DMD Staff

This week, the Department of Labor made public new rules for investment advice and sales to retirement plans and individual retirement accounts. The revamped regualtions are designed to strengthen protections for investors. 

Industry officials, investment companies, advisors, and brokers are still reading and absorbing the rule, and trying to anticipate what, if any, changes the rule will necessitate in their dealings with investors. And there are still legal and administrative challenges to the rule that may significantly alter the rule’s provisions. But the simple fact is that many investors are unaware of the rule; thus, they are also unaware that the new regulations could significantly change the relationship between investors and their advisors.

In a nutshell, the DoL rule adds some protections for investors by requiring that registered investment advisors and other persons act solely in the best interests of their customers in making investment recommendations—avoiding conflicts of interests and operating with full transparency. For many, yes, this will be a good thing. But I’m reminded by the famous “nine most dangerous words” as coined by former President Ronald Reagan: “I’m from the government, and I’m here to help.”

The new rules include significant enhancements to disclosure requirements, which means investment advisors have to adjust their business models. Though some investment vehicles may be “grandfathered in” and thus not subject to the new rule, many transactions that used to be simple and straightforward will now come with a heap of disclosure documents investors will have to look through and sign. Forms have a way of scaring people off, for sure, and some of the disclosures are likely to confuse investors more than increase their understanding of certain investment vehicles. Potentially worse still, certain products, such as variable annuities, may become too costly for advisors to profitably sell, due to the reductions in fees many will likely see and the increases in disclosure requirements. This may mean advisors simply won’t work as closely with investors of modest means, as the profit margin in doing so will now be lower. While dentists are unlikely to face this challenge as much as lower-earners, it still could impact you.

One of the bigger changes will include how individual retirement account (IRA) rollovers are handled. One of the key elements of the DoL fiduciary rule will be how investment advisors determine whether it is in the client’s best interest to roll over assets from an employer-sponsored plan to an IRA—which includes billions of investor dollars each year. Sometimes the advantages of rolling over funds into an IRA are not that clear; investors often do this only to simplify their portfolios. This is but one category of a pretty sweeping change in which you may no longer be able to rely on your advisor for guidance.

While your advisor won’t have a lot of answers just yet—the rule is too new&mdash;you should schedule time with him or her to make sure you understand the impact of the changes, either on the costs or the level of service your advisor provides.

Articles

This week, the Department of Labor unveiled new rules governing financial advice. This primer will help you make sense of the regulations.

What Investors Need to Know About the New 'Conflict of Interest' Rule 

Pop culture has had a field day with the field of dentistry for quite a long time, with depictions that range from the truly harrowing (Laurence Olivier in 

) to the exceedingly inappropriate (Jennifer Aniston’s lusty dentist in the 

 movies) to the slightly harrowing but funny (Bryan Cranston’s 

 Dentist Tim Whatley, and Steve Martin’s Dr. Orin Scrivello). Music and literature haven’t been much kinder. When your most notable pop culture hero is noted Western folk hero and scallywag Doc Holliday, your profession could use a little PR bump!

But while most patients can separate fiction and entertainment from an actual visit to your office, the simple fact is that these pop culture representations mirror the sense of fear and uncertainty that many people feel about a trip to the dentist. You can’t erase Tim Whatley from the zeitgeist, but there are some steps you can take to make your patients more at ease.

We all have a tendency to fear the unknown. Become known to your patients, as soon and as often as possible. It can be amazing how much a smile and a friendly greeting can put your patients at ease and erase any comparisons they may have built up in your mind to the dental torture icons they’ve encountered in popular culture.

As the stars of the film your patients are appearing in that day, you and your staff can make a big, positive impression through a focus on positivity, friendliness, and providing an open line of communication as often as possible. Don’t hesitate to ask first-time or even long-term patients if they have any concerns, fears, or worries. Take the time to explain what you’re doing before you do it, and always prepare patients if there may be some pain or discomfort associated with a procedure.

It would be an unbelievable stroke of bad luck if 

 happened to come on the waiting room television at just the wrong moment. While the chances of this happening are pretty slim, make sure that any programming playing in the waiting room is both age- and content-appropriate. You never know if the next segment on 

 could be about some horrible dentist’s mistreatment of his or her patients. Make sure someone is responsible at all times for what’s on, at what volume, and what’s coming on next. Also, peruse any magazines you may be putting out to make sure they don’t include articles that you wouldn’t want your patients reading right before sitting in your chair.

