David B. Mandell, JD, MBA

Savvy ASC owners typically expand their businesses by adding employees, making additional investments, and adding services.  These additional steps to increase profitability also increase the complexity of their businesses – and for the owners, their personal financial planning.  This complexity necessitates a team of advisors for assistance.

In part I of this article, I discussed the reason why a successful ASC needs a team of knowledgeable and diverse advisors. Here, in part II, I will explain the roles of three key outside advisors who may impact the financials and protection of the center.

The 3 Key Advisors Related to Financial Decisions for Your ASC

Before you can choose your advisors, delegate responsibilities to team members, or begin to benefit from the leverage of advisors, you need to understand the types of advisors who could be part of the financial team.  Three common outside advisors that may significantly impact an ASC’s finances are its accountant, its tax attorney, and its insurance advisor.  Let’s examine each of these roles separately.

Accountant

The term accountant will be used to generically describe an accountant, Certified Public Accountant (CPA) or Enrolled Agent (EA).

Accountants (and CPAs and EAs) are trained and licensed to prepare tax returns for submission to the Internal Revenue Service.  Each state has its own licensing and accreditation procedures for accountants and CPAs. The CPAs must pass has a multi-part exam that is required for the CPA to earn accreditation.  Enrolled Agents complete a federal licensing process.  In all situations, these advisors primarily prepare tax returns.  In the most desirable client-advisor relationship, the accountants also provide clients with advice on tax matters.

Limitations of an Accountant:

1.  The U.S. tax law is the most complex set of rules created by humankind, and significant changes are made to these rules every year. Therefore, it is impossible for any accountant to be well-versed in all areas of tax law.  More likely, the accountant may only know will be an expert in one or two areas (out of 20 or more potential areas) intimately.  Tax planning is like medicine – —each area has become so complex that one can’t possibly expect to become an expert in many disciplines.  In the medical arena, most patients and physicians realize that one doctor can’t do everything.  They both readily accept being referred to, or referring patients to, other physicians.  A gastroenterologist would no sooner make diagnoses for skin conditions then a dermatologist would try and diagnose and treat an intestinal issue.  Unfortunately, this is what happens all the time in the tax arena.

2.  Some accountants are comfortable acknowledging what they know and don’t know.  Some accountants feel responsible for answering all tax questions and resist referring clients to other accountants for specific needs for fear of losing the client altogether.  This is more of a limitation of an individual than it is a limitation of the profession as a whole, but it should be recognized.

3.  Conflict of interest may arise.  Many accountants are beginning to look for additional revenue opportunities by getting licensed in life insurance and securities.  They then recommend their clients particular investment and insurance products to their clients.  This can create significant conflicts of interest with clients who are looking for tax advice, but who are getting financial suggestions.  Clients should be concerned about how accountants, who deal with very complex tax issues, find time to become experts in insurance and investments.  In revisiting our doctor analogy,  – how could a practicing dermatologist find the time to learn oncology on the side and offer a high- level of cancer medicine treatment to the dermatology clients who develop cancer?  Savvy patients would prefer a full-time oncologist in that situation.  Despite the conflict and impracticality, many CPAs with years of accounting experience are now trying to increase revenue by advising clients on investments and insurance when they have little or no practical experience in these areas.

Tax Attorney

The term “tax attorney” describes an attorney who has strong working knowledge and experience in the area of income tax, and possibly estate tax.   There is a state-specific accreditation for tax attorneys in many states. Most tax attorneys have added another year of school, beyond law school, to earn a degree in taxation called an LLM.  All attorneys must be admitted to the Bar Association in the state(s) in which they wish to practice.

Tax planning attorneys are required to give advice on the tax ramifications of certain transactions (i.e., selling an appreciated asset) or strategies and to assist with the creation of the legal documents used in these transactions. These specialized attorneys have a strong working knowledge of income and capital gains tax issues, as well as taxation of corporations, partnerships, and other entities.  All attorneys must be admitted to the Bar Association in the state(s) they wish to practice.   Since most state taxes are based on federal taxes, most tax attorneys can handle all of the clients’ tax issues.

Limitations:

1.  Tax attorneys do not generally prepare tax returns. Though they have a very strong working knowledge of tax law, the preparation of tax returns is a specialty that is generally left to the accountant (discussed above).

2.  Though some of these attorneys are also experts in estate planning, most do not work in this area regularly. This results in two limitations:

a.  Tax attorneys may not be as aware of potential estate planning solutions that are more appropriate for affluent business owners.

b.  They are likely to have very limited knowledge of financial and insurance vehicles and their place within an estate plan because they are tax attorneys first and estate planning attorneys second. If full-time estate planning attorneys don’t have time to fully understand financial vehicles, how could you expect part-time estate planning attorneys with another full-time focus to have time?

