going to be joining, I valued that highly over an employee position.

Now, not everyone has that option depending on the specialty, but a lot of my financial success is really just based on my job and really putting in the effort to not only pick the right job, but make it work and grind it out and work hard and pay dividends for me.

And so, I'm always a proponent for if you have an option between a private practice or an employee position, for private practice. And I champion that to the residence where I did my residency and talked to them about the options there. But those type of decisions pay dividends moving forward and certainly have for me.

Dr. Jim Dahle:
Yeah, it's a lot easier to take care of your financial goals when you make more money. I often say that people dramatically overestimate the difficulty of doubling their income. Do you think that's true now that you've had this experience with your professional life so far?

Josh:
No, no, I've heard you say that and I'm like, yep, nope, that sounds right. It's happened for me, it's happened. And it happens as an associate just from productivity bonuses and being able to double income just based on production and working hard and spending the time doing that and then making the right choices, become partner.

I became partner, literally had to sign the paperwork in July of 2020. We're looking at the world being shut down, wondering if the practice is still going to be viable and everything and made that decision. It was not without some hesitation and some risk but I did that. But it's those type of decisions and the ability to, as you said, be able to double your income is doable if you set yourself up to make those right choices and be in those right positions. I'm in definite agreement with that but it doesn't happen by accident.

Dr. Jim Dahle:
Yeah. Well Josh, you've done a fantastic job. You and your wife should be very proud. Congratulations on getting rid of your student loans and thank you so much for coming on the podcast to share your experience with others and inspire them to do the same.

Josh:
Jim, thanks for having me.

Dr. Jim Dahle:
All right, I hope you enjoyed that interview as much as I did. I think it's always cool to explore the unique things in people's lives. We've seen people who just went hardcore after their student loans, paid them off in 18 months. They hated the weight on their shoulders. That wasn't the way Josh felt. He's like, “I'm going to balance this with all my other financial goals.” And in fact, he didn't even really start on it for a couple of years out of residency.

It's not because he wasn't doing anything else. I talked with him afterwards, savings rate is probably in the 40% range. He certainly puts a lot of money for building wealth but he was working on other stuff. The fertility was obviously a big expense but he was saving and investing and doing other things at the same time. So, always good to see different strokes for different folks.

FINANCE 101: MUTUAL FUNDS AND ETFS

I promised you at the beginning of this podcast we're going to talk a little bit about mutual funds and ETFs. I got a question in the resident webinar recently. It was basically, “What is the difference between mutual funds, index funds and ETFs?” I forget sometimes, and please forgive me for this but I forget sometimes that the stuff that I live and breathe every day that I've known for decades and it's just part of my vocabulary is not necessarily part of yours. And so, let's just go into this and explain all things here so that we're all on the same page and you know what we're talking about.

Now mutual funds are super important when it comes to appropriate investing plans. Every one of you needs to understand the basics of mutual funds. They are and should be frankly, the mainstay of investing.

What is a mutual fund? A mutual fund is simply a group of people banding together to invest their money together. By doing so they enjoy a number of benefits. You get professional management. You hire a professional management team to buy, sell and trade securities like stocks and bonds and to manage the fund.

You get economies of scale. The costs of hiring all these professionals and running a fund are dramatically lower as a percentage of your investment. When you band together with tens of thousands of other investors instead of just being your own one investment, you get the benefits of government regulation.

Mutual funds are a pretty highly regulated industry. And while the first one was founded in 1924, the Investment Company Act of 1940 is actually the one that set out most of the rules by which mutual funds are governed today.

You get broad diversification. You don't get that with hedge funds. You don't get that with private investing funds. But a mutual fund has to be diversified. It was interesting. I looked up the minimum amount of diversification that a mutual fund can have. Here's what it can do and still pass regulation. You can have 25% of the fund in one stock, 25% in another stock and 5% of the fund in each of 10 more stocks or other securities. The minimum is 12 in a mutual fund and nothing can be more than 25% of the fund.

But in practice, nearly all mutual funds own at least 50 securities. Most own more than 100. And lots of them own thousands of different securities. Sometimes, particularly bond funds, tens of thousands of securities. So you get this massive diversification.

You also get daily liquidity. The funds are required to invest at least 85% of their portfolio into liquid securities. Those that can be traded any day the market is open. But in practice, most funds invest nearly all of their money in liquid securities of some type.

Plus, you have liquidity. You can take all of your money out of your mutual funds pretty much any day the market is open. It's a matter of hours until the money is in cash for the most part. And so super, super liquid is basically a level of liquidity similar to your bank account.

You don't get that if you're investing in the rental property down the street or a syndication that might tie your money up for three years or even 10 years. You don't get that sort of liquidity. And they're readily available.

Mutual funds are available everywhere. You can get them in brokerage accounts at every brokerage. They're available in your 401(k), your 403(b), your 457(b), your 401(a), other employer-provided retirement accounts. They're in your self-employed retirement accounts, simple IRAs, SEP IRAs, solo 401(k)s.

They're in IRAs. They're in HSAs. They're in education savings accounts. They're in ABLE accounts for your disabled kid. Basically, everybody agrees that this is a great investment. It's ideal for both rookie and advanced investors. So they're available all over the place.

All right. Now you know what a mutual fund is. There are a couple of different ways to manage a mutual fund. And there's some overlap between these two ways. But in general, there are actively managed funds and there are passively managed funds. In an actively managed fund, the management team is buying securities they think are going to do well. They're buying the stocks that want to go up. They're selling the securities that they think are going to go down. And they use all kinds of different methods to try to figure out in advance which ones are going to do best.