Proudly display credentials and awards, both in person and on your website.

Yes, most patients take it for granted that you’ve graduated from dental school and earned all the appropriate degrees and licenses to perform the services you are about to provide. But some will be looking for it. The school you attended doesn’t have to be Princeton, but it might be a conversation starter, and for some patients, being able to see your certifications will add to their comfort level. If you are providing a specialized service that requires extra training and licensure, patients may be more at ease seeing those framed plaques.

You don’t have to be a comedian with your patients or work on some material at the local Improv. In fact, that would be completely out of character for many, might come across as phony, and might even be off-putting. Rather, simply try not to take it personally if a patient brings up one of the scarier pop culture icons. Recognize that, for some patients, little comments in jest might be masking a legitimate fear of having their teeth poked and prodded. Use it as an opportunity to open a dialogue with the patient.

In a few simple steps, you can do your part to prevent the creation of any more rabid anti-Dentites!

You can't erase fictional nightmare dentists like Seinfeld's Tim Whatley from the zeitgeist, but there are some steps you can take to make your patients more at ease.

Combating the 'Evil' Dentist Trope

If you don’t know a lot about investing and don’t have a lot of time to devote to it, perhaps a lifecycle fund—also sometimes known as a target-date fund—is something you should look into. There are many different types of lifecycle funds with different allocation strategies, but the basics are pretty similar: A lifecycle fund divides your retirement savings among different asset classes, and then adjusts your holdings as you age. Most lifecycle funds are diverse and relatively easy for the novice investor to understand. But the best benefit of all is that you don’t necessarily need to know much about investments to make a lifecycle fund work for you.

That’s because lifecycle funds are no-hassle by design. When you are younger and can take on more risk, the fund will be invested more heavily in mutual funds that own stocks. These investments are more risky, but they offer the best opportunity for asset growth. As you grow older, the mix of investments typically shifts to become more conservative. The fund will eventually hold an increasing share of fixed-income mutual funds, which are generally less volatile than stocks.

Each lifecycle fund is designed for investors who plan to retire in, or close to, the year identified in the fund’s name (the “target year”). So, for example, if you plan to retire 20 years, you’d look for a fund with 2035 in its name. With a lifecycle fund, you turn over the often complex task of managing your assets over to professional investment managers who make ongoing asset allocation decisions for the fund.

One of the main advantages of lifecycle funds is that your retirement funds will be well diversified without you having to choose different investments on your own. Lifecycle funds fit the profiles of many investors, but they can be particularly effective for professionals whose income doesn’t fluctuate a great deal from one year to the next. While you are always striving for growth in your dental practice, for many dentists, your income will remain relatively steady over the course of your career. That means that the initial legwork involved, including the different types of lifecycle funds and the funds’ investment goals, should not necessarily require much adjustment, even if there are incremental increases in your income.

As with any investment strategy, consider seeking guidance from a professional financial advisor or working with your retirement provider to ensure that this is the right choice for you. As with all investments that are market-related, lifecycle funds do indeed bear market risk. And the funds can differ in terms of the expenses they charge. Depending on how the investment provider—such as Vanguard, Fidelity, and T. Rowe Price, among many others—calculates fees, those expenses can add up quickly. You should consider the expense rate for the fund, which is often calculated as a percentage of the assets under management.

Lifecycle funds are constructed as a “fund of funds,” meaning that investments from a wide variety of funds are all wrapped up into one fund. This may mean that the individual funds that make up the overall lifecycle fund can carry their own expenses. This “layering” of expenses isn’t always made clear to the investor. Before investing, look into the fund’s expense structure and the investment provider’s reputation for transparency.

Always keep in mind that even if someone else is managing your money, the responsibility for retirement planning rests with you. A “set it and forget it” sounds appealing, and it can be, but always be aware of how much you’re saving and how the fund is performing.

If you don't know a lot about investing and don't have a lot of time to devote to it, perhaps a lifecycle fund-also sometimes known as a target-date fund-is something you should look into. 

Why Lifecycle Funds are Particularly Good for Dentists

If you own your own practice, you know how important it is to retain key staff members who know your systems, your patients, and how to work with you. Besides income and work environment, one of the key ways you can encourage staff to stick around is through offering great benefits. But how can you compete with a large dental practice or health system when it comes to providing retirement benefits?

