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Episode 92: Bad Real Estate Deals, Shady CPAs, and Other Physician Financial Drama w. Daniel Wrenne

Apr 5, 2021

This Episode

Interview w/ Daniel Wrenne

You Will Learn

– Daniel’s approach to looking through contracts for physicians
 
– Important things to consider when creating a financial plan
 
– Areas where Daniel sees a lot of mistakes

Resources & Links

This week I am joined again by my friend Daniel Wrenne. We talk about some of the crazy, ridiculous anecdotes that we’ve experienced in working with many physicians while helping them quarterback financial decisions, or watching them perhaps not take our advice, as well as other crazy stories.

 


Justin (00:03):
I’m doing another episode with my good friend and fellow financial advisor, Daniel Wrenne. Danielle also has a podcast finance for physicians. So if you enjoy today’s content and his discussion, definitely check that out. We’re talking today about just some of the more crazy, ridiculous anecdotes that we’ve experienced in working with many, many physicians helping them quarterback financial decisions, or watching them perhaps not take our advice or just seeing unusual things happen. Seeing poor decisions made. This is kind of like the blooper reel of personal finance and they’re all true stories.


Justin (01:01):
So it’s going to be a little bit different today, but I hope you enjoy today’s episode. Thanks for tuning in what’s up everybody. It’s Justin Harvey. I’m here with my good friend, Daniel Wrenne. Daniel is a CFP, also focuses on financial planning for physicians. He’s one of those guys that like to keep on speed dial. Whenever I run into something weird or strange, or I need a second opinion. He’s been focused on physician financial planning for a number of years based out of Lexington, Kentucky. Dan, thanks for joining. Yeah, yeah. Good beer. And this is going to be another cross posted episode. He has a podcast over at finance for physicians. If you haven’t please check it out. This podcast, APM success is certainly a partner and collaborator with the work that Dan is doing. Really excited to talk to Dan today. We’re just going to share some war stories from the trenches of physician, financial planning, some crazy things, some awesome things, some terrible things that we, I think have a unique window into. So Dan, I’m excited to dive in today.


Daniel Wrenne (01:55):
Yeah, this will definitely be fun.


Justin (01:57):
And just recapping before this, before this conversation, unfortunately, probably the best and juiciest stories we might not even be able to share just because of it’s difficult to change the substantive facts enough to be able to preserve client confidentiality. So obviously anything that we talk about today is going to do that in an appropriate manner, but I want to start off there’s some good, some bad, some ugly let’s start off with the good there’s immense value frequently that comes from working with a financial advisor who understands the physician financial trajectory. Dan, I know you have like some really big wins, some capital W’s in the win column. Tell me about some of the things that you’ve seen.


Daniel Wrenne (02:38):
Yeah, we’ve had when, as we were talking about before we started we’ve had a lot of wins, but a lot of them have not been like knock it out of the park home runs like we get a lot of singles and doubles and I think that’s kind of a misconception. Sometimes if you look at like our, what I would consider our most successful are balanced clients. A lot of them are just kind of hitting the singles and the doubles and, and it’s not very exciting or sexy or, you know, headlining. But a lot of, some of the wins that we have seen have been avoiding big old, you know, big, old, obvious errors, you know,


Justin (03:19):
And that the value of that by the way is not to be understated because between the errors that I’ve helped clients avoid. And I’m sure you have too, and the errors that we’ve witnessed they’re huge. There are five figure, six figure mistakes sometimes more if they’re cumulative the cumulative impact of them. And so it’s important to not downplay that I think.


Daniel Wrenne (03:39):
Yeah. So we’ve had several, a lot of student loan kind of biggies. We’ve, we’ve seen a lot of these are kind of tied in with the whole like avoiding errors. And so I had one, one specific example that comes to mind. I had some clients, the hospital was paying the student loan on their behalf. And so that’s, I guess a little bit of a risk there because there’s a little bit of removed. It’s removed from the client. And so the client was just like, it’s getting taken care of my hospital’s taking care of it. It’s fine. And so we happened to be, I don’t even know why we were looking at the payments, but we happened to be digging into the payments. Maybe there was a red flag, I can’t remember, but it turns out that there was quite a few payments missing in the record of an, of their payment history from the hospital, the numbers didn’t add up.


Daniel Wrenne (04:35):
And so we dug in and verified through the hospital that the payments were actually made. And then the student loan servicer, I won’t name. But they, they it took them a year probably forever of calling and ultimately verified some of them, but not all of them. And the client basically got frustrated and tired of fighting it, which made me, it kind of boiled my blood a little bit, but we had to kind of let some of it go, but basically they’re like, we don’t have record of those payments and we’re just not going to, you know, deal with it. So I didn’t, we got a few of them covered, but, but, but not all of them. So you got to keep an eye on your servicer, especially when a third party is paying


