Start the New Year Strong by Assessing Your Financial Planning Strategies

Steve Kwong Merrill Lynch 714.429.2830 steve_kwong@ml.com

 

The Transcript

Art Wiederman, CPA And hello, everyone, and welcome to another episode of The Art of Dental Finance and Management with Art Wiederman, CPA. I am your host Art Wiederman. It's nice to have you on the podcast. As we get 2021 going, we're recording here in the middle of the middle of January. And it's a beautiful sunny day here in Southern California. And we will continue through 2021 to not only keep you updated on all of the continuing saga of PPP and Health and Human Services and Employee Retention Tax Credit, there is all kinds of things that we're looking at here at Eide Bailly. I am a dental director at the firm of CPA firm of Eide Bailly. Very proud of that. And a proud member of the National Academy of Dental CPAs, which I'll talk to you about a little bit in a minute.

And today, as I've told you over the past two years, you're going to meet another one of my great friends. In my 36-year journey as a dental CPA, my good friend Steve Kwong is my guest today on our podcast. Steve is an outstanding professional. He is a Vice President and Senior Financial Adviser at Merrill Lynch and has over 20 years of experience in the financial services and investing business. He is really, really smart and it is a prerequisite to be really, really smart because your host sometimes is not really, really smart. So it complements.

And I want to, as we go through this year, introduce you to many different people who are going to help you with your financial planning and to meet your goals. And that's we're going to talk about a lot today. And again, you know, we're not being redundant at all. We're giving you different prospectuses and perspectives and different views on what you should be doing. We're going to talk about the different types of investments you can get in, about setting goals. And, you know, folks, it is so important.

And I will tell you, I've had I've been very fortunate in my career to be able to have many clients who, when they get to retirement, they say to me, you know, Art, thank you for beating me upside the head with a two by four on an annual basis to fund my retirement and buy my office building. We're going to talk about all that kind of stuff today, because I want you, you guys work so, so hard. And I want you to have the financial ability to retire when you want, not when you have to.

So we'll get to Steve in a minute. And he's got a lot of great information and stories. And then, I met Steve actually through this group that I'm in. And I've had several other folks on the podcast, the Ellermeyer Connect Group. It's a wonderful, dynamic group here in Orange County of professionals. And we are required to give a little note about ourselves, a little line when we introduce ourselves at each of the meetings. And when Steve introduces himself, he tells us that he's learned everything he knows or needs to know about business from working in his father's Chinese restaurant. So we're going to find out about that, too.

But first, let me give you a little bit of information. We are partners with a wonderful, wonderful company called Decisions in Dentistry magazine. Decisions in Dentistry has great clinical content, fantastic continuing education courses. Please go on to their website at www.DecisionsinDentistry.com. Look at what they have to offer. I mean, we've been hearing that dentists are now going to be able to administer the COVID-19 virus vaccine that's come out here in California in the last couple of days, that's coming down the pike. And that's very exciting for dentistry. Maybe a little nerve wracking, but exciting. I'm sure they're going to be talking about that and then the rules of the road about that. So look at that.

If you are not working with a dental specific CPA, you need to be working with one. Again, I'm when I'm a dental director at the firm of Eide Bailly in Tustin, California, about 15 minutes from Disneyland. And I am a founding member of our National Academy of Dental CPAs. We're actually celebrating our 20th anniversary this year. We performed right. I think it was either right before, right after, sadly, the 9/11 terrorist attacks in 2001. So in our 20th year. If you're not working with a dental CPA, there's so much going on. The new PPP rules, the second round, the filing for forgiveness, the HHS Provider Relief Fund, the interaction between PPP and the Employment Retention Tax Credit, which I'm going to be talking to you about through the month of January and February on this podcast. Please go to our website www.ADCPA.org.

And the last thing I want to tell you is that we are going to be having a monthly dental, the Business of Dentistry series. It starts in January and it'll be the second Tuesday of every single month. And please go on to our website at www.EideBailly.com/dentalseries. You can register for that. We're doing a series for new dentists in January and February, and we're doing a series on transitions in January through April. So lots of stuff going on.

So I want to get to my good friend and my colleague, Steve Kwong. Again, Steve is a Vice President and Senior Financial Advisor at Merrill Lynch. He is a graduate of the University of Southern California. He's got his bachelor's and MBA, which again, makes you way too smart to be on this program. But we'll let you on here anyway. And he's got over 20 years of investment and wealth management experience, so Steve, welcome to the Art of Dental Finance and Management.

Steve Kwong Well, it's a pleasure to be here with you, Art. I've really appreciated our relationship over the years and certainly with your affiliation with Eide Bailly. As I mentioned, I'd have the pleasure of meeting several of your partners around the country over the years. And what a fine firm. And you're great to be with them.

Art Wiederman, CPA Well, I'm very fortunate. I started my career, Steve, actually it was known as Deloitte Haskins and Sells back in 1981. I guess I'm in my 40th year and now it's known as Deloitte. And I started at Deloitte, then went into my own practice and then merged with a great firm called HMWC, which was a firm of when I merged with them 45 and down 90 it was 90 people and then we came full circle, merged with Eide Bailly. And it is unbelievable the resources that our company has. I literally meet people almost every week that have a different skill set, so it's wonderful. But I'm more interested in. What did you learn by working in your dad's Chinese restaurant?

