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Money Meets Medicine Podcast

The Right Financial Advisor for a Doctor

If you’ve thought about getting financial advice from a professional but weren’t sure who to trust or how to start, you’re not alone – and your concerns are not unfounded.

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A recent study from Harvard showed that some claiming to be a financial advisor for doctors actually specialize in targeting clients with high incomes but low financial literacy. They call their prospects ‘unsophisticated investors,’ meaning that they don’t know much about their money or how to properly manage it.

When we think about it, who’s particularly vulnerable to this kind of predatory scheme? Most doctors. Doctors don’t receive any formal training in financial management, yet are often the ones who need the most help, and therefore the most likely to be taken advantage of.

A lot of financial advisors aren’t out to deceive you, but they may not be as educated on the downsides of their products and services as they should be. Our aim isn’t to make every doctor in our listenership into a financial guru, but to avoid being so reliant on a financial advisor that you don’t know what’s going on with your money.

Look for The Four Fs in a financial advisor for doctors

When it comes to finding a truly helpful financial advisor for doctors, certain criteria need to be met that might not need to be taken into consideration in other professions. To that end, I have a list of traits I call The Four Fs, and it’s been really impactful in helping physicians find a financial advisor that makes sense for them.

Fee-only

Fee-only advisors can only give you financial advice. They don’t upsell you additional items like whole life insurance or disability products. In the financial world, I think it’s really important to separate your advice from the products you purchase.

The pitch from a lot of financial advisors is that they won’t charge you any money. Initially that can seem enticing, especially to a resident or fellow who may not have as much money. But I would caution you against that, because the money always comes out on the backend. You just aren’t aware of how much you’re paying because they take it from your investment returns, or they’re having you purchase really, really expensive products that you don’t need (and taking commissions).

That’s why fee-only advisors are a safer option – because you do want to pay them what they’re worth, but you also want to make the wisest financial decisions you can, without wasting money on various products that don’t make a difference in your individual situation.

Fiduciary

A fiduciary advisor is an advisor that will sign a contract with you that states they’re ethically and legally obligated to do what’s best for you. Similar to the Hippocratic oath for physicians, the fiduciary standard is something most certified financial planners are required to agree to, but you want to find that in your financial advisor, too.

Familiar with physicians

Your ideal advisor needs to know about student loans and they need to know about specific investment vehicles like backdoor Roth IRAs that you might be considering that other people who don’t have a high income don’t need to consider.

Fee model that’s reasonable

You should pay for the service that you are hiring someone to do, no question. What we’re saying is to make sure that fee is reasonable, and to make sure that it doesn’t increase.

That’s why we very much recommend the flat-fee model whenever possible. Under this model, you know what the fee is ahead of time, you pay for it separately with a post-tax check in advance of the service to be provided, and it isn’t attached to any of your current or future assets.

The problem with some other models is that they tend to charge an AUM fee (assets under management), which means they charge you a percentage of your returns or a percentage of your profits. Since we’re doctors and we have higher income, as our portfolio grows, as the value of our assets increase, as we have more and more money, if we’re charged 1% on $50,000, that’s very different from being charged 1% on a $1 million.

And your portfolio, hopefully, is going to continue to go up. And so what will happen over the years is you’ll be charged more and more and more money for a financial advisor operating under an AUM fee to perform the exact same service at $1M as they were at $50,000.

So let’s do some quick math to illustrate the AUM impact on your income. If you have a $1 million portfolio, and the assets they’re managing for you entitles them to 1%, that’s going to cost you $10,000 a year. If you have a $5 million portfolio, it would be $50,000 a year.

If you’re going to pay five times as much in fees at $5 million, the complexity and the needs of your advice better be five times harder than when it was when you had a million dollars.

A helpful tool for locating fees


If you really want to get clarity on how your potential financial advisor is getting paid, there’s something called the ADV brochure. It’s made of two different parts, and you can actually look up the fee schedule for any financial advisor that you’re working with. They’re required by law to provide that information, and it becomes public record to anyone who knows where to look.

When it comes to finding a financial advisor that makes sense for you, our goal is to really help educate you, equip you with the right questions, and to empower you to ask them.

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