Justin (05:22):
A hundred percent. And honestly, I just tell people at this point, I, I have, I’ve heard so many of those types of stories. I just tell people, literally, anytime you talk to a servicer, especially if PSLF is on the line, just record the call, keep a Bulletproof record and assume that something that you ask to happen is not going to happen and you’re going to need to prove it. And if you assume that and you go in with that sort of mindset, then you’ll be protected. And, you know, I can’t, there’s a handful of times that come immediately to mind where I was on the, as a third party on the call with a loan servicer and my client. And we’re trying to do something very basic. That’s part of how the functions to preserve PSLF and the servicer again and again, and again, is instructing the client to make a decision, basically to remove themselves from a capped income based payment plan, to go onto an uncapped plan, which would cost them tens of thousands of dollars, more in pursuit of PSLF and the servicers instructing them very factually. Like this is what you need to do. If you want to move towards PSLF it was wrong. It was a hundred percent wrong. Had I not been on the phone and frequently people deal with this, like they talked to servicers who very matter of fact, please say, here’s what you need to do. And it’s the diametric opposite, unfortunately. And it just, it it’s, it, you know, you said boils your blood earlier. That’s that’s, that’s how I feel. It’s like,


Daniel Wrenne (06:38):
Yeah, well, they’re not, they’re not working for the, for the clients. So you gotta think about who’s working through and whose interests they’re looking out for. And a lot of times it’s just ignorance. I think we had another student loan, a story with a well, this has been several actually the sir, they just completely miscalculated the payment because it’s income-based calculations. And so in those situations in several, like I said, a few of them have been like several thousand per month under calculated. This is where it actually benefited the client, the errors, but several thousand per month in, in, in, in a few of these situations, so what the client was like, what in the world? Cause we always are, double-checking the payments and we raised the issue and they’re like Oh. And so what we suggested to them is we’re like call the servicer and say that, did you just want it to make sure there wasn’t an error in what’s going on?


Daniel Wrenne (07:34):
And so they did that and the servicer was like, no, no, no, no, it’s correct. It’s correct. And I’m like, okay, take note of that, save all your documents because I double check their documents to everything they submitted was legit. Like, I couldn’t understand where the air came from. And so it was just a blatant air, I guess. And they called the servicer to try to make good with it. And they just said, no, it’s not an air. And if favored the client by a ton I had I had another one that was interesting and tied into PSLF, but I guess it wasn’t directly a PSLF issue, but this client got there was an air with their employer and they overpaid them by $50,000 one year. And I don’t know what happened. They were in training. So maybe it was just that they misclassified them is not in training.


Daniel Wrenne (08:26):
I’m not sure, but they knew that the air was happening in the moment. And so they were responsible and saved kind of the difference. But what happened is this kind of train wreck pursued afterward is like, you get the PSLF income verification, then the PSLF paint completely wrong and then the W2’s are wrong and the tax returns wrong. And then it’s got to, it was just that absolute mess of a situation. And that one unfortunately was not there wasn’t really, we did as good as we could. We found, they knew that the air was happening and brought up the issue. It took the employer just like six or eight months to fix it, which is nuts. And that kind of stuff happens though.


Justin (09:07):
Yeah. Especially with these big health systems is like turning a cruise ship. And this is why I’m always beating the drum for independent physician practice. If you, as a doctor go to a doctor whose job it is to make sure that that is happening the right way. I mean, obviously I’m biased here, but it doesn’t take six months rather than running it up the flagpole at corporate.


Daniel Wrenne (09:26):
And this was a big ship. Let’s just say, this is the biggest ship basically. Okay. If you can.


Justin (09:32):
Yeah. We, we like to not name names on this show because we don’t want to hear from any lawyers, but you can read between the lines. Dan, I’m sure as an investment advisor yourself, you’ve run into situations where people have asked you come with ideas. Hey, I’m thinking about opening a Robin hood account and trading GameStop or some other we’ll call them harebrained schemes or other things that perhaps might be riskier than one of your clients realize. Have you ever interacted with that?


Daniel Wrenne (09:56):
Never. No. I think that’s probably more like a daily kind of thing. Not quite daily, but definitely weekly where we’re hearing of things that are, I would call like ultra risky investment opportunities that maybe sometimes they’re aware of the risk. Other times they’re just kind of, not completely unaware of what sort of risk, but I would kind of categorize that as the ultra high risk kind of bordering on gambling sorts of deals that you see out there and they come and could come in the form of like a business deal from your buddy or like a really a high risk stock play, or even like options and crazy call put strategies and that kind of thing. But that there’s I’ve had several clients lose quite a bit of money. I’ve had a few w make a little bit of money. I don’t have any like home runs where people actually hit it big on the really ultra high risk sorts of situations. But I’ve definitely had quite a few. I think you had a good one where you had a story of someone really losing quite a bit of money in that kind of thing.


Justin (11:10):
Yeah. One of the first filters that I always implement when I’m doing investment due diligence is liquidity. Like if somebody wants to do something, how easily can we undo that investment? And if it’s, if it’s locked up for six months, a year, five years, seven years, like some of these you know, closely out like private equity or venture deals are that we want to understand that we want to make sure that we can afford to not do anything as the slowly goes to zero over a five-year period. And one of my clients had, you know, brought to me a real estate deal where there was this somebody who was investing in improving and leasing up apartment buildings somewhere in the Southwest. My client says, Hey, I’m interested in doing this. What do you think? You know, 50 K a hundred K minimum. And that was a meaningful part.


