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Your Private Practice and Your Personal Wealth: Minimizing Risk with Asset Protection Strategies

aa020053By Peter Rohr

As a physician with a private practice, you need to be prepared to protect both your professional and personal wealth. Because the bulk of your wealth may be held in one asset there are unique risks, such as liability and liquidity, which require thoughtful planning and careful management. Appropriate insurance coverage can help offset liability risks, and a diversified portfolio including significant liquid assets will help protect you against the possible risks facing both your professional practice and your personal wealth.


Addressing Practice Risks

Medical practices have unique risk considerations and thus it becomes extremely important to protect assets. To minimize this risk, physicians can adopt asset protection strategies to defer income, shield wealth, and put a protective sleeve around their business.


Defined Benefit Plans

Defined benefit plans were popular among large corporations during the 1980’s and have since been replaced by more affordable large-scale retirement plans. However, they are often an ideal solution for physicians, especially those who are approaching retirement. With a defined benefit plan, individuals can make substantial contributions to quickly build a retirement nest egg and they are able to defer income that is protected from creditors, should a patient file a lawsuit.


Dividing Assets

Although most business owners are familiar with corporate wrappers, such as limited partnerships, S-corporations and C-corporations, physicians should consider an additional layer of protection to further separate their personal assets from their practice.  Setting up these protective sleeves ensures that even if one is jeopardized, the other survives. 


Shielding Non-Practice Assets
Despite the high premiums, malpractice insurance doesn’t cover everything. Thus, if a patient wins a malpractice lawsuit, personal assets may be included in the settlement. In order to protect personal assets, physicians may want to work with an attorney to set up an asset protection trust or other asset ownership structure. Simpler strategies, such as placing non-practice assets in a spouse’s name, can also provide additional protection.


Properly Diversifying

To reduce personal risk and manage cash flow, it is important to develop and maintain a properly diversified portfolio that addresses both short-term liquidity needs and long-term goals, such as retirement, education funding and legacy wealth. This is especially important for physicians who own a private practice, considering the amount of wealth concentrated in a single asset.


Broadly speaking, assets can be divided into three buckets: Personal, Market and Aspirational[1].  A properly diversified portfolio includes a strategic balance among each of these asset classes and manages the risks and rewards associated with each.


Personal Assets

Personal assets are those that have minimal downside risk and are sufficient in size so that your standard of living is not jeopardized in the short term: cash, certificates of deposit, annuities, etc. 


Aspirational Assets

Aspirational assets are on the other end of the spectrum.  They are assets where more risk is taken in the hopes of attaining greater future, but uncertain, returns.  Your practice, investment real estate and investment partnerships are examples of aspirational assets.


Market Assets

Market assets are those that are invested in the markets and designed for longer-term preservation and growth of one’s wealth and lifestyle.  These assets include retirement and education investments, as well as equities. 


Though proper diversification is the cornerstone of sound investing, it is important to note that today’s world is vastly different than it was 20 years ago.  The U.S. is in the midst of several unfavorable financial conditions including a weakened U.S. dollar, increasing market volatility, a spreading   credit crunch and a domestic   recession. As evidenced with the current market, the key to long-term financial success is managing the risks you can control and understanding those you cannot. While this is a long-term consideration, it is important to be an informed investor and consider how your wealth management strategy takes all risk factors into account.


Expertise and a Team Approach

Not only are events moving at a pace faster than before, but time is more precious than ever.

When it comes to understanding the complex world of investing, you need a partner who understands your needs and has the expertise to help you attain your goals.


Working with an advisor who can offer a holistic view of professional and personal assets is essential to developing a comprehensive financial strategy. The advisor can develop a personal investment strategy that accounts for retirement and estate plans, as well as considers the risk interplay between your private practice and your wealth building strategy.


A Holistic Approach to Financial Success

Though owning a private practice may be a physician’s largest, most significant investment, the rest of his or her financial life deserves equal attention and protection. Adopting a holistic approach that incorporates a diversified, complementary portfolio and smart asset protection instruments will help ensure success in your business and personal finances.


Peter A. Rohr is a Senior Vice President–Investments and Private Wealth Advisor with the Private Banking and Investment Group at Merrill Lynch in Philadelphia. He can be reached at

(215) 587-4731 or peter_rohr@ml.com.


Neither Merrill Lynch nor its personnel provide tax, accounting or legal advice.  Please consult with your tax, accounting or legal professionals with respect to such advice.

Diversification, asset allocation and rebalancing do not assure a profit or protect against loss in declining markets.

[1] These classifications are derived from a landmark study, “Beyond Markowitz” by Ashvin Chhabra. The Journal of Wealth Managment, Spring 2005

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