By Dr. James M. Dahle, WCI Founder
I spend a lot of time interacting with financial advisors, helping readers find advisors, addressing issues with their advisors, and evaluating advisors for inclusion on my financial advisor recommended list. While I think there are plenty of decent people out there providing advice—and even a few competent, ethical, low-cost advisors (even if they're the tiny minority of their profession)—I am left with the gnawing feeling that it's so much easier to just learn how to invest your money yourself. In that spirit, here are eight reasons to be your own financial advisor.
#1 Being Your Own Financial Advisor Will Save You a Lot of Money
Financial advice, even low-cost financial advice, is expensive stuff. It has gotten to the point where I think that if you're only paying four figures a year, you're getting a good deal. But even just $10,000 per year invested for 30 years at 8% grows to be $1.2 million dollars. Most Americans and many doctors retire on less than that. And there are plenty of docs out there paying MORE than $10,000 a year in total investment costs.
Consider an advisor charging just 1% who is putting you into mutual funds with an average expense ratio of 1%. If you have a $2 million portfolio, you're paying $40,000 a year! And that's not counting any commissions, 401(k) fees, etc. That kind of money really adds up. The less you spend on advice, the more you get to keep. That means you can save less now, spend more later, take less risk over the years, and/or retire sooner. It really does make a difference.
Some investors may worry that they won't do as good a job as a professional advisor. That's a realistic concern for many high-income professionals. But bear in mind that you don't have to do better than the advisor. You don't even have to do as well as the advisor. You only have to do as well as the advisor minus the cost of their advice, and that's an easier benchmark to beat. In my experience, it is rare for a very early retiree to use a traditional financial advisor. Those retirees might not know everything, but they know enough—and they coupled it with a very high savings rate partially enabled by saving advisory fees.
#2 You Won't Rip Yourself Off on Purpose
Competent advisors are sometimes appalled when I share stories with them that readers have shared with me. They had no idea how many self-styled “advisors” are either crooked or completely incompetent. You're not going to go “Bernie Madoff” on your own portfolio, nor are you going to purposely sell yourself a crappy mutual fund or whole life insurance policy to make a commission. Might you make some mistakes? Sure. But they'll be innocent ones, and those usually have much lower consequences than using someone who's doing everything they can to transfer wealth from your account to theirs.
My 6-year-old “hanging 10” at Lake Powell
#3 You Don't Have to Learn How to Recognize a Good Advisor
I've said many times that by the time you know how to recognize a good advisor, you probably know enough to be your own financial advisor. It's a bit like finding a good doc if you don't know anything about medicine. Asking your physician friends for a referral to an advisor is like asking your carpenter friends for a referral to a doctor. Sure, they might know about their bedside manner, but they have no idea of their clinical competence.
There isn't that much to learn or that much discipline required to be your own financial advisor and investment manager. Heck, I drew up my own plan as a busy resident after reading a few books and monkeying around on the internet a bit, and I am still basically following that same plan today. It made me a millionaire seven years after residency. It clearly works. I had less than one-tenth the knowledge I have now when I drew it up. But you don't have to know anything about advisor compensation models, advisor credentials, or how to look up an advisor on the regulatory websites if you just do it yourself.
#4 You Don't Have to Spend Time Looking for an Advisor, Evaluating Your Advisor, and Finding a New Advisor
The most valuable commodity for a high-income professional is time. That high earner can generally trade their time for money at a very high rate, and they place a very high value on the limited free time they have. The last thing they want to do is spend that time looking for an advisor.
It can be really tough to find a competent, ethical, and low-cost advisor, much less someone you feel is a good fit. To make matters worse, you're not even done once you find one. If you're even appropriately suspicious, you should then have this constant worry in the back of your mind (at least for the first few years) that the advisor is taking advantage of you or doesn't know what they're doing. You're always evaluating the advice, maybe getting second opinions from other advisors or internet forums, and then possibly even starting the process over. And that advisor is going to retire eventually. If you were smart and hired someone experienced the first time, you're almost surely going to have to replace them once—if not twice—when they retire. You only have to learn to be your own advisor once.
#5 You Don't Have to Spend Time Meeting with an Advisor
I drove downtown for a meeting a few years ago. The meeting ran an hour and a half. Between driving through traffic, parking, walking around the building, and the meeting itself, I left home at 3:15 pm and returned at 6:45. That's basically half a day for a single meeting, and I had to plan my entire day around it. And that assumes you and your advisor are in the same town. If I want to meet with my advisor or see how my investments are doing, all I have to do is flip open my computer. I can use that saved time to earn more money—or at least go for a nice mountain bike ride.