Steve Kwong Well, it's interesting as you grow up and look back on those years and when you're a teenager, the last thing you wanted to do on a weekend night is go to work at your pop's restaurant. But as I reflect what valuable learning that was, there's no business that really captures all the aspect of learning about entrepreneurship and client service and inventory management, H.R. All of the aspects of business are our capsulized inside a small Chinese restaurant. But my dad started from scratch with no training manual and kind of learned on the fly. But 38 years later, he had one of the most successful restaurants in Los Angeles. It was, it ended up being a big place. We could seat 180 people with a full bar. We were packed every weekend night and usually pretty crowded on weeknights as well.

And there's also that aspect of working for your old man and probably for most kids that work in the family business, that's the toughest box, right? High expectations, you kind of learn all aspects of the business. So no job was too big or too little for the kid of the owner. So you had to be a smiling face and greet our most important clients. And then the next minute you're in the back peeling shrimp.

Art Wiederman, CPA Well, I will tell you, Steve, I grew up in New York. I grew up in Brooklyn. And my mom and dad, we used to go out every Monday night. We'd go to a restaurant called Keys restaurant. It was round the corner from our house. It was a Chinese restaurant. They knew us. They knew when we came in, they saved a table for us. And that's where I learned to absolutely love Chinese food. I mean, it is just, oh, I look forward. I look forward to the day where we can not just do takeout, but we can go back to restaurants. And I've had some of the best meals in my life. And so is that, is your dad's restaurant still around or is it?

Steve Kwong So we sold it in the 80s primarily because number one son, me, didn't want to go back to the restaurant business and having lived it for a number of years, those hours were grueling at times. And ironically, you know, your parents work hard to pay for a good education. And in my case, I got the blessing to get a degree from USC, being the first person in my family to get a college degree. I wanted to move onward. And I think my family supported that.

Art Wiederman, CPA That's wonderful.

Steve Kwong Another topic and important has been working with legacy and family businesses. But have that conversation about, you know, what the kids' goals are. And even though it might have been, again, the back of my dad's head that his kid would take over the family enterprise, it wasn't in the cards, but I moved on with his blessing and there was never any bad conversation. And we had a lot of healthy dialogue about planning all of our futures. And I respect my father a lot for not putting any limitations on me and making his dreams, my dreams or anything like that. But I think he was a brilliant man in a lot of ways.

Art Wiederman, CPA It sounds like a wonderful mentor teacher that I'm sure made you the man you are today. And I believe your son graduated from the Naval Academy, is that right?

Steve Kwong He's there right now.

Art Wiederman, CPA He's there right now, I'm sorry. I thought he graduated. Go ahead. And that tells you what kind of a you know, that probably a lot of what was instilled in your son probably came from grandpa, I would assume. And that's wonderful.

Steve Kwong We would hope. Right?

Art Wiederman, CPA We would hope. Yeah. There you go. Steve, give us a little bit of your journey, your background, what you're what you've done to bring you to Merrill Lynch.

Steve Kwong Sure. Thanks. It actually started when I was a kid, too. My father had an interest in the stock market and back in the day, we were tracking stock prices on graph paper. But I always had an interest in this market and was reading value line and research reports as a teenager. As a side, one of my high school professors and I remember Sil Wax actually taught an investment class at Taft High School with the Mills.

So I had the good fortune of knowing stock tickers and learning how to read charts when I was 16 years old. So this business has kind of been in my blood for the duration. And it's a real gift to be able to advise doctors and dentists and business owners with their investments now.

So I started in commercial banking with Wells Fargo and then in the 90s moved into wealth management, first with the trust company at Mellon and progressed through and finally got recruited to join Merrill almost 15 years ago now. And that's a, it's an outstanding platform that we can talk about in greater depth. My partners, I'm with a team called Humphrey and Associates and I've got three other very senior advisors that all bring something different to the table. And that team concept is very important as we manage clients and really bring the best of thinking to each client's individual situation.

Art Wiederman, CPA Well, I didn't realize that we are actually rivals. You said you graduated from Taft.

Steve Kwong Yes.

Art Wiederman, CPA Yeah, well, I graduated from Reseda high school, so we're rivals, but we'll continue the podcast anyway. We won't get into that. So you and I have talked about investing over the over the years and stuff. And I know some of the things that you and I have talked about, are goals and investing with purpose and evaluating risk and risk management timeframes. Let's start the conversation about that, talk about, you know, setting goals and why purpose and timeframes are so important. And when you're dealing with your clients, how do you bring that all full circle with your clients?

Steve Kwong Well, that's probably the most important starting point when we talk about any investment strategy with the client. But before I go there, may I just interject the legal stuff.

Art Wiederman, CPA Oh, yes, yes, we have to we have to give our legal. I'm sorry, Steve. I forgot to do that. We must give our legal disclaimer here. So go ahead.

