In our many years as professionals, we have seen many physicians and medical practice clients make mistakes when choosing and working with their practice advisors. From this experience, we have created a list of seven pitfalls to avoid.

In Part I of this article, we examined four pitfalls common to practice owners and executives. Here in Part II, we will describe the last three.

Pitfall 5: Hiring yes-men and yes-women

When we ask numerous successful practice owner clients what advice they would give to others in their situation regarding choosing important advisors, we received many suggestions: "Find experts," "Don’t look for yes-men," and "Hire people smarter than you are."

We put them all in the same category because the end result is the same. Successful physicians have wealth because they did something well. The very successful ones realize that they can't be experts at everything.

Some rightfully believe that they could focus on finance or law and probably be just as skillful as some of their advisors. They also realize that it would take many years to achieve that level of expertise. To leverage their time, they choose to hire experts in different disciplines to work for them. They are likely paying someone less per hour than they earn running their practices, and the advisors are getting it done in less time.

These clients have told us that they have enough yes-men and yes-women in their lives. Interestingly, they cherish the moments when advisors stand up to them and challenge their positions or question their decisions. They see this as an opportunity to improve their position. Some even enjoy the challenge.

Pitfall 6: Not accepting that complexity requires outside experts

If you needed a stent put in your aortic valve, you would not go to a general practitioner. Moreover, you would not consult with any specialists outside of cardiology. In fact, you would not even settle for seeing a regular cardiologist. You would seek the help of an interventional cardiologist to handle this procedure.

The point is that medicine is highly specialized. If you have a specific issue, you want a physician properly trained and experienced with that particular issue.

Seeking a specialist to help you with your health concerns may be obvious. However, we can attest that in the areas of law, taxation and finance, practice owners completely ignore this lesson.

To illustrate this, consider the area of taxation. The ever-changing United States tax law is the most complex set of rules ever created by one society. The lengthy and confusing Internal Revenue Code is only the beginning.

IRS revenue rulings, private letter rulings, tax memoranda, announcements, circulars, as well as tax court and federal court cases only make the field all the more difficult to understand. If you step foot in any law library, you may see an entire floor dedicated to tax materials. Suffice it to say, no one person can possibly be an expert in all areas of tax law.

Nevertheless, many practice owners will rely on one CPA to serve as a tax advisor in all areas of tax. The taxation issues that require guidance typically include: retirement planning, income structuring (salary vs. bonus), payroll tax, whether to be an "S" or a "C" corporation, whether to implement a deferred compensation plan, estate tax planning, taxation on sales of real estate, individual tax returns, corporate tax returns, and buying or selling the practice.

All of these areas are actually particular subspecialties that require a unique knowledge base. If this isn't bad enough, we have seen many practice owners ask their tax advisors to guide them in areas that are far outside the realm of tax issues altogether — such as asset protection, insurances or investing.

There are times that we have tried to work with a practice owner's CPA or attorney to implement a particular strategy and run into the same problem. It was patently obvious that this advisor had little experience in the practice owner's area of concern. And 99 percent of the times that this situation occurs, the practice owner suffers needlessly.

Because the advisor is so fearful of bringing in another advisor who may steal the client, the attorney or CPA will not admit his shortcomings to the practice owner and recommend another specialist. One reasonable alternative would be for the advisor to admit his lack of experience in the area and agree to review the area in question and charge the client for the time needed to get up to speed.

Most advisors are afraid to do this. Possibly, they are afraid of the client seeing them as inadequate. Instead, the advisor will tell the client the idea doesn’t work without providing any substantial explanation (see the warning signs following). In the end, the practice owner remains clueless as to what is really going on and the problem is not solved.

Pitfall 7: Failing to insist on advisor coordination

Even if you have a team of highly-experienced advisors in the fields of tax, law, insurance and investments working for you, your plan can still be in complete disarray. If the advisors are not collaborating to utilize their collective expertise to implement a comprehensive, multidisciplinary plan for your benefit, your planning will suffer significantly.

All too often, we see the symptoms of such a lack of coordination. Clients who come to our offices often have paid a technically sound attorney to create a comprehensive living trust, but the family's assets have not yet been titled to the trust (perhaps making the document useless).

We see life insurance policies and life insurance trusts, but the proper steps were not taken to combine the two so the death benefit of the insurance policies may be unnecessarily taxed at a rate of 50 percent. We see investment accounts that are managed like they are in a pension, with no regard for taxation, and the end result is often a 20 percent to 45 percent reduction in the gain of the investments.

Conflicting advice from professionals in different areas or a lack of respect for what the other professionals do often leads to planning inertia or just plain bad planning.

Like the radiologist, surgeon and anesthesiologist, your CPA, attorney and financial advisors must work together. If the surgeon never saw the films or charts and the anesthesiologist and surgeon didn't speak, it would be pretty difficult to successfully treat a surgical patient.

Warning signs that you are ill-advised

Do any of these warning signs that you are ill-advised seem familiar? If so, you are likely suffering from flawed professional advisory relationships:

  • You have had the same advisors for years — and never interviewed prospective competitors.
  • Your advisors don't bring you detailed analyses of your practice and personal situation, complete with helpful suggestions, annually.
  • You have no idea what the true subspecialties of your advisors' professions are.
  • Your current advisors reject your ideas without detailed written explanations of why they don't make sense for you.
  • Your current advisors have never told you that a certain idea required further research for which they would need to charge you.
  • You rarely, if ever, have paid for second opinions from other professionals.
  • You have trusts, partnerships or other legal entities that may not be funded.
  • Your CPA, attorney and financial advisors do not meet periodically to coordinate your planning.
  • You stay with your current advisor(s) out of lethargy, guilt, or an "if it ain't broke, don't fix it" mentality.

Conclusion

Choosing the advisors to your practice can have a significant impact on the success of your practice.

At their best, advisors can add tremendous value on an array of areas from business decisions, to corporate and deal structure, to tax and financial results. Because of this, it is critical that practice owners of all types take seriously their process for hiring and evaluating advisors and look for second opinions where warranted.