Justin (11:54):
That’s probably, you know, 12 to 15% of their net worth at the time. And they were on the risk scale. I’d say they’re probably a three on a scale of one to 10. And they were brought this deal actually by one of their very close friends whom they trusted, had gone to college with. And this friend had made a lot of money with this developer doing this strategy of improving these apartments and then leasing them up at higher Lisa higher rent rates. And then, you know, capturing that Delta. And I told my client flat out, like, you’re a three on a scale of one to 10. This is like a 34. It’s not even on the scale. Like, yeah. And so just so you know, kind of where this falls cause they, you know, they didn’t have that kind of understanding. And the liquidity was a big part of it.


Justin (12:38):
And the fact that it was only one building was a big part of it. Like what if an asteroid hits the building or some other weird thing happens or there’s issues with mold or, I mean, I don’t, I don’t do a lot of like, you know, multifamily, residential due diligence, but the liquidity thing alone was red flags for me. And so I talked them out of it. Now this, this buddy was talking to his other buddies and I know there were some others that did decide to participate and it was a deal that it ended up really going South. And the market was moving against this type of residents in this geographic region. And they ended up losing significant amounts of money. Some of them, it was like a big chunk of their nest egg. And so this is a perfect situation where, and I don’t usually run into these, but this is one that sticks out in my mind as talking to somebody out of something that has low liquidity and ended up losing a lot of money and would have significantly impaired their ability to retire.


Daniel Wrenne (13:33):
Yeah. I think the key there is like a percentage of your net worth, I think is important. Like if you’re going to do the ultra high risk sorts of deals, you might oughta, you probably ought to limit it to a certain percentage of your invest investments or net worth. You also don’t want it to, I don’t think like if I’m doing that kind of a deal, I would not want it to be at risk of tanking my retirement. Like it shouldn’t, if it’s an ultra high risk deal, it doesn’t need to be like, you rely on it for your goal to be a hit. And then if you are going to do it too, you got to do the due diligence, like you said. So I run into a lot of people that aren’t even, so I’m not like experts at deals. We’re not as financial planners.


Daniel Wrenne (14:18):
We’re just kind of whole poker’s really, I mean, a lot of what we do is just kinda ask you know, questions about what’s been done so far, have you done the due diligence or, you know, whatever. But what I find is a lot of people are not able to be doing the due diligence themselves. And that’s a kind of a red flag in itself is if you aren’t able to understand the deal enough to know whether or not it’s good. That’s probably like, you know, that’s a red flag in itself, you know, you need to be able to understand the workings behind it.


Justin (14:55):
I know that something that you and I have both done is looking at contracts for physicians. And I love the contract landscape because it’s a moment in time when you can do something that’s like really exciting and that massively helps your financial picture. Potentially. I know that I’ve actually heard stories that you’ve shared in the past about some wins that you had in that area. How do you approach helping a physician look through a contract? And do you have any specific stories you can share?


Daniel Wrenne (15:21):
Yeah, we, so we tip, we typically almost always recommend like a contract attorney or contract consultant to review the contracts from the kind of legal perspective. So we’re always not always, almost always though looking at the contract, but we look at it from a little bit of a different perspective. We’re more looking at how it affects the plan and the compensation and the benefits and that kind of thing. Sometimes we’ll spot stuff, but we’re, we’re not as qualified to kind of like read into the legal language. But an example. So we just had one actually not, not too long ago, like the other day, the contract initial contract proposal for the client was you know, X dollars salary, whatever it was $300,000 base salary. Plus they were offering a a seventy-five thousand dollars student loan payment. I don’t know what they called it, but basically a payment to the, for the student loan, like a stipend for the student loans or something along those lines.


Daniel Wrenne (16:25):
And when you, so I, I suggested that kind of caught my attention, the student loan stipend, first of all, because it was a five Oh one C three hospital. So I’m like, Hmm PSLF we gotta make sure this is not gonna cause this client in particular, the payment’s going to be very, very low the first year or maybe second year, too, especially with COVID forbearance. Like the first few months are going to be really low, you know, $0 payments. And so it turns out we kind of looked into it a little bit more. So the rules for this particular hospital were that it had to be paid directly to the loan servicer, the stipend. And I think that they were going to do 25,000 a year for three years, maybe something like that, but they weren’t that they were going to require it have to be directly to the loan servicer for good reason, probably because they want to make sure it gets paid to, they want to make sure that it’s used for the purpose.


Daniel Wrenne (17:19):
Then we asked, you know, can it get paid directly to the client? And they’re like, yeah, we’ll pay it directly to the client, but they need to verify payment of the loans for the equivalent amount. And so we’re like, no, no, no, that’s not going to work. So just to clarify why that’s a problem, basically with PSLF like anything above the scheduled payment is like toss and money out the window. And in this situation, it was like tossing money out the window that you also get taxed on. So it was like, it would actually make this person, it would make him like worse off having this stipend than he would have been without it at all. And so I was like, I started by saying maybe, you know, try to explain this to them, ask for some alternatives. And so they were having trouble getting traction.