Steve Kwong Yeah. Thank you so much. But the discussions that we're going to have forthcoming are going to be strictly for informational purposes only. They're not to be construed as any investment recommendations or any investment specific investment advice. Do not take any actions on the things we talk about today. And before you do, please consult your financial advisor or tax advisor before doing anything. So thank you for indulging me on that.

Art Wiederman, CPA And oh, no, no, we have to we have to do all the legal stuff in the compliance. I understand. OK, so let's get back to the purpose and risk management time frame and stuff like that.

Steve Kwong Certainly. So it's really important to really implement what we learned in Stephen Covey's book. Right. Begin with the end in mind. And when it comes to any business owner and especially dentists, the practice is all consuming. And then you've got family obligations and all of a sudden the time and capacity to think about anything else goes away. But why do we do this? You know, why you toiling away and why did you go to all those years of schooling? Well, probably to provide financial security for you and your family and maybe even create a legacy.

And so some of those goals that become more specific need to get highlighted. And it can start from buying a bigger house, providing for a college education for your kids. Maybe I set a retirement date. I want to be able to stop working or have optionality to work when I'm 60 or 65. So all of those goals really should be clarified. And I always encourage my clients to take a long walk on the beach with a glass of wine with your spouse and just dream out loud. And sometimes that's a great starting point of creating an ideal life and having an outcome that is intentional.

Art Wiederman, CPA And it's a good time to do it. It's the beginning of a new year and hopefully a better year.

Steve Kwong Right. From your lips to God's ears. A better year. So what happens, though, in reality is sometimes those goals are conflicting and competing and we need to maybe prioritize and maybe a certain set of goals can be addressed with the cash flows we have and maybe other ones need to wait until the practice grows or maybe some of the capital that I've got now needs to go back into growing the practice, whether it's more space for additional staff.

So those are decisions. Again, I use the word intentional, but I think thought and care needs to be to be applied to those allocation decisions. And we'll use the word allocation in the investment context. But I also think that just as you make plans and build a practice, that there are tactical allocation decisions with capital because capital is in most cases a finite resource. And maybe today saving for retirement might need to take a backseat to buying a new piece of equipment or hiring a junior dentist to take up the load. So these are all decisions that once we've laid out goals, you just need to be addressed over time.

Art Wiederman, CPA So you've talked about, you mentioned cash flow and cash flow streams that help fund the goals. How do you identify those different cash flow streams? So the dentists who are listening to this podcast right now. They're thinking, oh, geez, I got money for my practice. Maybe I got money from a building. How do you help them identify that? What are the different cash flow streams?

Steve Kwong Sure, sure. So I think another answer to your question is identify cash flow streams now and then into the future that goes into goals. So what funds a retirement or what funds college education might be a cash flow stream that I start creating today, and then it realizes itself in 10 or 20 years.

But so for most dentists, it's going to be the practice to start. Right. Because, you know, you've got patients and you've got a staff to pay and probably loans to pay. And then everything after that becomes your cash flow. As you grow, perhaps you have the opportunity to buy the building. And with that, it's maybe it's a multi suite medical building. So your practice is one part and then you've got rent from other practitioners. So that creates another cash flow stream.

And again, in today's world spouses work so we can divide up if your spouse is working. One of my clients is practicing general dentistry and his spouse is an endodontist. And so the two of them can do quite well together. Right. And we've kind of earmarked a little bit, just not informally. His income pays for life and her income goes for savings.

Art Wiederman, CPA Oh, I love that. I love that. That's great.

Steve Kwong So that's another way to try to put a little fence around the cash flow streams.

Art Wiederman, CPA I mean, a plan doesn't have to be out of textbook. I mean, that's a great way. You know, it's like, you know, you have a pot of money, Steve, and, you know, we've got to pay taxes with it. We've got to pay expenses. We have to put the kids through college and we've got to save for retirement. And you just basically just hit the nail on the head, have a plan, your plan for this particular general dentist and his spouse the endodontist was, you know, one of them is going to pay for life and probably pay the taxes. And the other one we're going to use as savings and oh, my God, that's going to work beautifully. I love that. I think that's great, folks. That's a great way to look at things, is different pots and different income streams like we're talking about.

Steve Kwong So good. I'd like to share another. It's elegant in its simplicity. And it's truly a team of PhDs and MBAs that specialize in behavioral finance that work for Merrill came up with this probably six or seven years ago. They wrote a 50-page white paper on this. But in essence, it boils down to having some investment buckets and three in particular and think in terms of the money you need to support your lifestyle. And that really can't be risky. Right, because you've got to pay for your mortgage and you've gotta pay for food and kids and all that stuff. So that's on the most risk list type of portfolio.

And then the second bucket is for future needs, and that might be saving for retirement or college education or save to buy a building and the risk parameters there drive you to you have to take some risk. It's got to at least be an inflation and you probably need to take some market risk and have some volatility within that bucket. But it's going to grow over time.