The second method, passive management, is where you just buy all the securities of a certain type. This is usually in proportion to some type of index or a list of all the securities. For example, you've heard of the S&P 500. It's a list of 500 representative large US companies. An index fund that's designed to follow the S&P 500 index just buys all of those 500 stocks in the proportion that they exist in the market. And the investors get whatever those stocks return minus a piddly little tiny management fee.

There was debate for many years, for decades, about the merits of index fund investing. But it's kind of settled now. If you look at the data, you're going to conclude that, “Oh, I should be investing all my money in index funds instead of actively managed funds.” It turns out it's pretty difficult, especially after the costs of all that analysis and implementation. And particularly if you're in a taxable account, the tax costs of active management.

All the long-term studies are very clear that the vast majority of actively managed funds will underperform a well-run index fund investing in the same securities. Index funds are just these passively managed mutual funds. That's all they are. All index funds are mutual funds, but not all mutual funds are index funds.

Okay, mutual funds versus exchange traded funds. There's two main types of mutual funds in use today. Before 1990, actually 1993 in the US, all mutual funds were what we refer to now as traditional mutual funds. That might be abbreviated TF or MF.

Investors could buy new shares or they could sell their old shares at 04:00 P.M. Eastern, any day the market was open. Well, in the early 90s, someone got the bright idea to allow investors to just trade their funds all day long while the markets are open. Those funds are called exchange traded funds or ETFs. And obviously most of you have no need whatsoever to buy and sell your funds at 11:37 A.M. and 2:21 P.M.

It turns out there are some other significant benefits, ETFs, that have made them ever more popular for investors. The most significant of these is an increase in tax efficiency of most ETFs when compared to most traditional mutual funds.

When a traditional fund has to sell a bunch of securities in order to give the investors their money back, it incurs capital gains. And it has to, by law, pass these on to the investors. However, the way the ETFs are bought and sold allows for the fund to give a basket of highly appreciated shares of securities to what's called an authorized participant, or an AP, in exchange for cash.

This authorized participant, which this is a big bank, is what they are usually. This is Morgan Stanley, this is Bank of America, et cetera. They're authorized to create and redeem these shares of an ETF by putting together the securities that are in the ETF. This creation redemption process ensures that the net asset value, that's the price of the ETF, is always equal to the value of the underlying securities.

Now, mutual funds, these traditional funds, are generally open funds. And the value of that fund is set equal to the value of the underlying securities at 04:00 P.M. Eastern every day. But even before ETFs, there were some closed traditional funds where that isn't actually the case. And the fund sometimes trades at a premium, or a discount to the value of the underlying securities.

People would actually pay more for the fund than if you just made the fund yourself by buying all the underlying stocks, or they'd get it at a discount. And that disconnect in price was generally a bad thing. So people kind of avoided these closed funds, even though they could be traded on an exchange.

But that ETF structure they came up with totally eliminated that. And so, basically nobody invests in closed funds anymore. And fewer and fewer people are investing in open funds because ETFs are just so darn convenient for most of us.

But the main way this ETF becomes more tax efficient is that it has this method now to flush these appreciated securities out of the fund without giving the investors capital gains. When it's time to redeem a share, the fund simply gives the most highly appreciated shares to the authorized participant, which can then do what they want with them. But whatever they do with them, it doesn't pass the capital gains onto the fund investors.

Why does the authorized participant do this? Well, they're making a little bit of money through each trade through arbitrage, through a little premium they get where they get a little bit more from the stocks than they had to pay for the share of the ETF. And so, it works out for them. All they have to pay taxes on is the arbitrage. So it's a relatively small amount of tax they have to pay. And what happens to all those capital gains? Poof, they just go away. Nobody pays the taxes on them.

For that reason, ETFs in general are much more tax efficient than a traditional mutual fund, unless you're a Vanguard or now DFA. Vanguard decades ago patented a structure where their largest index funds had a traditional fund share class and an ETF share class. And the cool thing about that structure is that it allowed investors to just use traditional funds and have the same tax efficiency as ETF investors. It was a really cool thing Vanguard did.

The patents run out, and so other companies are starting to do it. The only other one I can think of right now that does it is DFA, but I'm sure it will become more and more popular over time.

Most ETFs happen to be index funds. And certainly most money that's invested in ETFs is invested in ETFs that are index funds. However, not all ETFs are index funds. All ETFs are a type of mutual fund though. Sometimes people use the term mutual fund when they're referring only to traditional funds, including both open and closed. And that's kind of a non-precise use of terminology that confuses lots of beginning investors.

But that's the difference between traditional funds and ETFs, mutual funds, index funds. I hope that terminology is more clear now. The question lots of people are left with is, “Oh, should I use traditional mutual funds or ETFs?” For the most part, it doesn't matter. It particularly doesn't matter if you're investing in any sort of a tax-protected account, like a 401(k) or 529.

If you're in a taxable account and you're not using Vanguard or DFA funds, there's a good chance you're better off using an ETF. But the reason lots of people use ETFs, even in 401(k)s, is sometimes you can just get lower costs.

I have accounts at Fidelity and Schwab. I have 401(k)s there. And I still prefer Vanguard funds, but I buy the ETF version of those funds at Fidelity and Schwab because the commissions are lower. And so, you've got to look at the flexibility you want versus the hassle of having to put in buy and sell orders during the day. You've got to consider the costs. And then, of course, there's the tax efficiency angle if you're in a taxable account.

But honestly, the passive versus active fund issue matters a whole lot more than the ETF versus traditional mutual fund issue. So, don't beat yourself up. If you're investing in mutual funds, it's fine. If you're just all in traditional funds, that's not a problem. I still invest in both types of funds. I hope that's helpful to you.

SPONSOR

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Until next week, keep your head up, shoulders back. You've got this. We'll be here to help you every step of the way. See you next time on the podcast.

DISCLAIMER

The hosts of the White Coat Investor are not licensed accountants, attorneys, or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.