Daniel Wrenne (18:10):
And ultimately in this situation, I ended up just talking with the hospital executives myself and I was like, here’s how it works. It’s basically like throwing money away. Can we restructure it? And I think this one’s kind of a very recent, I don’t, I don’t know what the outcome is. I think that they’re going to work, work with it and readjust it. But I have a feeling that they’ll make this one work in some cases. So I’ve had that specific situation come up probably five or six times. In some cases it’s gotten to the point where I’m like, listen, you need to decline the bonus. Like straight up, tell them don’t pay it to me because of all the, we tried all the options and they’re just not hearing us in the times I’ve had to do that. They finally were like, okay, something must be out of like, either this dude’s lost his mind or, or w maybe there’s something. So, cause this that’s a budget neutral thing for them. Like they don’t, it’s not going to change their costs. They’re just trying to make sure it goes to the right place. But in my experience is once they understand what the deal is, they’re like, Oh, okay. That doesn’t make any sense. And that’s like a, that’s like a seventy-five thousand dollars swing. I mean, that’s straight up big time difference in impact for just one individual.


Justin (19:28):
Yeah. Yeah. That’s a great example. I think those student loan only payments from five Oh one C3 is always looked at under a microscope. It’s one of those things you kind of have to wonder. W why, why is this not part of the institutional intelligence to say we are like, literally every doctor that works for us qualifies for PSLF. And so if there is an instance in which we can compensate them in a way that’s not like directly to their loan servicer, that’s probably beneficial. So anybody out there working for a five Oh one C3 be aware of this, I think that’s a great point. Play out the ultimate conclusion of the math problem and understanding if you’re on production, what do you need to do to hit certain targets, to get a certain resulting compensation? Conversely, if you’re on a salary or salary plus bonus, you’re kind of capped out and understanding what are you leaving on the table?


Justin (20:19):
And one of the really powerful things I’ve been able to do for some of my clients is help them understand if you’re producing, let’s say a million dollars of collections from your patients based on procedures you do through the year. And you’re getting a salary of 250 plus maybe a $50,000 bonus. If you hit a certain metric, that’s $300,000 total, which is 30% of your collections. Now I might also happen to know that perhaps a standard percentage of would be 40% or 42 or 45%. So if your compensation mechanism is a salary plus bonus, and you’re doing collections up in the 900, 1000001.2 range, then you’re going to be leaving money on the table based on how you’re paid. So as you’re negotiating, rather than saying, Hey, I want a bigger salary say we can align incentives to say, you know, the doctor makes more when the practice makes more and you’re, you’re operating on a percentage basis at this point. And that can be I’ve. I’ve had one client in particular where we changed this mechanism. We went from base plus bonus 2% of collections and based on flat production, it was a hundred thousand dollars a year differential. So understanding that math problem and working it out based on the variables in your situation can be really


Daniel Wrenne (21:32):
Powerful. Yeah. The N the only thing I would kind of throw out in regards to that as kind of an alternative we’ve seen sometimes I guess people are, have super low tolerances for fluctuating compensation. And so I’ve seen it where they’re kind of like too much in the sharing incentives realm for their tastes. And they’re like, I just want like a guaranteed compensation set up. And so you know, you can kinda sometimes request to shift back the other direction. Now, typically the more you go that salary route, the less you’re you end up making, but it is a more secure form of compensation. And, and some people prefer it even knowing that they’re forfeiting money, but there’s a lot of complexities in the contracts there with physicians, especially now some, some institutions have kind of like standards. They’re like, we will not change this no matter what, and there’s no negotiating. And, and maybe there isn’t, but it seems like in our, in, in, in my experience, most of them are negotiable. Yeah. And then even sometimes when they say they’re not, yeah,


Justin (22:44):
Absolutely. I’m thinking about, I’ve had some, I’ll call them very qualitative, like having nothing to do with numbers, types of conversations with clients that have been jarring eyeopening and really important. And I’m sure you’ve run into this with as many conversations as you had to the one that comes to mind. As far as the Holy cow, I can’t believe this never came up type of category. And you mentioned one, I don’t want to hear in a minute, but I was sitting down with a client. It was one of our first handful of meetings. We were basically, I was doing the financial plan and then we’re kind of sitting down after we’ve crunched all the numbers and I, the conversation basically starts like what’s what matters to you? What’s important. Where are we going? Not only as, you know investors, but as people, as professionals, as a family, as spouses and the husband, you know, describes well, you know, I I’d like to be retired by age 53, and I want a savings rate of X.


Justin (23:42):
And I want to make sure that this much is going into these types of accounts every year. I feel like if we can be doing that, that I’m going to be feeling confident and good about life. And I’m just kind of looking at the wife, and this is one of these really fun dynamics as you get to sort of ask the question of both spouses and then, you know, sort of create the space for the other spouse. Who’s probably less financially literate and maybe less, they feel intimidated to even have a seat at the table in this conversation. So I turned to the, in this case, it was the wife and said, you know, well, how about you? Like, what’s on your mind? Where do you want to go? And what do you envision life looking like? And she’s starting to cry at this point.


