As vice president and shareholder at Security Ballew Wealth Management in Jackson, Miss., Karl Byrd knows all too well the reputation that physicians have among financial planners. "Surgeons wanting to manage their own portfolios are a little like me reading Grey's Anatomy and then doing surgery," he quips, citing the Will Rogers zinger, "Everybody is ignorant, only on different subjects."

Such stereotypes do not deter Byrd's love affair with the medical profession. Even though some planners may find physicians a difficult group to work with, he loves advising doctors. Of his clients, 90% are health care professionals, both individual doctors and medical groups. His admiration is unequivocal: "My clients are my friends with whom I go to church and play golf."

Byrd fell into his medical niche as a management consultant before becoming a financial planner. In the late 1970s, after graduating from Mississippi State University with a major in business management, he received a phone call.

A doctor friend of his needed help. The doctor's medical group was doing poorly collecting on its accounts receivable and had a serious cash flow problem. Byrd developed a series of policies that boosted the group's collection ratio to 93% of net adjusted charges. Soon, Byrd was managing the clinic's profit-sharing retirement plan.

Not long after, Byrd received a call from a surgeon and, then, a call from a radiologist. No one was providing practice management advice then, and before long he had a full-blown management consulting practice - designing record systems and accounting systems, helping doctors choose the right business structure, doing merger work involving practices and clinics, as well as offering tax and retirement planning.

It did not take Byrd long to notice that the personal financial affairs of physicians were in the same state of disarray as their practices. So he dropped out of a chartered life underwriter course and started work on earning a CFP designation, finishing in 1987.

He realized that medical students needed to learn rudimentary business skills before they opened their practices. So he began teaching business seminars to students at the University of Mississippi Medical Center in Jackson - "very basic stuff," he recalls - focusing on the fundamentals of financial statements, investing, and simple tax and estate planning.



While his clients flourished during his 15-year management consulting practice, Byrd's own position remained tenuous. As he diagnoses the situation, "I'd get a medical practice up and running in a couple of years so that my clients could self-manage their affairs, but then they wouldn't need me anymore. I kept losing clients on the management side of the business the better the job I did!"

By this time, however, the financial planning side of his business was providing a steadier income. He received a call in 1989 from Matt Ballew to join Ballew's wealth management firm as a planner. Byrd already had a client base to build on and soon was a shareholder in the firm, which now has more than $500 million in assets under management.

The four senior partners share an alphabet soup of credentials, including CFP, CPA, ChFC, JD and LLM. Three younger associates and 31 support staff employees round out the firm. The large number of support staff can be attributed to the firm's niche as a third-party administrator for more than 500 retirement plans. Calculating the total number of Security Ballew clients is a complex task, given that these retirement plans range from one participant to more than 4,000 participants.

Byrd primarily offers his 146 client relationships comprehensive financial planning, although he still provides business consulting for a few practices. He saved one client lots of money by initiating a "cost segregation study."

As he explains, medical office buildings and surgical centers are expensive to build or purchase. Once constructed or acquired, the cost basis of the assets is depreciated for tax purposes using IRS guidelines for different classes of property over various depreciable life terms.

Accelerating the depreciation of these assets reduces taxes as a business deduction and increases cash flow to the practice. The law allows owners of real property to segregate assets based on a study, prepared by a CPA or an engineering firm, that can reclassify depreciable assets to a much shorter depreciable life based on asset's nature. The cash flow saving can be significant when the depreciable life moves from more than 30 years to a five-, seven- or 15-year life cycle.

Several years ago, Byrd requested a study for a medical practice that resulted in more than $200,000 in tax savings. The increase in cash flow helped to retire the debt associated with the buildings at a much faster rate, increasing the equity positions of each physician owner.

Aggressive on tax planning, Byrd takes a more conservative stance on investment strategy, following the strategic asset allocation first outlined by Harry Markowitz. While the components of this allocation have changed as the world has changed - commodities, international positions and private equity have been added to U.S. stocks, bonds and cash - the basic strategy remains the same: Diversify a portfolio across asset classes, investment styles and portfolio managers.

According to Byrd, strategic asset allocation remains primarily a buy-and-hold strategy. He gleefully defends his skepticism about predicting market movements by referring to a front-page headline in The Wall Street Journal on March 3, 2009: "Stocks Hit '97 Level, Signaling Long Slump." The long slump lasted one more week, with the market bottoming out on March 9. While the S&P 500 was down 11.7% for the first quarter of 2009, by Dec. 31 it was up 26.5% for the entire year.

Not that Byrd ignores market timing and tactical asset allocation. In fact, two of his fellow senior partners are more tactical in their allocation models, and Byrd seems proud that the firm offers different strategies. Some clients of Security Ballew prefer a mix of strategic and tactical. Recently, Byrd referred one of his clients, an orthopedic surgeon, to another partner who provided the surgeon with the tactical asset allocation he desired.



Byrd remains circumspect about the economic crisis in American health care. Some doctors argue that health care costs are only going to soar, reimbursement rates are only going to decline and, as a result, profit margins and salaries will only decline.

Byrd does not dispute these facts, but he does note that tort reform in Mississippi seems to be lowering the cost of malpractice. And he offers this advice to physician clients: Older doctors with sufficient savings should consider early retirement. Younger doctors might renegotiate their lifestyle and their spending habits if they truly love their profession. And anxiety over patient lawsuits can be handled in a number of ways.

For example, doctors can transfer assets like their home to their spouse or co-own the home with their spouse in an agreement known as a joint tenancy by the entirety, wherein neither owner can deal with the property independently of the other. The main advantage is that judgment creditors of one party cannot enforce their liens against the property. Plus, they can also incorporate from a liability standpoint and form a limited liability company.

Whatever the challenge, Byrd has a solution: "I try to get my clients to be totally debt-free by their target retirement date." He adds, "In the final analysis, doctors are looking for a financial planner they can trust, one who will provide good advice across a wide range of issues."



Jim Grote, a CFP in Louisville, Ky., writes regularly for Financial Planning.



Karl Byrd,  Security Ballew Wealth Management

Credentials: B.S., business management, Mississippi State University; CFP

Assets under management: $500 million

How I see it: "Surgeons who want to manage their own portfolios are a little like me reading Grey's Anatomy and then doing surgery. Everybody is ignorant, only on different subjects."

Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access