Insurance Professionals

“Insurance Professional”  is a term used to describe life &and health (life) or property &and casualty (P&C) insurance agents.  Life and P&C agents must have a resident agent license in the state in which they reside.  In some states, a week-long course and a state-sponsored exam are required to earn a license.  They can apply for non-resident licenses in the other states so that they can provide insurance to clients in those states as well.  Certified Financial Planners, accountants, investment advisors, and attorneys can all secure life insurance licenses. Many of their regulatory agencies require those advisors to disclose the potential conflict to clients when the advisor could benefit from multiple income sources (professional fees and insurance commissions).

At the most basic level, insurance professionals provide various types of insurance policies to clients.  Some insurance professionals also offer financial planning or investment solutions.  The life insurance professional works closely with the estate planning attorney to help clients meet their estate planning needs.  If you are interested in purchasing any type of insurance, it is imperative that you consult with a licensed insurance professional experienced in the insurance area at issue.  Typically, one person can only be an expert in one area of insurance.  If you look at the list of types of insurance below, you can see why it is so important to work with a firm (like our firm www.ojmgroup.com) that has a number of insurance and investment experts on staff to help clients with their various insurance and investment needs.

Limitations of Insurance Professionals:

1.  Some are working for the insurance company or themselves and not for you.  Some insurance agents have “career agent” contracts with certain insurance companies like Mass Mutual or The Principal.  These agents are highly motivated to sell a specific company’s products because they must sell a certain amount of these products or lose their health and financial benefits.    Even independent agents will have a personal preference toward for certain companies or products.   We recommend working with independent insurance professionals who have a range of options they can offer and can display a track record of using different companies for to meet their clients’ best interests.

2.  Many agents work only for commissions.  The savvy client realizes that insurance professionals, like all of us, need to make a living. They do not begrudge the insurance professional for earning a commission that is inherent in the insurance product (or the real estate agent or any other commission-compensated person).  However, when asking for advice and recommendations on how to address a financial need, you have to expect a commission -based advisor to suggest only commission -based products.  You may get the best commission-based solution, but are not likely to receive a recommendation of the best possible solution if that solution doesn’t involve a commission.

3.  Few have significant training in other areas. To get an insurance license in most states for any of these types of insurance, one typically only needs to take a week-long class and then has to pass an exam.  Contrast that to getting earning an MBA (2 two years),; a law license (3 three years plus bar exam), or a medical license (4 four years medical school, 4-8 four to eight years of internship/residency plus board exams).

Because of this limited training, many insurance “professionals” are simply salespeople without the sophistication or training to do more than sell.

Conclusion

While a host of advisors may be needed for an ASC over business cycles, good advice from the 3 key advisors above are crucial to any successful center.  We recommend that you make the effort to find experienced and creative advisors and always look for 2nd opinions.

If you missed Part 1, read the full article here.

 

David B. Mandell, JD, MBA, is an attorney and author of 10 books on legal, tax and financial issues, including “Wealth Secrets of the Affluent,” published by John Wiley & Sons, Inc., the largest business book publisher in the world. He is a principal of the financial consulting firm OJM Group (www.ojmgroup.com ).

Disclosure:  OJM Group, LLC. (“OJM”) is an SEC registered investment adviser with its principal place of business in the State of Ohio.  OJM and its representatives are in compliance with the current notice filing and registration requirements imposed upon registered investment advisers by those states in which OJM maintains clients.  OJM may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements.  For information pertaining to the registration status of OJM, please contact OJM or refer to the Investment Adviser Public Disclosure web site www.adviserinfo.sec.gov.  For additional information about OJM, including fees and services, send for our disclosure brochure as set forth on Form ADV using the contact information herein.  Please read the disclosure statement carefully before you invest or send money.   This article contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized legal or tax advice.   There is no guarantee that the views and opinions expressed in this article will be appropriate for your particular circumstances.  Tax law changes frequently, accordingly information presented herein is subject to change without notice.  You should seek professional tax and legal advice before implementing any strategy discussed herein.

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abeo Management Corporation (abeo) serves as a leading source of revenue cycle management and practice management with a specialization in anesthesia. The company leverages its people, processes, and software to serve independent practices, surgery centers, hospitals and healthcare systems with a scope of services that include billing, coding, transcription, practice management, and business consulting.

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