And if and when the first two buckets are filled, then you can look at that third, we call it aspirational bucket and that might be the riskier investments. Maybe it's a venture capital. Maybe it's funding a startup, maybe it's not. I was talking about one of my dentists that invested in vineyards in a winery that certainly falls into their riskier bucket. So those three stairsteps of risk fall nicely into these buckets. And it's a very simple way to think about it. Every person can get their arms around it. You don't need to finance or doctoral level to understand that. But it's a great format to think about your wealth.

Art Wiederman, CPA But you have to sit down, folks, and make the time and not think about your practice or not think about Joey's baseball game for a little bit and plan your future. And that's what's so important. So, Steve, I want to get into now, folks, we are not going to have a conversation today about, OK, Steve, what do you think is the best thing to invest in 2021? Because you know what? I have a feeling with everything that's going on, you throw a dart at the wall and maybe even the dart doesn't know where to go. So we're not going to get into that particular conversation.

But what I do want to do is I want to talk about some of the different food groups that we deal with in investing. And let's start off with equities. And Steve, walk through the difference between a growth stock and a value stock and how you, when you're building a portfolio for one of your clients, how do you use stocks? What's your thought process for different types of dentists? Maybe go into that?

Steve Kwong Sure, sure. So it all goes down to the risk reward trade off. And a couple of tenants that are both very academic and practical in theory or practice in portfolios is diversification. So. Any portfolio that's been built over time will have some stocks, some bonds, some growth stocks and some value stocks, some international, and we'll massage those balances over time. But history has shown us that having a broad diversification over all those asset classes optimize return and incurred the unit of risk that the texts.

So let's go back to talking about the difference of a value and growth. The growth stocks, by definition, are those that investors expect the earnings and revenue to grow faster than the market. Sometimes there's a premium paid for those stocks. And that's because in the case of, let's say, a Google or Amazon, they've proven to grow their earnings and sales faster than the market on average. Value stocks, on the other hand, are stocks where their intrinsic value today might be lower than the overall market. But because of those mispricing or anomalies in the path of that business present, a value where you can buy today in some catalyst unlocks that value over time. And then the stock appreciates and the investor is rewarded.

I was going to say, over time, statistically, value stocks have actually outperformed growth stocks since we started tracking this since the end of the Great Recession. But in most recent years, the growth stocks have had an outstanding run far outpaced the value category.

Art Wiederman, CPA Especially in this pandemic. When you've got the companies that favor people that worked at home, they did very, very well. And Steve talk about the two components of when, you know, when you invest in an equity, folks, you're going to build your wealth through two pieces. Number one is that the growth in the value of the of that security, whether it's a mutual fund or a stock and the other is the dividend that it pays. So how do those interact, Steve?

Steve Kwong Right. Right. So the one of the key characteristics of a long term portfolio is cash flow, right, and in the accounting world, you know, you can mess around with the accounting and earnings, but if a company is producing cash, that's a good thing and you can't make up cash by accounting. The business either produces cash or doesn't. And if that cash then gets returned to investors, either through the form of direct dividend payments or share buybacks, that's a good thing. So savvy investors over the years have looked to dividend payments as a sign that a company is in good shape. And several portfolio managers and fund managers have done very well looking at companies that have been able to grow their cash flow over time and then be willing to share that with their shareholders.

Art Wiederman, CPA] I mean, at the end of the day, the market evaluates a security, a company based on its earnings. I mean, that's the fundamental of how a stock is. I mean, there's obviously a lot more that goes into that. If a company is doing really well, its stock price should reflect that. And if a company is not performing and look at how many companies have filed bankruptcy in the last two or three years, you know, it should reflect it, too. Isn't that pretty much the fundamental of how we look at stocks?

Steve Kwong Definitely. And I know that we said going in we'd be careful about making specific recommendations. But I will say that because of exactly what you're saying in the coming years, we think that as a firm and you've seen it in a lot of the business publications, that active management will do better than the index managers because there will be a disparity between companies that are actually doing well. And the streets is expected to reward that. And conversely, companies that aren't performing will be discovered and not attractive to the investment community. And I believe strongly that in the coming years that active management in stock selection will provide value to investors.

Art Wiederman, CPA Yeah, I agree. I agree with you. And it's every day's a new adventure. Talk about bonds. Talk about bonds. Where do you fit bonds into a portfolio. What's the purpose? You know, right now interest rates are really low, but how does that work?

Steve Kwong Right. So in long term asset allocation theory, bonds can serve as a buffer to the volatility of your equity portfolio. And historically, it could provide a source of income with rates at the current rates today, it's hard to count on bonds for income. And you've seen a lot of portfolio allocators reduce their tactical allocation to bonds. I'll say tactical versus strategic. Right.

So in, I'll back up, in a moderate portfolio, one might expect a 55 percent allocation to equities, a 35 percent allocation to bonds or fixed income, and maybe a 10 percent allocation to cash. That would be your long-term strategic allocation. Today, the allocation, because bonds represent less value and the yields are low, the allocation might be only 30 percent or 25 percent. And we would supplant that with perhaps dividend paying stocks or even alternative investments.

