Picking the right financial adviser

Working with a financial adviser who knows the specific requirements of the profession is critical for doctors and their practices. It’s a safe bet that a physician has a good salary, but because of income compression, tax reduction demands and asset preservation concerns, doctors have issues that many other professions don’t have.

That’s why it’s important that when choosing a financial adviser to look for one who has experience dealing with doctors and perhaps even specializes in the health care field.

“Doctors should look for someone who truly understands a physician’s life, loans and constraints,” says Brynna Connor, M.D., owner of a family practice in Austin, Texas, and health care ambassador at NorthWestPharmacy.com. “We have specific needs that many other professions don’t, and our financial advisers should be well versed in how to best serve those needs.”

She notes that because most doctors don’t take business courses in medical school or have a strong business background, having a financial adviser is important to make the best use of one’s income for retirement purposes.

Making the right choice

In health care finance circles, you often hear the expression “no margin, no mission.”

“In the context of medical practices, this means that after all nonphysician staff, supply, space and other expenses are paid, a practice needs to generate enough revenue to support any employed physicians and physician owners, otherwise the practice won’t exist for long,” says Stu Schaff, founder and principal of Intentionate Healthcare Advisors, a health care consulting firm that works with medical practices.

He adds that because most physicians don’t have much formal business education and they typically prefer to focus on the health of their patients, it makes sense for them to seek out an adviser who will help them achieve their goals and find the most sustainable way to practice.

“The two keys to success are communication and trust,” Schaff says. “It’s critical that the physician is open and honest about their goals, so the consultant can tailor their advice accordingly.”

Andrew Rosen, a financial planner and president of Diversified LLC in Wilmington, Delaware, notes it’s imperative to understand the client-adviser relationship and realize it’s just as important as a doctor-patient relationship.

“You need to be able to trust your adviser, know that they’ll get back to you in a timely manner and feel that they understand your goals, lifestyle and wishes,” he says. “You want your relationship with a financial adviser to be a long partnership, so a clear understanding of how often you’re going to meet, how often they communicate and what individuals (CPA, attorney, etc.) might be on their team is important before you get started.”

Also, just as doctors each have a different bedside manner, advisers do too, so they need to find one that fits well with their personality.

“If you’re concerned about market volatility, find an adviser who addresses your concerns and questions instead of brushing them off,” Rosen says. “It’s important that your adviser listens to your specific needs and questions to create a financial plan that works for your life and your risk tolerance.”

Warren Ward, founder and certified financial planner at WWA Planning & Investments in Columbus, Indiana, advises physicians to start seeking an adviser through referrals, as it’s easy to be misled in an online search for an appropriately credentialed expert.

For example, the term “board certified” has a clear and consistent meaning among physicians. In the world of investment advice, however, there are more than 200 designations, several starting with the words “board certified,” but their meaning is entirely different, he notes.

“One of the most important qualifiers is registered investment advisor (RIA). They are held to a fiduciary duty of care, meaning the person or firm is required by law to work in their clients’ best interests,” Ward says. “Those without an RIA classification are permitted to only provide advice incidental to their primary business of selling insurance and/or investments. And when it comes to investments, they are only required to recommend those that are not unsuitable in the situation.”

Once a few names are gathered, physicians should do their due diligence on each. Just as a doctor isn’t able to treat every patient, not every adviser will be helpful for every situation.

Some questions to ask include, “In whose best interests does your firm work?” “How are fees calculated and charged?” “How long has the adviser been in the industry?” “Would I be working with a person or a team?” and “Will the adviser sign a fiduciary oath?”

“Physicians, who are themselves held to the highest possible standard in the practice of medicine, can readily grasp how using a nonfiduciary financial adviser might pose a danger to their own financial health,” Ward says. “Doing the research to make an informed choice is the best preventive medicine.”

Kevan Melchiorre, co-founder and managing partner of Tenet Wealth Partners in Champaign, Illinois, specializes in financial planning and management for physicians. In addition to needing an experienced fiduciary, he suggests finding an adviser who has recognized and well-respected credentials in financial planning and/or investment management, citing the designations of CFA, CFP and CMP.

“Beyond illustrating the adviser’s subject-matter knowledge and expertise, all of these designations have their own code of ethics and fiduciary duty in order to continue using the designation,” he says. “You should also seek out a technical expert, not just from an investment perspective but also in financial planning, particularly if they understand the complexities around tax, insurance, investments, retirement, estate planning, as well as philanthropic planning.”

Red flags

A good marriage between adviser and physician starts with communication. The adviser must know the physician’s goals and the physician must trust the adviser.

However, not every financial adviser is right for every physician. A bad match might be someone who does not consider the specific goals the physician has in mind, such as leaving clinical work at some point, starting a private practice, retiring early or other things related to the field.

“I have changed my advisers over the years as I needed someone more in tune with my goals,” Connor says. “I would advise all people never to hesitate to find a new financial adviser if they aren’t entirely confident that they truly understand your goals and have relevant experience to help you reach them.”

Although adviser value is often defined by investment returns, often the most significant long-term value can be added through proper planning techniques.

“Physicians will also want to look for an adviser who is transparent, both in potential conflicts of interest as well as how they charge for their services,” Melchiorre says. “The commission-based brokerage model is becoming a thing of the past, so you should try to find an adviser who is fee based or fee only. These advisers generally charge a percentage of assets under management and/or a financial planning fee but do not charge commissions on transactions.”

At the end of the day, a physician should always know exactly what they are paying, how they are paying and what value they are getting in return for the cost.