Justin (24:18):
And she’s, she’s like, I’m losing sleep. All I can think about is the fact that we just bought this house that costs $1.1 million, and we’re not able to, you know, get competitively priced life insurance. And I’m just terrified that the, you know, my little boy and little girl that we’re raising are gonna grow up without a dad, and that I’m not going to be able to afford this house and I’m going to be destitute. And that’s all I can think about. And the husband is sort of like his eyebrows are ratcheting up and up and up as she’s sort of like unloading this significant emotional burden. And this is one of those things. I, it really left a dent in my psyche and never take this for granted that there’s alignment between husband and wife or whatever. I’m sure Dan, and you’ve probably experienced this with your own spouse.


Justin (25:01):
I know I do that, that third party asking two people the same question and allowing the space for each of those people, each of those spouses to answer the question, honestly, sometimes it’s just, it totally changes the paradigm in which you’re functioning. And obviously at that point, we were able to talk about financial security, talk about risk control and insurance and how we wanted to address that, but had not been for that conversation. It’s easy to say, Oh, okay. Yeah, savings rate of X let’s do this and that. And maybe I would have talked about insurance just in the process of planning, but certainly not addressing the deep, emotional distress that my client was going through. That I, as an advisor, that’s critically important for me to understand that I want to definitely probably first like direct my attention to be able to make the client feel cared for and understood.


Daniel Wrenne (25:51):
And so then once you get your life insurance, you have to make sure that the beneficiary arrangements stay good. Right? Yeah. Tell me about that. Yeah. I had an interesting one at my I early in my career. I worked for a big insurance company and selling life insurance. And we, we had, this was not someone I worked directly with, but I was in the office when it happened. Cause it kind of was a commotion, but this lady came in you know, middle-aged lady kind of like excited uncomfortable, but excited and raising a little bit of commotion and, and then goes into somebody’s office, has a meeting and then leaves like, Whoa, what happened? That was just awkward. It was weird. And so turns out that the, that was the ex-spouse of the ex-husband’s life, life insurance beneficiary. He had passed away in an ATV accident, forgotten to change the beneficiary on his life insurance ex spouse coming in to collect on the $500,000 life insurance policy that she had known all along.


Daniel Wrenne (27:03):
Interestingly, this was the kind of interesting, I potentially like you’re skeptical. You’re like whether you wish he involved in it, you know, but you know, the husband had gotten, they had gotten divorced. He had forgotten to change the beneficiary on his life insurance policy and had died in an ATV accident, ex spouse coming in to collect on the life insurance basically. And she’s going to get it like, there’s nothing you can do. He had, so we were so curious. We’re like, what about the current spouse? And of course he was married, had children were like, Oh my gosh, it was like worst case of everything scenario. But they have to insurance company will pay the ex spouse. If they’re listed as the beneficiary, it doesn’t matter how much, what should have been done or what the right thing to do was they’re going to pay what the beneficiary designation says.


Daniel Wrenne (27:53):
And so you have to be careful with that. I’ve seen ex-spouses, I’ve seen parents still, while you’re married, I’ve seen children, one child named when it should have been, you know, all the children I’ve seen the guardian named that’s a little risky. You know, people are not sure they don’t want to name the children cause they’re not, they don’t want them to get such a large sum of money. But then so they’ll like all named the guardian. But the problem with that is guardian can do whatever they want with the money. So you have to be careful with who you name as beneficiary and keep an eye on it every so often. Yeah.


Justin (28:24):
One of those things is like annoying administrative stuff that doesn’t matter. It’s not a big deal until it’s a huge deal and it’s too late. Right. And definitely warrants, you know, periodic just checking the temperature, making sure. Okay. Here’s what we got listed. Is this still, and this is part of my sort of annual review. I’m sure it is for you too, Dan, like make it, try to prevent that essentially. And especially if there’s a divorce that happens. If there’s a kid that’s born, like keeping everything up to date and never letting it go too long before asking those questions. Yeah.


Daniel Wrenne (28:52):
We’ve seen a lot of a house. I think the house we were sharing, some of our stories of I guess this is more of like a, avoiding some mistakes with house purchases and that sort of thing. I, for whatever reason, maybe that’s just across everyone, but that seems to be a common one. We, we run across regularly in our practice. Is that true with you?


Justin (29:17):
It is true, especially for the early career. You know, I just finished training and moving across the country to take my first job. And I want to go from, you know, paying $900 a month in rent to, you know, a $6,000 a month mortgage in some cases it’s a transition and one that should be navigated intelligently.


Daniel Wrenne (29:33):
Well, but it’s, you can see on the one side, it’s like I’ve rented. So I’ve, I’ve been renting years and years and I’ve been in training for years and I’ve just now finally like finishing and I’m tired of renting because it doesn’t, it’s not as it’s stinks to rent, like, and you gotta move and it’s not your place. And you’re like, finally I have the money and you’re going to make plenty of money. It’s like, finally I have the money to buy a nice place. And so if I’m going to do it, I’m going to do it right. And I’m going to find the right place. And so that’s all kind of the psych psychology going into it, which is makes a lot of sense, but it gets all crunched up. It’s like, the timing is just terrible. It’s like, everything happens in like a month almost. It’s like, you finish, you move, especially when you’re moving, it just adds to it. And you got to look for a house it’s difficult to qualify because you have tight finances sometimes. And then you pull the trigger on a house that you’re not 100% sure is in the right area, in a practice that you’re not 100% sure it’s going to work out. And there’s just a lot of risk there. And that decision. So naturally that’s where a lot of mistakes happen.