One option you may want to consider is establishing a simplified employee pension plan (SEP)—a form of an individual retirement account (IRA) specifically designed for business owners like yourself. SEPs offer a greater individual contribution limit than a traditional IRA, and business owners are eligible for such accounts alongside your staff members. They are also generally well-liked because of their low paperwork and the fact they don’t generally involve much tax reporting.

An SEP allows self-employed individuals to contribute to retirement plans for themselves or their employees without involvement in a complex qualified plan. The employer is allowed a tax deduction for contributions made to the SEP plan and makes contributions to each eligible employee’s SEP IRA on a discretionary basis. Many small employers like SEP plans because of the low eligibility requirements, and because of a special feature of SEPs that allow participants to skip contributions in years when income may be less than expected.

While the set-up may sound quite a bit like a regular IRA account, the key difference is that both Roth and traditional IRAs have very low maximum contribution limits. But for an SEP IRA, the limit is 25% of an employees’ compensation, up to $53,000 in 2016. For an employee whose income is $85,000, you can contribute up to $21,250 toward their retirement. That contribution is not considered part of an employees’ income, so it won’t increase their income tax liability.

SEPs also have advantages over 401(k) and other retirement plans in that they can be invested in many different vehicles, including stocks, bonds, exchange-traded funds, and a host of other options. Employees who wish to invest separately in an IRA can continue to do so. Also, employees are always 100% vested in the accounts, so the contributions made belong immediately to your staff member.

You can’t use an SEP as an informal bonus system. Employers contributing on behalf of multiple employees must be made at the same rate (such as 10% of income) for each employee covered under the SEP. That percentage, however, can change from year to year, so that everyone can share the wealth during particularly profitable years in the practice, but a bad year won’t mean bankrupting your practice. If your employee needs the cash value of the SEP, he or she cannot take a loan against it, like some 401(k) plans offer, and there is an early withdrawal penalty for taking distributions before a person is 59 ½.

There are other limits to know about, which you can read about on the 

One way to keep good employees is by offering good benefits. A Simplified Employee Pension plan is a form of an individual retirement account that is generally well-liked due to its low paperwork and minimal tax reporting.

The ABCs of the SEP

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No matter how good their dental skills or chair-side manner are, all dentists will have to deal with some unhappy patients. While some may be determined to pursue malpractice litigation, and while others may be completely unjustified in their complaints, there are steps you can take to keep their unhappiness from escalating.

Even if your unhappy patient is the chronic complainer type, don’t disregard the possibility that they have a legitimate beef. Did you perform the dental services according to your own high standards? If not, consider an apology, and strongly consider if there is an additional service you can provide that would ameliorate the problem. Many cases of patient unease can be satisfied simply by you taking responsibility for them, owning up to them, and correcting them.

Is the patient chronically unhappy with your services?

Some patients may not be interested in pursuing a malpractice judgment, but may simply seem to find some joy in complaining a lot. First of all, always remain calm with such patients, and if their complaint is about a member of your staff, make sure you hear the patient out, listen carefully to their concerns, and document your conversation, as well as any services that were given to the patient, as fully as possible. In the case of some patients, you may want to consider gently suggesting that they seek out another dentist.  You might both be better off if the patient finds a fresh start.

Most state dental societies offer peer review panels to resolve disagreements before they get too far along in the legal process. Peer review is a voluntary, informal mediation/arbitration process that allows patients to have their case reviewed by another dentist in the local dental society at no cost to the dentist or patient. It won’t preclude a patient for taking later action, and the findings from peer review won’t be filed with the state dental board, but the opportunity for a professional mediator to hear the complaint can discourage further action. At the very least, it can prepare you for exactly what you may face should the patient pursue further action.

A mediator will interview you and the patient, and a committee will conduct a clinical exam and present their findings. In some states, the committee will also suggest a course of corrective action. As part of the peer review process, no punitive damages or fines can be issued, but the committee may recommend a refund for the services rendered to the patient. 

Legal action may be necessary and unavoidable in some situations. But sometimes it can be avoided through simple practices such as open communication and mediation. The very worst thing you can do is simply ignore an unhappy patient. Take proactive steps, and you may find the problem addressed before it gets to the legal system. 