Art Wiederman, CPA So there's no cookie cutter method in anything that you do that any good adviser like Steve would do. It's all based on your risk tolerance and your individual, you know, your individual situation. I have clients who have literally said to me, I will never invest money in the stock market because I will not sleep at night. I'm sure. Steve, you've had one or two of those, right?

Steve Kwong Correct. And to that person, I'd say go back to the goals and go back to the timing for those goals. And that'll tell you if you can accept your risk or not. And then one investor might have different asset allocations in a different mix of investments because those would drive the different needs of the different goals.

Art Wiederman, CPA Yeah. So I want to take a break here, Steve, and I want to give you an opportunity to share your contact information with our listeners. And folks, again, I just want to be clear, and if I say this on every episode, that's fine. I'm allowed it's my podcast. I don't get anything from Steve. I bring people on to this podcast because they are quality human beings, quality professionals who care. Their number one priority is to make sure that their clients are well taken care of and there's no doubt in my mind that Steve is one of those people.

So and you know, Merrill Lynch is a world renowned investment firm with lots and lots of really smart people like Steve and resources. So, Steve, why don't you give out, if you have a question, I'm sure you would be happy to talk to any of our listeners complimentary to get started and just kind of see what they're looking for. How would someone get a hold of you? And we will also put that information in the show notes when we when these get sent out and marketed. So, Steve, what would be the best phone number/email to get a hold of you?

Steve Kwong Certainly. Thanks, Art. So my office number is 714.429.2830. And we're located in the Center Club Building right next to South Coast Plaza in Costa Mesa, California. My email is simple steve_kwong@ML.com and I absolutely would be happy to be a resource and answer any questions if anybody in Art's network, if I can help out and if I can't help you or the firm can't help you I'll find someone who can. So the invitation is open.

Art Wiederman, CPA And we'll put that again in the show notes. So, Steve, so I want to talk a little bit about the different options that people have to invest. And as far as you know, we've talked you know, you've got the large national investment financial advisory firms like a Merrill Lynch. You've got you know, you've got companies like Vanguard and Fidelity out there. You've got individual investment advisors who some of them are stock picks, some of them work with money managers. So what are the differences and what should people be looking at as far as you know? How do you pick a good person to help you with your investments?

Steve Kwong Sure, sure. And there really are a lot of choices out there. And clearly, as an advisor, I have options on where I want to hang my shingle and where I think's the best platform to serve my clients. And so really, there isn't one right answer. Clearly, I've made my choice and maybe I'll share the advantages of a big national firm in a warehouse like ours is access to a broad range of financial services, not only investments, but trust services and banking and lending. And you've got all the power of a truly international organization.

With some investors might be looking for more localized representation. And there's plenty of fine firms out here that are local RIAs or independent shops that have very smart advisors and maybe just one or two people in their office or a handful. But they're local. They're in the community. They have access to investment products and might present, you know, closer to the local community kind of approach.

There's also the advisor-less, but for the do it yourself investor that maybe wants to pick their investments themselves and just have a low fee platform. So whether it's Schwab or Ameritrade, there's a firm out there called Betterment that does a index based, will manage the portfolio for you at a very low cost. It doesn't have a lot of client service, but it's a very well-structured investment platform and could be the right solution for someone who doesn't need a lot of personal advice or handholding.

Art Wiederman, CPA So at the end of the day, folks, and see that's great information because there are lots of different options, just like there are lots of different options of CPAs you can hire, lots of different options of dentists that you can go to. You've got dentists that work in private practice. You've got dentists that work in large national chain dental offices. I mean, there's all kinds of options. And what I've always said is our business is about relationships. And at the end of the day, when someone comes to me, is referred to me, when someone is referred to Steve, you know, there's nothing on the Internet that says if I click on Steve Kwong's name, it's going to tell me exactly what his returns have been for every one of his clients. That's not how it works. It's about relationships and feeling comfortable with the person that you're talking to and that you trust them and that they care.

And that's, when it comes to whether you hire Steve or somebody else, or you hire an estate attorney, or you hire a CPA, or you hire a retirement plan administrator, or anybody, folks I want to really emphasize is you need to get to know them, you need to talk to them, and you need to go to your gut and say, does this guy really, is he the guy for me? And that's really important. Steve, isn't that how, you know, a lot of clients look at you and your team and stuff?

Steve Kwong I 100 percent agree. And you know, in the investment world, what I'm talking about is taught all over. It's not a secret. And yes, I bring some expertise to the table, but most other advisors have had similar training and have similar degrees and know what I know. And I can say the same thing for you, that the IRS code is not a secret and it's published for everybody. But your ability to understand that and then moreover, understand your clients and understand these are dental practice and apply that knowledge to that specific situation. That's the golden ticket. And then your care and your understanding of their clients and willingness to understand the client's personal needs, that's most important.

Art Wiederman, CPA My standard line is that all tax returns like my golf score are recorded approximately. So we just kind of make it up. No, folks, we don't do that. We follow the tax code. I promise. Steve, let's talk about maybe get into some of the weeds as far as some of the stuff you've done with some of your dentists as far as, I know, that we look at their retirement plans and we look at health savings accounts and real estate.