Justin (30:44):
Yeah. I mean, and we, anybody who bought a house in like the 2005 to 2007 range, I know you probably know some people like this, Dan and I do too, that it was, that was a time when, the time of the Ninja loan, the no income, no job application, or you don’t even have to prove to the bank, you make money, they’ll give you a hundred percent of the purchase price of a house. Exactly. And in some cases, probably I bet there have been mortgages awarded the dead people. So maybe not even and that ended badly for people in that. I mean, imagine you’re a physician who’s finishing training, you buy a house in 2007 and the, for whatever reason your group gets acquired, it doesn’t work out that you’re not on the partner track anymore. And you want to move now, the house that you bought for 800 K is worth five 50 and you’ve got an $800,000 mortgage on it. So you need to cut a check for a quarter million dollars in order to get out from under it. That is quite onerous.


Daniel Wrenne (31:36):
I think it’s, I think that is a the younger group. Cause it’s been awhile, I guess. Like it’s been a while since 2008, 2008 was the last, like big time real estate tank and everything went down in pretty much all areas of the country a lot. And in certain areas that went way down like Las Vegas like some of the touristy areas in Florida had big, it’s like 50% plus price, real estate price reductions. And I had one client in particular that bought, they were in training in Florida and bought their house probably like zero down, zero, anything pulse you’re good. And got the house just for training. So, and then they go into practice and move and they’re finishing in like 2008 bad timing, but 2008 timeframe. And so the house price, their house price basically had gone down by 50%.


Daniel Wrenne (32:40):
So like $300,000 houses worth one 50. So in order for, and so they financed a hundred percent of it. So their mortgage at that time is probably like two 80 or something. So, or two 90, maybe even. So they owe two 90 on a house that is now worth one 50 and they’re finishing training. It’s like, and they don’t have the resources. They’re like what do we do about that? So in order for them to sell it, they’d have to write a check for the difference they’re upside down basically. So what they had to do, they had no choice, basically they had to keep it. And it is a rental house. You saw a lot of those in like the 2008 through 2014. Timeframe is like the forced landlords. There was a ton of people that had like one or two rental houses.


Daniel Wrenne (33:29):
Cause they were just like, and sometimes they would be like, yeah, I wanted to get in the real estate business, but you peel back layers. It was like, they made a little bit of a poor decision and ended up in a house that they couldn’t get rid of. And so they were landlords on that house. For, and this was, I was working with them in my old firm. I don’t know if they, the last time I talked to him, they still had the rental house and had not quite, and this is like five years into practice and cause that’s a big nut to crack there and it took a while for real estate prices to rebound. But I guess the moral of the story is housing prices do go down sometimes even in areas that have very appealing metrics. Like even in areas, you don’t expect them to go down and sometimes by a whole lot.


Justin (34:23):
Yeah. And right now it’s very geographically dependent. We’re still understanding what COVID means, but there’s definitely been a flight from it at least at a high level high tax jurisdictions. Yeah. In big cities. If I, if I can work from home and not have to deal with the 9% New York state tax or whatever. And that’s been a big shift that we’re still it’s playing out in real time. So this, although 2008 feels like a long time ago. There’s different versions of this in different geographies. That can be any given person’s specific problem. One other thing Dan, that I wanted to cover, and I’m curious in your thoughts, have you, I’m interested to hear about a time when your client taught you something either like financially or something about life and I have one you could think about it. I had one instance that sticks in my brain.


Justin (35:13):
I, I was really lucky when I first started my career to work with many people who make many millions of dollars, what we would call ultra high net worth. And by some funny circumstance the, the totem pole on which I was at the bottom, my boss couldn’t go. And my manager couldn’t go to this meeting with this client. So I ended up getting in the taxi and going down to the LA office in center city here in Philly and sitting in with us, a state attorney and our big shot ball or entrepreneur client, who’s probably got like a $90 million business and the estate attorney, it was this old, you know, gray Fox type. Who’s like, Oh yeah, you know, we can, we do this all the time. Like, we’ll break up the LLC. We’re going to give a part of it to your wife, a part of it to your kids, put it all on trust. We’ll have like the minority discount applied, basically reducing the face value of the components of the business. And then we’ll shove it into this trust. And this is going to be this great tax move and we’ll get a 30% discount versus sticker and it’ll save you $7 million or some sort of whatever. And so I’m sitting there with my client and I’m in my suit. This is like my first meeting with a real human basically. Yeah, that’s right. Remember that


Daniel Wrenne (36:24):
When we were in a conference room with other people crazy


Justin (36:27):
And then the lawyer gets up and he’s got to go use the bathroom. And the client turns to me, and this is really my boss’s client, not mine. And he’s like, Justin, I hope you’re paying attention. Like this lawyer has no skin in the game. He doesn’t care if this works or not. He wants to get a fee for creating a complicated, legal strategy that I can’t understand. And he’s, you know, this lawyer is 71 years old. And if this doesn’t work in 20 years, he’s not going to know or care, but I’m going to have to deal with it. And it was this for me, like a real, I mean, I was deaf, this is 11 years ago now. And it left a dent in, in my brain to say like, let’s understand, follow the money, understand the incentive and understand the stakes.