Unhappy Patient? Consider these Steps

Target-date funds (TDFs)—also known as 

—have been popular with retirement savers and the companies that employ them for years. Each TDF is designed for investors who plan to retire in, or close to, the year identified in the fund’s name (the “target date”). They are popular investment vehicles for good reason: they are no-hassle by design, and they divide your retirement savings among different asset classes, and then adjust your holdings as you age. Most TDFs are diverse and relatively easy for the novice investor to understand.

 by Financial Engines and Aon Hewitt has found that investor error can sap one of the key strengths of a TDF: its ability to achieve diversity without individual investors having to choose different investments on their own. See, TDFs are designed to hold all of an investor’s retirement plan assets. For investors who keep all their funds in the lifecycle fund, the structure eliminates investors’ tendency to try and “time the market” and reallocate funds when they shouldn’t.

Some investors, though, remain supremely confident in their own ability to manage and grow their retirement assets. Thus, they keep only a portion of their retirement portfolio in a TDF, or they keep their entire portfolio in a TDF for only a short period—thus negating the long-term focus of the vehicle they’ve chosen. According to the researchers, those “partial-term” investors have median returns more than 2% lower than users who simply kept their investments in the TDF.

Perhaps most troubling, 81% of those partial-term investors indicated that they knew TDFs were already a diversified investment, but they kept some of their funds out of the vehicle in an effort to diversify. This ill-conceived idea was even present among those who self-identified as being “very knowledgeable” about TDFs.

It may seem like the take-home message for investors, then, is either to remain fully in the TDF for your whole career or to not choose a TDF to begin with. But, while that’s generally a better strategy than being in investment limbo, it’s a little more complicated than that. In the case of physicians, for example, who are typically high earners, your returns over the course of your career may be higher if you are invested in managed accounts—industry parlance for  accounts managed by professional money-managers. Of course, managed accounts lose some of the “set it and forget it” benefits of TDFs, and they can come with pretty steep fees as well.

The key message here is to make sure your actual investment choices are sound and not counter-intuitive—and that they’re working. Take regular stock of your retirement portfolio’s performance, and measure it against the strategies in the road not taken. TDFs aren’t right for everyone, and they may or may not be right for you. But for most, they’ll be much less right for those who stride with brisk, false confidence into poorly conceived strategies.

Target-date funds are a popular retirement savings vehicle, but a new study shows investor misconceptions can limit the usefulness of the funds.

How Investor Error Can Hamper Target-Date Funds

Dentists spend much of their professional lives minimizing risk — a feared word in many aspects of life. But as any thrill-seeker will tell you, personal risk isn’t all bad. With investing, too, risk goes hand in hand with return. Generally speaking, the bigger the risk of an investment, the bigger the potential return.

No investment is entirely without risk, although some investments—like government bonds, certificates of deposit, and money market funds—come close. Even those vehicles, many of which are considered savings options as opposed to investment options, bring a different kind of risk: inflationary risk. Because low-risk investments earn only modest returns, inflation can erode the purchasing power of the funds invested. Your investment 

Your role as a dentist often involves avoiding or limiting risk, but as an investor, risk is not your enemy. Here are some ways to manage that risk and use it to your advantage in your investments.

1. Set—and stick to—your investment goals.

 Once you’ve established your investment goals, you can map out a strategy and a timeframe to get you there. This will involve knowing your risk tolerance and your investment window. Work with an advisor or your spouse to create a detailed investment plan. Actually write down your goals, your investment objectives, and your plan for meeting those objectives.

2. Understand the relationship between risk and time.

 If you’re just out of dental school or just starting your own practice, your available investment funds may not be limitless, but your risk tolerance should be on the high side. Why? Because you have many more years in your investment career to overcome any short-term losses that result from market fluctuation. The number of years you have until the finish line for your investment goal should and will dictate how much risk you can take and how much you can bear. It will also determine, to some extent, the investing vehicles you’ll pursue. If, for example, your investment goal is for your freshman in high school to be able to afford college out of state, you may think you need a big return. But you also won’t be able to lose a big chunk of that investment in a short-term market downturn. If you have a longer time window, you’ll be able to bear—and withstand—short-term market volatility.

None of these financial decisions happen in a vacuum, which is why the first point listed above has that No. 1 next to it. Your goals will need to be adjusted over time as well.