So let's talk to dentists. I got a dentist who's in his or her 40s, and he's really doing well coming out of this horrible pandemic. And fortunately, knock wood, I'm going to, if you can hear that, I just knocked on some wood. The dentists coming out of the pandemic are doing a heck of a lot better than a lot of businesses out there. And we're still standing. So, you know, let's talk about for my dentists who are in mid-career. Talk about the retirement plan. Talk about some of the things that you talk to your dentist about to help to get them to their goals.

Steve Kwong Sure. So typically, the dental practice, after you've got a pretty nice salary, the dentist can make and then payroll is covered, we want to take advantage of the retirement plan vehicles. Maybe start a 401k plan or profit-sharing plan that you as the main dentist, but also your employees get to participate in. The side benefit there is, I like to encourage my clients to look it as a steward of their employees and their staff's welfare and a 401K plan is a no brainer to put in place and let them start socking away money for their retirement.

But then as the owner of the business and plan sponsor, you've got some advantages to store away money for yourself. And then after that, if there's still extra money and often there is, you can look at various deferred comp plans and defined benefit plans that maybe favor you as the principal and the amounts that you can put in and that grows tax deferred over time. And Art will agree that that tax deferred growth compounded over 10, 20, 30 years can really be meaningful.

So we encourage any of our doctors or professional practices and lawyers would fall into this category, engineering firms. But these professional practices where you're afforded the opportunity to make a nice salary, you want to take advantage of some of these retirement plans. And yes, they typically are invested in a mix of stocks and bonds, and that's the preferred investment vehicle inside of these plans. It gets a little more complex, but you've seen dental practices and doctor practices end up putting some real estate in some of their pension plan vehicles. And that's probably a more granular conversation with Art down the road.

Art Wiederman, CPA Well, let's talk about real estate, Steve. You think it makes sense for a dentist to own their own dental building?

Steve Kwong Depending on the market. But, yeah, I've seen dentists use real estate, not only owning their own practice, but then buying units or condos or even there's opportunities to invest in a multi investor, limited partnerships. But real estate tends to chug slower over time. There's always that every 10 years or so a dramatic downturn and then it turns around and starts chugging back again. So we really look at real estate as a great vehicle to build long term wealth.

I know that there is a lot of talk about people who spin houses or get in at the right part of the cycle and are willing to take a quick pop. That's great. But the people on this podcast, that's not your expertise, your expertise is running at practice. And I'd leave that up for others. But if you look at real estate as a way to build long term wealth, get appreciation over time, beat inflation and perhaps collect some cash flow, we really like that asset class, especially for medical practitioners.

Art Wiederman, CPA It makes it a lot easier for folks, number one, to sell your practice down the road. When you sell, what happens is, is that instead of dealing with a landlord who's going to blow your deal up, which I've told you guys I'm a dental practice broker, also I've sold, my partners and I have sold probably close to 150 practices over the years. And, you know, every single time when we bring on a dentist to sell his or her practice, we say, OK, here's the deal. Everything's probably going to go OK except for the landlord. But if you are the landlord, it just makes it a lot easier and it allows you to get additional cash flow when you retire.

So, you know, I mean, if you're looking to buy a condo in the 450 Sutter building in San Francisco, which is the largest, the building that has the most number of dentists in the United States, that might be a little more difficult than buying one in the middle of Kansas or Oklahoma. I mean, it's just a matter of that.

So, Steve, you and I, you used the term with me before, we talked about this thing called a side hustle, maybe farmland. And, you know, it's not a, that's not a dance. Right. That's, yeah I can't dance. You know, you want to use me much more for my financial acumen than my dancing and especially my singing. You will never hear me sing on this podcast. In fact, the FCC would probably shut me down. But anyway, farmland, medical devices, things like that. So talk about those types of investments. And if people have other things going on in their life, how do you build that into the whole thing?

Steve Kwong Sure. I would take the well, let me step back. There's a lot of smart people in the dental field and many of those listings have ideas or have stumbled across a business that is attractive. And so in my lifetime I've shared that one of our friends actually developed an autoclave that he patented. And he doesn't manufacture this but has a royalty and does really nicely just on the side collecting money from his royalty. I know that one of a client got out of the dental practice because he was doing so well with his almond farms and pistachios and he became a full time farmer. That's probably an exception.

But when we approach these side businesses, it's important to put a fence around how much assets or capital you'll allocate to that, because we don't want the dream to tank the bigger goals. Right. So consult with your CPAs and consult your financial advisors. And maybe that falls into the third bucket we alluded to before as aspirational. That said, you know, we've seen some dental practitioners build some nice wealth on the side with these side hustle ideas.

Art Wiederman, CPA Yeah, but we also have to remember, Steve, and I'm sure you've probably shot down more than one of these. Unfortunately, health care practitioners are a target for promoters who try and get them to invest in things that are not maybe not appropriate or that are just have a tax angle for it. I've seen that. And folks, you know, if it smells like a duck and it walks like a duck, it's probably a duck. So you have to be really careful.