Justin (37:07):
Like who’s going to deal with the consequences of any given decision. This is really true in finances. Like if something goes wrong, is your, is this advisor, is this person who is giving you a certain piece of advice or even a friend given career advice or whatever are they going to have to help you deal with the consequences? Or are they just telling you what you think? And some sort of like complicated, sophisticated way that you can’t understand? I think this is really true in finances. And I respected this entrepreneur who built this business from the ground up and he basically was a multimillionaire, a multi DECA millionaire because of this instinct. Like if he didn’t understand it, he didn’t want to do it. Cause he knew he would have to deal with the consequences. And this is true in like tax planning and some more advanced insurance stuff and pensions.


Justin (37:55):
And there’s a lot of advanced financial planning ideas out there. And if you, as a practice owner, as a business owner, if you’re getting pitched something and it doesn’t feel right in your gut, I, this is my instinct to Dan is like, I have to just say like, I’m, I’m not into that. And and it’s okay. And even if it’s technically correct, even if everything that lawyer said could have worked, that it could have saved $7 million in taxes, like I don’t like the risk that, that introduces to my life and the stress associated with it and I’m not gonna go.


Daniel Wrenne (38:25):
I would, I would have to say I have not been gifted with that natural ability to sniff out that sort of thing. And that’s been something I’ve had to work towards is, is kind of gravitating to I’m I’m, I’m a sh I’m a prone to the shiny object like naturally. And so I’ve had to work on getting better at you know, the understanding aspect and not doing something until it’s fully understood. It’s easier almost to do it with clients, for me in my planning work than it is my own stuff. That’s just kind of the psychology. I think when you’re in that role is because I feel a higher pressure load to it’s their stuff. Instead of mine, I’m just a high risk kind of a dude as well. So I’ll, I’ll I’ll kind of roll with some exciting ideas and try them out sometimes especially personally it’s just kind of, you know, fun for me, but I would completely agree with that, like in principle and that you have to it’s, it’s safer, especially when you’re not experienced with things to default to no.


Daniel Wrenne (39:35):
Is my answer always, unless I completely understand it. If I have, if I don’t understand it, if I can’t explain it to my buddy, you gotta say no until you understand it. That’s true with a business deals with whole life insurance. Like all his life insurance is complicated. Investment deals. People try to sell, like it’s difficult. Like it’s hard for us to understand it. Like, and we’re dealing with them regularly. And if, if you can’t understand it or if I can’t explain it to you, you need to probably just default to saying no, because that’s what the whole point of this whole conversation is, is like, it’s not the people that are knocking it out of the park with a deal that their buddy brought to them. It’s the people that are hitting like doubles and singles and avoiding the deal from that. Or that looks suspicious. It’s the people that are avoiding the mistakes that are, that are really coming out ahead. I think in the long run, it’s like playing tennis, you know, like you, you play with it. I’m not great at tennis, but like, I play with like a grandpa and he’s like whooping my butt just cause I can’t keep the on balling and they do sit in it. Right. And so I make all these crazy areas cause I’m trying to like hit it so hard, you know? But it’s about minimizing errors.


Justin (40:44):
Yeah. Especially in the, you know, pretty much everybody who’s listening to this podcast, many are going to have probably a couple of degrees and they’re going to be pretty intelligent and are going to be making a good income. And I’d say that’s absolutely true is if you can minimize the unforced errors as he was totally pointed out, then you’re going to do very well. And there’s a lot of benefit to taking this principle. Like if I can’t understand it, I’m pretty smart at baseline. And if even, especially if my trusted advisor can’t explain it to me in a way that I understand or if they explain it and it doesn’t feel right in my gut, this is me. I’m a gut kind of guy. I say, like jam all the information into your brain, process it and then make a decision from your gut based on the things that you know. And I just, I, I saw that in this entrepreneur 11 years ago and it’s something that I feel very strongly as something I want to impart to my current clients. And also people listening to this podcast. Like I think that’s a, this is just Justin talking. This is my personal philosophy, but I think that we’ll sell them, let you down. And if you, if you find yourself stepping out into things that you don’t understand, you’re more likely to get blown up in a way that you couldn’t foresee.


Daniel Wrenne (41:56):
Now you have to be, you have to proactively increase your understanding too. So you, you gotta be careful not to end up with like a big old bucket of cash just because you’re paralysis analysis. So all this stuff’s that balance, you know, like at some point you got to kind of take a little bit of a risk and step out and you know, but like I said, like all these stories I can think of are very much just kind of like, you know, ignorant mistakes and easy to avoid if you really kind of take a step back and look at it. Okay.


Justin (42:30):
Yeah. So let’s wrap it up. This has been really fun. Just re rehashing some of these stories. I think like understanding, Oh, actually there’s one last one, the CPA one. Did you talk about that already? No, I think this is a good one to wrap it up.