One of the best ways to mitigate risk is to have balance in your portfolio. This doesn’t just mean investing in growth stocks alongside blue-chip stocks, although that is part of diversification. It may mean investing in completely different kinds of investments, such as a portion in stocks, a portion in bonds, some in mutual funds, and some in real assets such as real estate.

Once you’ve set up your portfolio, the work isn’t finished. As your life changes, your goals and strategies are likely to change as well. The birth of a child, the death of a parent, growth or loss in your practice, or a divorce are just some of the life events that may necessitate a fresh look at your portfolio and may mean a different strategy with a different level of risk.

As an investor, risk isn’t your enemy. Inertia is.

Dentists spend much of their professional lives minimizing risk a feared word in many aspects of life. But as any thrill-seeker will tell you, personal risk isn't all bad. 

As an Investor, Don't Be Afraid of Risk

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Some myths just won’t go away, and some are entertaining enough, in their own way. But the myths surrounding retirement can be anything but fun. Let’s take a look at four common retirement myths and set the record straight.

Myth: If you own your own practice and your practice appreciates in value, you won’t need any other retirement savings. 

Ownership or even part ownership in a practice is an asset, without question. But how much that asset is worth will fluctuate over time. While you can certainly estimate the value of your practice and take that estimate into account when considering your projected retirement savings, keep in mind that it is only an estimate. The actual market value of your practice may increase or decrease significantly, due to factors outside your control, such as the overall economy, the economic health of your municipality, the number and success of competing dentist practices, and many more.

A good rule of thumb in thinking about how much you’ll need for retirement is that, in order to live the lifestyle to which you’ve grown accustomed, you’re likely to spend about 80% of what you were spending when you were employed. If your only source of retirement income is your practice, make sure you haven’t substantially overestimated how much the practice is worth. You’ll also need to consider the timing of the sale. Trying to sell a practice in an economic downturn, even if it’s short-term, could result in a sale price much less than you anticipated. Relying solely on the sale of a practice may mean working significantly longer than you had planned.

Myth: Retirement means never having to work or save again.

What is “enough” money for retirement? Chances are, you don’t really know, and the reason you don’t know is that you can’t be certain how long you’re going to live, what your health will be, or any number of other factors that determine your expenses while in retirement. Yes, you can estimate your life span and your financial needs. Yes, those are just estimates. Life throws its little curveballs, and you must be ready with contingency plans and the ability to adjust your own expectations. 

Set retirement goals, for sure, and do your best to estimate what you’ll need. But also understand that many variables are at play, and just because you’ve retired doesn’t mean you’ve reached some magical realm where all your needs are cared for.

Myth: Most if not all of your expenses will go down when you retire.

As we discussed a couple paragraphs ago, most people will need less money to live in retirement than they do while working, but it may not be as much less as you think. If you’re planning to move to take advantage of lower housing costs, no state taxes, cheaper living, and perhaps less travel, have you considered that many states that don’t charge state income tax and many municipalities that have very low property taxes make up for that revenue shortfall through increased sales taxes?

Your expenses may well be lower when you retire, but a period of inflation could mean that you will need more money to buy the same products. Also keep in mind that state tax policies and property taxes aren’t written in stone; they’re not only subject to change, they’re downright likely to change. During your expense forecasting, don’t be overly generous in the “savings” you think you’ll see from your current expenses. Instead, overestimate expenses wherever you can, so that you can put aside more now. Having extra is always preferable to not having enough, especially while you’re still in your active career.

Myth: Medicare will handle all your healthcare needs. 

Simply put: It will not. As you know, Medicare covers some aspects of dental care, but does not provide comprehensive coverage. The same is true for medical care. Medicare doesn’t cover all medications, and it doesn’t cover all forms of care. Long-term care is one major gap in Medicare coverage, but there are others. For example, depending on your plan, you will pay a deductible and some co-payments for an extended hospital stay. Look into supplemental coverage, private health care coverage, health savings accounts, and long-term care insurance.

Believing in any or all of these myths can be damaging, because they may prevent you from putting aside enough money or developing a contingency plan. The take-home message is not that all forecasting is fruitless, but that forecasting based on myths is like investing in a unicorn farm: Don’t do it.

Some myths just won't go away, and some are entertaining enough, in their own way. But the myths surrounding retirement can be anything but fun. Let's take a look at four common retirement myths and set the record straight.