But if it's money that you're meeting all your goals. Right. Steve, you feel like you talked about the three different buckets earlier. You know, you're being, you're able to fund your kids college education. You're able to put money in retirement. You're able to live your life the way you want to live your life. And then you've got this, you called it I think the aspirational bucket, right?  Is, you know, you got some extra money. One of my 10 golden rules is never, two of them is never invest in something you don't understand and never invest more money than you can afford to lose. I think that's pretty good. Isn't that Steve?

Steve Kwong Oh, absolutely. And then in your role as an adviser, sometimes the best value you can offer is letting your client say an idea out loud to you saying, Art, I think I should do X, Y and Z, and once the words come out of that doctor's mouth, and they hear it, you don't have to say anything, right? They know it's a dumb idea and all you have to do is sit back and smile and say, yeah, I think you've come to your own conclusion. But being a sounding board like that is one of your most important roles.

Art Wiederman, CPA It is. I had a client one time came to me and said, you know, my husband wants to invest in a particular type of a retail business. And I looked at them and I said, no, this doesn't make any sense. And her comment to me was, Art, don't say no to him. Bad things will happen to you and I if you say no to him. I said, OK, because we are advisers, Steve, but we don't live people's lives. They ultimately make the final decision on whether they're going to invest, whether they're going to buy a piece of real estate, whether they're going to put money in a retirement plan, whether they're going to fund a college fund. That's really important.

As we're kind of running towards the end of our time. I want to talk a little bit about transition succession plans. And, you know, what are you telling dentists when they get into their 50s and 60s about what should they be doing? What should they be looking for? Because, folks, this is why you got to start saving early. This is why you got to call a competent financial adviser, CPA, somewhat like a Steve Kwong, who basically, when you get to your 50s and 60s, you can say, you know what, my arm hurts. I don't want to do this anymore. I'm tired. I don't want to be a dentist. I want to do something else, you know, then you can because you have saved. If you don't start early and you spend it all early, you can't do that. So talk about succession plan and how you advise dentists in that way.

Steve Kwong Sure. And I think one of the fun concepts that we've been discussing with our doctors and any business owners is today the idea of retirement has a totally different flavor than, you know, our parent’s retirement. Right. And maybe it's more about optionality to do something different than it is walking away and then fishing and playing golf all the time. So we talk about that. And what would you do if you weren't going to a practice every day and allow some dreams to happen perhaps? And maybe it's philanthropy or maybe it's starting an entrepreneurial business. Maybe it's consulting and helping young dentists grow their practice. There's a lot of different options out there and we really want our clients to explore all of that.

But first, I say five years before your want to retire, start thinking about it. And some of the things you might want to address are do I want to sell my practice? Is there a likely successor inside the practice? And how do I transition to my younger partners? Do I just want to sell? Maybe I want to, I still I love dentistry and I still want to work one day a week. So how does that factor into a deal going forward? So all of those things, again, are aspects that one should look at.

And then also the clients are most concerned with. If I sell and the amount of money that I have, will that support my lifestyle until I die? And one of the things that we want to consider now is longevity risk. People are living longer. And even though that the stated average age for guys might be 84 and women might be 86, if you've already made it to your 50s or 60s, chances are you're going to make it into your 90s. And with medical technology being what it is, maybe, you know, 90 or 100 isn't out of sorts for someone who's 40 or 50 today. So we got to plan on making that number last. And so that also changes your risk parameters. And maybe you do want to have another income source that isn't a dental practice before you retire.

Art Wiederman, CPA I mean, one of the things that that we talk about at the Ellermeyer group and our leader is, and I've had Bill on the podcast, Bill is, I think he's 82 or 83 years old. And, you know, he talks about never retiring and never stopping to work. And that the statistics show that if you if you just sit in your chair and watch TV after you retire, your life expectancy goes down and things like that. So, yeah, I mean think about, and I tell, I've had this conversation, Steve, with doctors a lot. It's like, OK, I'm two or three years from selling the practice and I've had doctors who literally come to me and they say Art, I'm really scared. I don't know what I'm going to do. All I know is getting up four days a week and going to the office and doing dentistry. I don't know what I'm going to do.

So like Steve said, take a. What'd you say take a walk on a beach with a glass of wine? Pinot is my preferred wine, quite frankly, and you know, just think about what is it that you've always wanted to do that you haven't been able to do, and if you have the financial ability through doing good, you know, doing a good savings plan and investing, then you can think about, you know, what do I want to do? Maybe I want to work two days a week, suggest maybe I want to, maybe I love dentistry, but hate the administration part. Right. I mean, you know, so these are the things you talk about with your clients?