Daniel Wrenne (42:44):
This is a good one. Cause it’s like my ignorance. So I, like I said, I was going to getting into it. I’ve kind of had to learn a lot of these things the hard way. I think a lesson I’ve learned over time is I don’t know much, you know, I don’t, I don’t know as much as I’ve had to kind of run into brick walls and, and that sort of thing. So with a CPA, so I had a, I was independent contractor in early career like 10 or 15 years ago, that kind of timeframe and had, you know, taxes were pretty complicated then. And so I hired a CPA and it was actually somebody that was referred to me by several other advisors that I was buddies with and worked with him for a few years. He was very inexpensive, is like I was telling Justin like a couple hundred dollars a year for my taxes that were actually pretty complicated.


Daniel Wrenne (43:36):
I think at the time I thought they were simple. I’m like I could do this myself because I was an ego, young guy didn’t know what I was talking about. But in reality, looking back, they were actually pretty complicated. He did them for a few years for whatever reasons, maybe it was just gut or whatever. I ended up just stop stopping, working with them and hired a different accountant. And I got audited like the year after that. And it was a big audit. Like they really dug into my stuff. It was painful. I learned a lot of good things about how audits work. That’s but they, they dug into everything. Like it was, it was months and months and months of audit. And it worked out okay. Like there was not any too bad of negative. I ended up having to write a check for $1,500.


Daniel Wrenne (44:21):
Turns out the issue was an heir that, that accountant made with how they did the tax return. I’m not going to go into the air, but there was an air that was the first issue. The second issue that accountant ended up getting in trouble for stealing some money from another client shortly thereafter, a few few a year, year or so after that. So I’m like, thank goodness. I stopped working with that accountant fast forward a few years from there, he gets into some you know, major stuff like drugs and prostitution. And so I think, I think that they’re in jail now. Probably, but what’s so crazy about that story is so like my first accountant is I think in jail now which is ridiculous, but first of all, everything kind of checked out. But there was a few red flags, so it was too inexpensive.


Daniel Wrenne (45:16):
Like it was very, very low, low, low costs. That was a little bit of a red flag. And then my gut started to go like going with Justin’s got, you know, I just didn’t, it didn’t feel right. I had to meet, I met at his house. That was a little strange. And this, this was in the time when everybody had offices and met kind of in conference rooms, I would go to his house. There was a few other sketch things that I’m not going to say because it just will incriminate. But there was a lot, there was a few other red flags, but basically moral of the story is it’s worth. Sometimes it’s worthwhile to go with like a bigger firm, get a good accountant, I guess it’s the moral story. Like if you’re going to get, do your taxes on turbo tax or get a good accountant and, and it’s worthwhile to pay a fair fee for a good service provider. And, you know, sometimes there’s some value in like having a little bit of a firm presence like don’t work with, I mean, it’s okay to work with a mom and pop, but like there’s a little bit of risk there built in and that it’s like out of somebody’s home. And I had to learn that the hard way it wasn’t, I mean, I only ended up having, you know, an audit and a check to write, but you know, you never know what, what, how things play out.


Justin (46:37):
So there’s a lot of mistakes to be made out there. Yeah. And go with your gut. If things don’t make sense, if your accountant is too cheap, if you don’t understand a complicated strategy, your advisor or your lawyer is explaining to you, you know, if if any of this is going on, get a second opinion and get outside, help understand that. Especially as an attending physician, especially if you’re a business owner or practice owning physician, like the mistakes get really expensive and an error that a CPA makes instead of a $1,500 check, it could be much, much more than that. And I’ve seen big five and six figure tax errors. So I guess that’s the point of today’s conversation is just to give you some context for all the different landmines out there. And if you see yourself as a do it, yourself are great.


Justin (47:25):
You need to be very engaged and there’s still some professionals that you need to collaborate with. But if you think that this feels very uncomfortable and you think that you might step on one of those landmines, frankly, it’s the ones that you don’t know that are there, that are going to blow you up. So even if you, even, if you don’t think you will, you might, but qualified help. I’m just such a big PR. Obviously I’m biased in this, but it’s, it’s, I’m such a big proponent of if you make enough to engage for a luxury service, I mean, my clients by and large, don’t paint their house and don’t cut their grass. And I think that handling the tasks and strategies associated with their personal finances in a way that keeps them engaged, but not having to enact it themselves is just, it’s so worth it.


Daniel Wrenne (48:10):
Yeah. And that’s, that’s what a lot of our day job is doing, but like, like Justin was saying everybody’s different. So you kind of got to take this into consideration with your situation. And that’s part of the fun part about it is it’s you know, always evolving too everybody’s situation changes, and sometimes you gotta be like me and just sometimes you gotta learn the hard way and, you know, make some mistakes and run into brick walls. And but you know, if you make the mistake just to make sure to learn from it, like that’s the key, the worst is to have to be making recurring mistakes. That’s good.


Justin (48:45):
Well Dan, it’s been a pleasure speaking with you today. Thanks for joining. Yeah. Yeah. Good fun. Always. If you liked what you heard this week, head on over to APM success.com, where you can find more content and free resources to help you build a successful career in anesthesia and pain management. If you want to leave a review in iTunes, it also really appreciate it. Thanks for using some of your valuable time to join me today on APM success.

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