Choosing a financial advisor who’s right for you

Managing your finances properly requires lots of time and energy. Many physicians have very little of those commodities. They work demanding hours and already have limited time to spend with family and friends or do the hobbies they enjoy. As a result, little time remains to devote to researching and implementing a wealth building strategy effectively. A recent study found that the average physician will work approximately 111,000 hours during their career but will devote less than 10 hours planning for the financial lifestyle they want and how to reach their goals.[1] If you can’t carve out the time to commit to getting your financial house in order, it may be a good idea to hire someone to help. However, finding a financial advisor you trust and who fits your budget can be challenging.

Identifying your needs is a good place to start. Are you simply looking for investment advice or do you want help creating a full financial plan? Do you need estate or tax planning guidance? Do you need assistance finding ways to repay debt or create charitable entities? Your needs will likely determine which type of advisor is right for you.

A robo-advisor or an online financial planning service may be an attractive and inexpensive option if you are just looking for help with investing. They should be able to assist with choosing an investment strategy and particular funds that fit your rate of return objectives and risk tolerance. However, this is often the extent of the help they offer.

If you are instead looking for assistance with more comprehensive financial planning, your situation is more complicated, or you want to develop a more personal advisory relationship, you may want to consider a more traditional advisor. These advisors offer specialized services and can help create a comprehensive plan focused on the areas of retirement planning, risk management, education planning, asset protection, and charitable gifting. Some may offer estate planning assistance or tax preparation services as well. These advisors may require a minimum portfolio balance be invested through them and tend to cost more than the other services.

A good next step is determining how much you would like to pay. Some advisors may charge a flat fee, an hourly rate, or a retainer, but most charge a percentage based on assets under management. Robo and online services often charge between 0.25% and 0.90% compared to a traditional advisor whose median fee is about 1.00%[2][3] but can be higher or lower depending on account size. Identifying the fee arrangement you prefer and the services you require should help you significantly narrow your search.

Additionally, it is important to vet the potential advisor’s background and credentials. The term “financial advisor” is widely used across the financial planning industry and isn’t tied to specific credentials. Researching what your advisor can and cannot legally assist you with is important. You will also want to check if they have had any disciplinary problems such as fraud. You can typically find this information by requesting the advisor’s Form ADV or looking up disciplinary actions on FINRA’s website: https://brokercheck.finra.org/.

Whether the advisor is a fiduciary is another important consideration. Fiduciaries are required to act in their client’s best interest rather than their own. There is a high probability that, if an advisor charges a fee based on assets under management, they are also a fiduciary. They may not be a fiduciary if they receive a commission from a third party for selling a product. It is possible the advisor is “fee-based.” This means they are a combination of both. These advisors may help their clients obtain life, disability, and long-term care insurance, or other products not available in advisory accounts, and they receive a commission from an insurance company or third-party. They may then charge a fee for the investment assets they manage and the financial services they provide.

How might you find an advisor you trust? Start by asking family and friends. If they work with someone and have enjoyed the experience, you may enjoy working with their advisor as well. It is always important to do your due diligence, but this may be a nice shortcut to find someone with whom you want to develop a long-term working relationship. If you don’t have any luck with family and friends, ask some of the professionals you work with such as attorneys or CPAs. They may have a good referral. Attending financial planning events, lectures, and seminars may also be a good place to find an advisor and get the added benefit of seeing them in action. Finally, there’s the internet. Choosing someone based off online reviews or online forums can be tricky, so be sure to conduct in-depth reviews and background checks before making a decision.

[1] 2014 work/life profiles of today's U.S. physician. [Jun;2018 ];http://www.amainsure.com/intro-to-work-life-profiles-of-todays-us-physician.html Physicians. April. 2018 2:2018.

[2] Miller, M. (2020, November 3). Robo-advisor fee comparison. ValuePenguin. Retrieved June 21, 2022, from https://www.valuepenguin.com/comparing-fees-robo-advisors

[3] Kitces, M. (2019, February 1). Average aum fee schedule steady as advisor profits decline. Nerd's Eye View | Kitces.com. Retrieved June 21, 2022, from https://www.kitces.com/blog/average-aum-fee-schedule-for-financial-advisors-holds-steady-as-growth-and-profits-fall-in-2015-fa-insight-benchmarking-study/

Jeff Witz, CFP® welcome readers’ questions.He can be reached at 800-883-8555 or witz@mediqus.com.