Steve Kwong Yes. And then one of the other fun conversations that we get to have is, is if I've done my job and the client's done their job, they look at their wealth and they look at their, and we do some pretty detailed projections and say, OK, I'm comfortable that I'm not going to run out of money before I die. And in fact, I'm going to have a little bit left. And then that's another conversation. Well, we could have a plan that the government has. And then when you die, it all goes to them. Or we can set up some charitable vehicles or foundations or trusts that advance, you know, things that are important to you, whether it's your alma mater or your church or synagogue. Health care causes. And that's a fun conversation to have to think about legacy and giving back after you've had a really nice career.

Art Wiederman, CPA And that is absolutely right. And that's, you know, doing that is more important to some folks than others. The great thing about this is there's no there's no playbook. There's no rule that says you have to give X amount of dollars over here or spend money over here or have this career where you can pretty much in this country do whatever you want. And having money is a vehicle to allow you to do that.

So, Steve, I think we've about run the gamut of our time as I love talking to you. You're just a great wealth of knowledge and just you get it. I always say that there's two types of people in this life, those that get it, those that don't. And I've been fortunate to meet wonderful people like Steve Kwong who get it. So any last comments for our dentists? And I will ask you to stay on after we sign off. Any last comments were a dentist that they might want to take away from this conversation.

Steve Kwong Sure. Well, first off, a big thank you to you and Eide Bailly. It's a real pleasure to share this time with you. But maybe my last comment would be try to find a really good team of advisers to surround you that you trust that, and to paraphrase Art, that they get you and they get your goals and you can really build a team. They're not just a vendor, but real advisors that know you and that you can trust. And that will really help you escalate your goals and your wealth building.

Art Wiederman, CPA And it's a great opportunity folks. We're at the beginning of 2021. We're in a year that we are all, every one of us on this planet, are hopeful that is going to be a better year than 2020. We still have challenges. We all know that, you know, we have vaccines that have come out. They've got to get them into people's arms and dentists are going to be, at least here in California, I don't know about the rest of the country. There's a very good chance that you will be delivering some of them possibly down the road. And that is something that you're going to save lives by doing. I mean, you do that anyway.

So I want to really, really invite my, my you know, I don't get. Nobody pays me money to do this podcast. I do this to give back to the dental profession that has, I've been honored to serve for now 36 years. And I want to tell you folks, I am passionate about saving money and getting there and getting to retirement and getting to where your goals are and working with great team people, team members.

And please promise me that maybe what you take from today and some of the other podcasts we do is that you're going to make this a call to action because the definition of insanity is doing the same thing over and over again and expecting a different result. So anyway, my friend, Mr. Steve Kwong from Merrill Lynch, thank you so much. One more time, give out your contact information, please.

Steve Kwong Certainly. You can reach me at 714.429.2830. And the email steve_kwong@ML.com. So thanks so much Art.

Art Wiederman, CPA Thanks to you. And then get it. Hang on until we sign off. And folks just a little more information again. Go on to our website for Decisions in Dentistry magazine www.DecisionsinDentistry.com. Look at all their wonderful clinical content and their fantastic continuing education courses. Everything is virtual right now.

If you're looking for a complimentary consultation with a member of the Academy of Dental CPAs, you go right on to their page, click on the podcast link and you can click the box and we'll get you to one of our 24 CPA firms across the United States that represent over 10,000 dentists. And that's the Academy of Dental CPAs, if you're not working with a dental CPA right now, with all the stuff that's going on with the with PPP and the HHS and the FFCRA left that one out, the sick leave. And I mean, you know, you've got I could spend 30 hours a day reading about this stuff and I still wouldn't learn all that. It's crazy. So you need to be working with somebody who's on top of it. And our 24 member firms, including Eide Bailly, Eide Bailly works with over 800 dentists. We've got you covered.

So anyway, one more shout out for our webinar series where we've got six local dental societies in Southern California that we're broadcasting to. Our first kickoff webinar is a wonderful dental coach by the name of Kiera Dent out of Reno, Nevada. You will love to hear her. If you can be on it. It's January 13th. If you can't, you can go to our website at www.EideBailly.com. And you can go to the dental link and all of our all of our webinars are there. We have webinars. They're going to be a dozen of them. We're going to have one every single second Wednesday of the month from 6:00 to 8:00 p.m. California time.

And if you want to get a hold of me in my office, my number 657.279.3243 or email me at awiederman@EideBailly.com. If you want to be connected to the webinar series, just drop me an email and I'll get you over to our wonderful Director of Marketing, Jessica Gropel, and we'll do that.

So anyway, folks, I hope today is a call to action. Thanks again, Steve. I appreciate your time and your expertise. And that is it for this edition of The Art of Dental Finance and Management with Art Wiederman, CPA. Thank you for listening. Please tell all your friends about the podcast. Write a review. We've got a lot of really, really great stuff coming up. And we will stay on top of all the government programs and stimulus and tax changes, whatever they come up with and keep you fully informed through 2021.

And again, remember my five words that I have been saying now since March 16th when they started dental offices down. And I will continue with this charge. Failure is not an option. Folks, work on your practice, plan. Do all the things that make you successful and just remember how important the dental profession is not only to your patients, but to our entire country. So anyway, with that, this is Art Wiederman signing off. Have a wonderful, wonderful day and we'll see you next time. Bye bye.