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  • Writer's pictureDr. Disha

How to Choose a Financial Advisor: Essential Insights for Busy Medical Professionals

As a busy medical student, resident, or attending physician, you already juggle countless priorities. Diving deep into the complexities of personal finance might not top your list, despite its importance.


Even those well-versed in financial matters often benefit from an expert's objective insights to validate their strategies and progress toward financial goals.


Here's a streamlined guide, tailored for medical professionals, to help you find a financial advisor who resonates with your values and propels you towards your financial aspirations.


Understand Your Financial Needs


Before you even start looking for a financial advisor, it’s important to have a clear understanding of your financial goals and needs. Are you looking for help with budgeting, creating a comprehensive financial plan, retirement planning, tax questions, estate planning, or investment management?


Knowing what you need will help you narrow down the type of advisor who is best equipped to assist you.

Types of Financial Advisors

One problem with picking an adviser is that there are SO MANY different designations for financial professionals. 


Thankfully, FINRA has an exhaustive list of financial professional designations, what kind of education they require,  whether they require any continuing education,  and whether there is a way of filing complaints, available here.  


Here are some common designations for financial advisors, and knowing the differences can significantly affect your decision:


  • Robo-advisors offer digital financial planning services, often at a lower cost. They are suitable for straightforward investment management but lack the personal touch for more complex financial needs.

  • Financial Planners: Financial planners can help with a single issue or can help devise a comprehensive financial plan. Almost anyone can call themselves a financial planner. Financial planners do not have to register with a state or federal agency unless they are also investment advisers, broker dealers, or sell insurance.1  Certified Financial Planners (CFP’s) on the other hand have to have completed extensive training, must pass the CFP Board Exam, and log hours on the job and continuing education to maintain certification.  

  • Investment advisors and Broker-dealers:  Investment advisors focus primarily on investments and might be ideal if you’re primarily interested in growing your investment portfolio.   Services can range from a la carte to full service management.  Broker-dealers can also sell commissioned products such as insurance and mutual funds. Invesment advisors and broker dealers must be registered with the SEC, FINRA, and/or state/local governments. 

  • Money Coaches and Counselors: Money coaches and credit counselors don’t require any official training (though they could go to a coaching school and obtain a certificate) and are not regulated by any government body.  They can offer budgeting and spending advice but usually do not give personalized investment advice or generate a comprehensive financial plan.  If they do, understand that they are not registered with the government and are not regulated.


Fee Structures to Consider


Understanding how advisors are paid is crucial to avoiding conflicts of interest and minimizing costs.  Costs can add up quickly and decrease the power of compounding interest.  


  • Fee-only advisors charge a flat fee, hourly rate, or a percentage of the assets they manage for you. They don’t receive any commissions for selling products, which minimizes conflicts of interest.

  • Commission-based advisors earn money from the financial products they sell to you. While this doesn’t necessarily mean they won’t act in your best interest, it’s something to be cautious about as it could influence their recommendations.

  • Fee-based advisors are a mix of both fee-only and commission-based structures.


Fee only advisors can help physicians keep costs low and get good advice.  Assets under management fees of 1-2% are common in the industry.  On a million dollar portfolio, that costs $10,000-$20,000 dollars a year. 


Since most doctors require portfolios of $3-5 million dollars portfolios to retire, they are generally overpaying their advisors with AUM fees to the tune of $30,000 to $100,000 a year.  Flat fee advising is usually much more cost effective.


Fiduciary Status


As doctors, we take the Hippocratic Oath, to first do no harm and to act in the best interest of our patients. The financial equivalent of that is the “Fiduciary” designation for a financial professional. A fiduciary is a person in a position of trust who is required to act for the benefit and best interest of another person.  Not all financial professionals are fiduciaries, so it’s important to ask about an advisor’s fiduciary status. Registered Investment advisors are required by federal and state regulations to act as fiduciaries.


However, broker-dealers are held to the less stringent “suitability” status.  They are required by law to act in the best interest of their employer, not their client.  The SEC requires declaration of this standard in contracts with the following clause, 


“Your account is a brokerage account and not an advisory account. Our interests may not always be the same as yours. Please ask us questions to make sure you understand your rights and our obligations to you, including the extent of our obligations to disclose conflicts of interest and to act in your best interest. We are paid both by you and, sometimes, by people who compensate us based on what you buy. Therefore, our profits, and our salespersons’ compensation, may vary by product and over time.” 2


When shopping for an advisor, watch out for this clause and understand that you may be sold products by this advisor that may not be in your best financial interest.


Credentials and Background Check


Always verify the credentials of a financial advisor. Certified Financial Planner (CFP) or Chartered Financial Analyst (CFA) designations are good indicators of a proficient advisor. Additionally, it's wise to check for any disciplinary actions or complaints that have been filed against the advisor. This can be done through resources like the SEC’s Investment Adviser Public Disclosure website or FINRA’s BrokerCheck.


Alignment with Your Financial Philosophy


Your financial advisor should not only be knowledgeable but also align with your financial values and philosophy. During your initial meetings, assess whether they understand your goals and are interested in helping you achieve them. Ask them how often they work with doctors.  Be wary of advisors who seem more focused on selling products than understanding your needs.


Red Flags to Watch Out For


Here are a few red flags that suggest you might want to reconsider your choice:


  • High-pressure sales tactics: If you feel pressured to buy products or make decisions quickly, beware.

  • Lack of transparency in fees: Any advisor should be clear about how they are compensated.

  • Promises of high returns with low risk: The old adage "if it seems too good to be true, it probably is" always applies in finance.

  • One-size-fits-all approach: Your financial situation is unique, and your advisor’s recommendations should reflect that.

  • Freebies:  Nothing in life is free.  Freebies often come with sales pitches and pressure.


Conclusion


Selecting the right financial advisor involves more than just credentials and expertise; it requires a match of philosophies, transparent communication, and mutual trust.


By taking the time to thoroughly vet potential advisors and understanding the nuances of their services and fees, you’ll place yourself in a better position to make informed decisions that align with your financial objectives.


Remember, a true advisor advocates for your financial wellbeing and empowers you with knowledge, rather than just managing your assets. So choose wisely, and invest in a partnership that will foster your financial growth for years to come.

Further Reading and Tools



Here are some tips from the Securities and Exchange (SEC) commission on how to choose a financial advisor.


Check out this checklist made by the National Association of Personal Financial Advisors and consider sending it to prospective advisors to get answers fast.


Here is another useful comparison tool by NAPFA that helps to vet advisors.  It also includes guidance on how to evaluate the answers to each question.


Here is a compensation and fee declaration form by NAPFA with a nice breakdown of fees you can be charged.





2 National Association of Personal Financial Advisors. 2017. “Pursuit of a Financial Advisor: Field Guide.” http://s3.napfa.cql-aws.com.s3.amazonaws.com/files/Consumer/Pursuit%20of%20a%20Financial%20Advisor%20Field%20Guide%20-%20v2017.pdf.

 

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