What about Financial Advisors?

[MDLaval]

I know there is a lot of discussion about LOC/banks/credit cards/bank advisors. 

I was wondering: what about independent financial advisors (meaning: those who are NOT attached to/do not work with a bank)?

I've seen/been to conferences on the financial aspects of medical students/residents the last couple of years, and I did choose one private financial advisor who helped me with disability and life insurances, budgets, etc. But since I haven't read much (if any) about the topic here in the forum, I'd like to open the discussion up to see what your opinions/experiences are. 

[Bambi]

Your best advisor is someone who went through the process and doing your own due diligence, finding your comfort level and following your gut.

[ygella]

I have had two sessions with MD Financial (the CMA company) and they are a good group of people and I have been happy so far. Granted I have not sought the professional advice of any other company so I can't really draw a comparison, but it's a free service for CMA members which is great.

[ralk]

No such thing as a true independent financial advisor for physicians. There are plenty of private groups happy to provide advice, but they're all selling their own (or commissioned) products as well (yes, this includes the MD Financial folks), products which may not be the best for you.

That's not to say they give bad advice, and especially moving into residency and eventual practice, it's important to have some sort of financial team to go to with questions. Whether it's the MD Financial team or one of the many non-affiliated groups out there, having a knowledgeable person available to put questions to and provide options is important, but everything they say should be taken with a grain of salt. They have their own agendas and while they may be knowledgeable in general, they won't know your personal situation as well as you do. Bambi's 100% right, talk to physicians who are/were in similar situations, and do your homework.

[rmorelan]

On 12/1/2017 at 4:39 AM, ralk said:

No such thing as a true independent financial advisor for physicians. There are plenty of private groups happy to provide advice, but they're all selling their own (or commissioned) products as well (yes, this includes the MD Financial folks), products which may not be the best for you.

That's not to say they give bad advice, and especially moving into residency and eventual practice, it's important to have some sort of financial team to go to with questions. Whether it's the MD Financial team or one of the many non-affiliated groups out there, having a knowledgeable person available to put questions to and provide options is important, but everything they say should be taken with a grain of salt. They have their own agendas and while they may be knowledgeable in general, they won't know your personal situation as well as you do. Bambi's 100% right, talk to physicians who are/were in similar situations, and do your homework.

As much as I have been critical of them on the forum from time to time I do think they can be helpful. I am very concerned in general about the lack of separation of their interests versus the doctors interests. When you make you living selling products - in this case mutual fund or insurance - there is conflict between the goals my profit vs their income/job promotion. That type of conflict exists in other fields including medicine but there isn't the same sort of oversight as there is in other fields. I am particularly critical of the fees they charge on mutual funds which flies in the face of most of modern investment theory and costs doctors untold thousands each year (estimates of 30-40% of your retirement nest egg don't sound that far off). 

A compromise I like is the idea of paying someone a flat fee for their advice. I don't like an advisor whose income or progression in any way at their company to be based on the fees they are able to collect from the advice they give. I don't like at all the idea that they get a percentage of my wealth each year as I know full well that the amount of effort required to manage a pool of money does not increase directly with the size of that pool (it doesn't take twice the work to manage 200K as it does to manage 100K - so why are you getting twice the income?). Index funds or ETFs are more cost efficient and are extremely likely to out perform mutual funds so if they don't even bring those up as a possibility I view it as a huge, and I mean huge, red flag. They clearly know they exist. 

In the end they can help arrange insurance, help develop a portfolio mix (so much US stock exposure, so much bonds, so much Can stock exposure), help with perhaps re-balancing things and help remind you that the market can and will fall so don't panic and sell etc. But in the end I don't need someone taking realistically 50-100K a year, every year, in fees to tell me stuff I already know. Stuff anyone can learn in a weekend or two. Thanks but no thanks. Honestly as horrible as it is for them to hear, most of what they do can be replaced with a simple auto-pilot investing systems a vastly lower cost.  

[frenchpress]

 

2 hours ago, rmorelan said:

As much as I have been critical of them on the forum from time to time I do think they can be helpful. I am very concerned in general about the lack of separation of their interests versus the doctors interests. When you make you living selling products - in this case mutual fund or insurance - there is conflict between the goals my profit vs their income/job promotion. That type of conflict exists in other fields including medicine but there isn't the same sort of oversight as there is in other fields. I am particularly critical of the fees they charge on mutual funds which flies in the face of most of modern investment theory and costs doctors untold thousands each year (estimates of 30-40% of your retirement nest egg don't sound that far off). 

