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How does Investec Life fit into Private Banking?
Investec Life is part of the Investec Banking offering and proposition and medical professionals can access it via their Private Banker.
Financial planning can be quite a complex proposition if you aren't adequately empowered with the right information. I think that you can be easily misled and confused as to what you require and what you don't. Your Investec Life Financial Adviser is a salaried advisor. What that means for a client is that you get impartial advice and you are at the centre of every recommendation that we make.
Financial planning centres around a particular type of risk cover. My job is to assist you to identify the risks you could be exposed to. That may be the need for life cover, the need for disability cover, the need for income protection or business overheads cover, or possibly, if your business is mature, there might be a need for business assurance cover.
How do medical professionals start a private practice?
As soon as you've made the decision to move into private practice, I think a conversation with your Private Banker is key. You also have an Investec Life Financial Adviser that you can meet with and have these important discussions.
I think this process must be overwhelming - and putting yourself in a position where you have as much support, expertise and experience as possible can only make this journey easier.
Investec Life can guide you through a tick-box exercise of some of the gaps that you may have, that you may not be aware of transitioning into private practice. Quite often, medical professionals aren't aware that there's cover that they may not necessarily qualify for once they leave state practice - and we are able to close those gaps very quickly for you.
When setting up a private practice, what are the risks?
I think when a lay person thinks about risk, they need to address some ‘What if? events.
This could be "What if I am unable to work due to ill health or trauma?" and "What are the implications of that?". The implications of not being able to work means that there's a discontinuation in your income stream, which then affects the practice’s overhead costs and obviously your family’s lifestyle.
You want to ensure that your business and your personal/family situation can continue despite you being unwell. You should consider some type of income protection or business overheads cover to close those gaps.
In the event of your death, what happens to your family? What happens to your debt position? What happens to your practice? And you should consider how to mitigate this.
An estate planning exercise is where we identify potential taxes that could impact your estate, which means that there's a lot less assets left for your family to continue.
The second part is mitigating the need for income loss. Income loss basically means that your family may not be able to maintain the standard of living that they have been accustomed to. How do you make sure that your kids are educated, despite you not being there? How do you ensure that the household stays intact without you being there? That then basically warrants a need for life cover.
With estate planning, we go through several processes to reach a conclusion and we make a recommendation based on that.
The third one would be possibly towards the tail-end of your practice, particularly if you're in a multi-person practice and you consider an exit strategy or possibly the death of one of the partners. How do you ensure that the practice continues?
We then introduce a mechanism, such as keyman insurance or buy and sell agreements that will allow the practice to continue and will secure your family’s future.
What are three products you would recommend?
If you look at the various covers that Investec Life offers, you've got to look at the purpose of each type of cover. So, the purpose of Life Cover is to do a few things. It's to provide continuity in income for your family. It is to provide continuity in sustaining the practice. So, you might have a buy and sell agreement, or keyman insurance, that allows the practice to continue beyond a certain point.
Then there’s Disability Cover, Income Protection and Business Assurance, which basically pays offshoots of income to your practice and to yourself (as you recuperate from ill health or a trauma event). Then, further to that, you have Dread Disease Cover, compounding your income flow to allow you to heal.
Each type of cover has a specific purpose. You may not need all of it, but Income Protection is vital, because it's a preservation of your ability to earn. Then it’s your Life Cover, if you're a business owner or a family person with a young family that depends on you financially. And then thirdly, the Disability Cover is also vital.
Let's talk about wealth creation. What investments do medical professionals gravitate towards?
For me, the foundation is the most important part. Foundations basically start with very sound, strong savings habits. Make sure you understand your cash flow management and the liquidity needs of your family as well as your professional and personal situation. You need to have money set aside for emergencies – both personal and professional.
When getting into private practice, your earnings exponentially increase. It may take a year. It may take two years. But when that happens, you also need to be ready for opportunities. And, if you've spent all that additional cash flow, you may not necessarily be ready to take up the opportunities. Opportunities can be buying additional equipment, expanding your practice, buying (possibly) commercial property that can house your practice. So that's quite important.
If you look at tax-efficient investing, it is quite a complex subject. When we look at taxes, I don't think many of us like paying taxes or enjoy it, but it is unfortunately a necessary evil. The things that can soften the blow is when and how we pay the taxes - and that's when investment choices become quite important.
Some of the products that you'll find are tax-free savings accounts, retirement annuities and endowments. If you want to explore these, you're most welcome to contact somebody from the Investec Life team to unpack it with you. You could also look at unit trusts.
But at the end of the day, I think always stick with the goal. Understand your timeframes. Understand your liquidity needs. Understand your relationship with risk and loss and what sort of chance you want to take. I think then you plot your way forward.
Can a Financial Adviser help medical professionals balance personal and practice requirements?
I think you should document your vision and your financial aspirations. Your Financial Adviser is literally your guide that'll provide you with the framework to achieve some of those financial aspirations and to alleviate some of the financial responsibilities.
That could be financial responsibilities towards your creditors, like your bank, your family and SARS. There isn't any one-size-fits-all kind of formula. All you're going to do is create a partnership that is a marriage between your financial aspirations and a framework.
What are the common mistakes with retirement planning?
I see it not just in the medical industry. From a South African perspective, people are failing to save sufficiently for retirement, events and eventualities. We need to take a step back to evaluate. It's a simple budgeting exercise.
I think also, once you go into private practice, you go in very optimistically, thinking that you're going to make back that money. I think a key mistake that we could make is thinking that withdrawing out of a pension fund now could be made up by returns. Life happens and we forget to reinvest. Unfortunately, the global markets and the local markets in terms of investment management are incredibly challenging - and you may not necessarily ever make that money back.
We encourage our clients to stick to their strategy and not to withdraw before retirement. It will be difficult to get back to where you were. Make sure you invest optimally and you sufficiently invest every month towards your retirement.
Mistakes that we've seen commonly is that doctors find themselves working into their seventies and sometimes eighties because they haven't adequately saved for retirement.
Any final thoughts for medical professionals ready to embark on this journey?
You have this incredible resource called Investec Life that can help you simplify your financial journey. We allow you to focus on building your practice.
At the start, you are suddenly confronted with so many expenses and streams of money leaving your account, but also streams of money coming into your account. You must be conscious of your budget and separating business and professional expenses.
Get into cash flow management and financial planning, making sure that your t's are crossed, your i's are dotted and you have all the necessary paperwork in place.
It's quite important to make sure you aren't confronted with some surprise, or your family isn't confronted with a bigger financial surprise. Do all your due diligence timeously.
The role of your Financial Adviser is to simplify your financial planning. Explain, guide and hold your hand through your journey going forward. To revisit changes - whether it's good, bad or ugly. To assist you to re-evaluate, but to ultimately make sure you reach your financial goals.
And then - just enjoy the journey! You've embarked on this amazing adventure. Once the due diligence is done, is to just revisit your Financial Adviser once a year to do a review.
Private Banking for medical professionals
Investec Wealth & Investment
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