#6 You Only Have to Learn the Stuff That Actually Applies to Your Life
Advisors hoping to sell you their services rightly point out that there are plenty of complexities in personal finance and investment management—IBR vs. REPAYE, PSLF vs. refinancing, 401(k) vs. a defined benefit plan, Backdoor Roth IRAs, the tax code, mortgages, active vs. passive investing, options, muni bond yields, revocable trusts, etc. etc. etc. It can seem so overwhelming. Until you realize you don't have to know it all to be your own advisor. You only have to know the stuff that applies to you.
Once your student loans are gone, you no longer have to know a thing about managing them. Same with a mortgage. Once you buy your dream home and pay off the mortgage, who cares what's available out there. Same with claiming Social Security. You don't have to know that before your 60s and only have to make the decision once. You don't have to keep up to date with every change that comes out for 50 years.
The tax code is complicated, but 95% of it doesn't apply to you. And the part that does is almost exactly the same part that applied last year. If you've decided to invest in index funds, you don't have to know a single thing about trading individual stocks, options, actively managed funds, and flash crashes. It just doesn't matter. You don't have to know about every retirement plan or every mutual fund out there. You just have to know about your 401(k) and the funds in it. You only have to buy life and disability insurance once.
You can get specialized advice as needed. Advice is available from student loan experts, insurance agents, mortgage agents, accountants, and attorneys—all on an hourly or flat rate basis. You can even meet with financial advisors on an hourly or flat rate basis for specialized questions or just to get a second opinion on your plan.
With personal finance and investing, the law of diminishing returns kicks in surprisingly early. Save a significant part of your salary. Invest it in a reasonable manner. Pay attention to costs and taxes. Stay the course. It's not that hard. Get the big things right and you can ignore a lot of small things.
#7 You Don't Have to Prevent Investment Misbehavior
Advisors (and studies) point out that the greatest benefit of having an advisor is to keep you from doing something stupid. While I agree it is far more likely that the individual investor will do something stupid, advisors aren't immune from performance chasing, market timing, and bailing out of a good plan in a terrible market. Especially if they are paid on an AUM basis. They see their income going down right along with your assets, and it can cause them to panic. When you are your own advisor, you only have to control one person's emotions.
#8 You'll Pay More Attention to Your Financial Life
But the greatest benefit of being your own advisor is that you cannot mentally put the responsibility for your financial salvation on someone else. The buck stops with you. Knowing that should cause you to pay more attention to your spending, your investing, your insurance, your estate planning, and your asset protection. You know you need to do some “Continuing Financial Education” each year because no one else is doing it for you. I'm confident that those who spend more time thinking about saving money, investing well, and becoming financially independent are far more likely to actually do it than those who only think about these subjects twice a year. You might have to be a bit of a hobbyist to be a successful DIY investor, but there is no better-paying hobby out there.
Set Yourself Up for Success as a DIY Financial Advisor
Your first step should be establishing a written investing plan. If you'd like help building one, I designed an online course, provocatively entitled Fire Your Financial Advisor.
All that said, I'm well aware that most docs (80%?) are going to be better off connecting with a competent, ethical, low-fee advisor. But for most of them, that isn't because they cannot become their own advisor. It is because they choose not to. For those people wanting or needing a good advisor, I keep a list of recommended advisors. For the rest of us, go look in the mirror and get to work.
Need to get your own financial plan in place? Buy Fire Your Financial Advisor! It's a step-by-step guide to creating your own financial plan. Try it risk-free today!
What do you think? Are you a do-it-yourself investor? Why or why not? Have you ever used an advisor? Good experience or bad? Did you choose to fire them? Did you do it yourself in the past and now use an advisor? Why the change? Comment below!
[This updated post was originally published in 2016.]
I’ll stop the comments after this one more. Focusing on the cost of investing is reasonable, but not the reason to pick a planner. As in my first comment, a good diversified portfolio is readily available at ultra low costs. If you are paying a stockbroker or advisor to just run money, you are perhaps paying too much.
But the value of avoiding overpriced asset classes (tech stocks in the late 90’s, perhaps long term bonds now) and not selling out of panic (2008-9, etc) can be worth millions of dollars.
Other extremely valuable factors to consider in using a Fiduciary fee only planner:
Avoiding liability you don’t need to face-potentially millions
Avoiding investments that are unlikely to succeed (again potentially millions of dollars over a lifetime)
There’s much more. Each family is different, but many medical families derive benefits far beyond the cost of planning.
I have one small point of disagreement with Steven Podnos MD CFP. “Each family is different, but many medical families derive benefits far beyond the cost of planning.” What you described is all part of true financial planning. The discussion on this thread centers on portfolios, not planning. Many of the above comments would not be posted if there were more understanding about the planning process.
imho.