A compromise I like is the idea of paying someone a flat fee for their advice. I don't like an advisor whose income or progression in any way at their company to be based on the fees they are able to collect from the advice they give. I don't like at all the idea that they get a percentage of my wealth each year as I know full well that the amount of effort required to manage a pool of money does not increase directly with the size of that pool (it doesn't take twice the work to manage 200K as it does to manage 100K - so why are you getting twice the income?). Index funds or ETFs are more cost efficient and are extremely likely to out perform mutual funds so if they don't even bring those up as a possibility I view it as a huge, and I mean huge, red flag. They clearly know they exist. 

In the end they can help arrange insurance, help develop a portfolio mix (so much US stock exposure, so much bonds, so much Can stock exposure), help with perhaps re-balancing things and help remind you that the market can and will fall so don't panic and sell etc. But in the end I don't need someone taking realistically 50-100K a year, every year, in fees to tell me stuff I already know. Stuff anyone can learn in a weekend or two. Thanks but no thanks. Honestly as horrible as it is for them to hear, most of what they do can be replaced with a simple auto-pilot investing systems a vastly lower cost.  

I also like the fee-only advisors that you pay by the hour and who sell no products and manage no money. I think they can be much, much cheaper than 50-100K year - at least, myself and other I know are paying in the range of $100-200 / hour, and then most years only needing to pay for a couple hours of advice (if at all), and only occasionally in some years paying for more time for a more dedicated long-term planning session. But I guess it depends on how much advice you need and how often.

These types of advisors seem to be way less common, and an affordable one was sort of hard to find. In the end, you still need to do a lot of the leg work yourself. But I like the model, because it’s a good way to get a second opinion. It helps you to fill in the gaps in your knowledge with input from someone who (at least should) know the ins and outs of financial management without the concern that their interests may conflict with yours. Typically they can advise on how you should balance a portfolio or what types of investments you might want to buy, but cannot recommend specific stocks. And in addition to investment advice, many can help with tax planning, estate planning, etc. Because they only make money when you hire them for specific advice, there is motivation for the advisor to give the best advice they can to keep you happy and coming back throughout your life as your goals / needs change. Then you still take things into your own hands and manage them yourself without wasting all that money on management fees.

This is the approach I am currently using. I most recently met with my advisor before I started medical school to help me come up with plan for saving to pay for school, and then for how to manage borrowing, spending, investments, taxes, etc., while in school. It cost me a bit up front, but I am very happy with the guidance I received and I recouped my costs pretty quickly thanks to it.

 

[rmorelan]

3 hours ago, frenchpress said:

 

I also like the fee-only advisors that you pay by the hour and who sell no products and manage no money. I think they can be much, much cheaper than 50-100K year - at least, myself and other I know are paying in the range of $100-200 / hour, and then most years only needing to pay for a couple hours of advice (if at all), and only occasionally in some years paying for more time for a more dedicated long-term planning session. But I guess it depends on how much advice you need and how often.

These types of advisors seem to be way less common, and an affordable one was sort of hard to find. In the end, you still need to do a lot of the leg work yourself. But I like the model, because it’s a good way to get a second opinion. It helps you to fill in the gaps in your knowledge with input from someone who (at least should) know the ins and outs of financial management without the concern that their interests may conflict with yours. Typically they can advise on how you should balance a portfolio or what types of investments you might want to buy, but cannot recommend specific stocks. And in addition to investment advice, many can help with tax planning, estate planning, etc. Because they only make money when you hire them for specific advice, there is motivation for the advisor to give the best advice they can to keep you happy and coming back throughout your life as your goals / needs change. Then you still take things into your own hands and manage them yourself without wasting all that money on management fees.

This is the approach I am currently using. I most recently met with my advisor before I started medical school to help me come up with plan for saving to pay for school, and then for how to manage borrowing, spending, investments, taxes, etc., while in school. It cost me a bit up front, but I am very happy with the guidance I received and I recouped my costs pretty quickly thanks to it.

 

They are harder to find - less profitable and the industry hasn't embraced them as a result. I will stress it isn't just that they are cheaper - unbiased advise is just superior.

I know it is some work and money isn't something a lot of people having training in. Still I would say it is simply a necessary skill to learn if you want to get the most out of your career etc. Having the finances locked down lets you focus on the more important stuff

[Dr. Networth]

On 1/1/2018 at 5:26 PM, rmorelan said:

They are harder to find - less profitable and the industry hasn't embraced them as a result. I will stress it isn't just that they are cheaper - unbiased advise is just superior.

I know it is some work and money isn't something a lot of people having training in. Still I would say it is simply a necessary skill to learn if you want to get the most out of your career etc. Having the finances locked down lets you focus on the more important stuff

Agree with rmorelan.   I always recommend medical students, residents and physicians to manage their own finances.  It may seem intimidating at first, but once you start learning about personal finances (saving money), building a broadly diversified with low-cost ETFs and following the plan through with discipline, then you will be better than 90% of the investors out there.   If anyone is interested in learning about passive index investing, then please check out my post about how I got into passive index investing over at www.drnetworth.com.

DN