It seems like there is a lot of people missing the point in this discussion. Anyone capable of being a good physician can master the basics of managing a retirement portfolio without much effort, even if it is boring to that individual and not something in which they take great interest. In fact, the more boring they find it the better, because I would imagine that person is less likely to meddle around with their investments once on the right track if they don’t like the topic.
Everyone keeps pointing to how most physicians have not bothered to learn the basics as proof of how they all need advisors. While it’s rightfully pointed out that medicine can be an all-consuming career, most physicians actually do have a life outside of medicine. They have hobbies, they read books, they have kids, etc. It’s not a lack of time that prevents most physicians from learning this material and applying it (yes there are some who don’t have time for anything else but that’s not the majority). Even a lack of interest is a terrible excuse to say we need advisors — I have learned a LOT of boring things in my medical training (I’ve probably also fallen asleep in lectures at every stage of my medical career but that’s not the point).
But look around — it isn’t just doctor’s as a profession who do a bad job managing their money. It’s most of the people that live in this country. The difference is we have a lot more money to throw around and as such we are bigger targets.
The issue is not the lack of financial education in medical training. It’s the lack of financial education in this country in general. It’s that it’s been hard for ANYONE to learn this material because easy-to-read primers and easy online tutorials and advisors are something that are only recently available. Online trading has been around for 20+ years to the average consumer, but teaching the average consumer how to manage their investment money is not something that was easily done in the past. People were given the tools to trade without the knowledge. It was also something that prior generations didn’t worry as much about because of pensions, promise of social security, etc. The shift in how we retire happened faster than the shift in educating consumers about how to retire. Rules like what the Obama administration is putting in place (to make more advisors act as fiduciaries for retirement accounts) will help some of this.
However for medicine specifically we absolutely CAN teach people the basics of portfolio management during training and get people comfortable applying it. It’s particularly galling when you see how much money the AUM fees cost and how little they provide in return. Yes, if an advisor keeps someone from selling at the wrong time they can make that money back for the client. However even services like Betterment and Wealthfront are starting to do things like that without charging 1.75%.
Once someone learns the basics of investing, the utility of a financial advisor is diminished but not eliminated. I do think there is a role for financial advisors in estate planning and many other areas, however they make their $ from AUM/investment management fees. There’s a reason they charge so much for something that requires so little knowledge or effort — the people that hand them their money are scared, and advisors use that to their advantage.
I don’t mean that in an evil way, but physicians are worried they are going to f*** up their portfolio so gladly pay large sums of money to someone else to prevent them from making a mistake. Once people learn that just doing NOTHING most of the time is a winning formula, they stop wanting to spend the money on an advisor. I can tell you first hand that in talking to plenty of trainees the lightbulb goes off when they realize how easy it is and how much money it costs them over time to use an advisor for investment management.
While I manage my own portfolio, I still need plenty of advice on other things. In the past I would’ve paid (and did pay) for an advisor to help with those things, however more and more of this can be found for free online or I can pay someone to help with one specific thing and save time and money. Advisors aren’t going anywhere and there is a huge role for them to help in many areas, however we’ve reached a point where only the 1% of people with very high net worths and very little down time need an advisor/firm to manage the money itself. For everyone else (the 99%) the utility of an advisor is in other areas.
I think physicians need to stop making excuses for our profession being easy targets, and advisors need to stop the scare tactics. WCI has said it over and over — finding a good, low cost, financial advisor that you can trust and will be able to use for 30+ years is hard. It’s easier and more profitable to just learn to do it yourself.
Nice comment. I have personally found that in estate planning a knowledgable attorney is easier to find and more useful than a financial advisor. Their services are more likely to be fee based. I have also found it easier to find one who doesn’t talk down to me simply by the fact that I am a female.
Yes! Physicians can learn to DIY, they should learn to DIY, and anything that can be done to convince them of that is a good thing. Having said that, the reality is that most physicians will not DIY. Should they decide to hire an advisor, the advisor will likely do a satisfactory job that is at least equal to DIY. So the only real drawback to hiring an advisor is fees paid. Physicians using advisors should take a stand against exorbitant %AUM fees, and all is well.
Listen to WCI, it doesn’t take much skill and intelligence to be your own financial advisor, just the will and desire. It’s your money, why trust it someone else? I can’t tell you how many times someone has given me a stock tip, but upon my own research found it to be bad advise. The themes on this blog are on point. Live below your means, save 30-50%, have a diversified portfolio and investment strategy (real estate, index funds etc.) and don’t panic. Stop when you’ve won the game. Most of us love our work, but at some point will retire. Being on your own schedule without that sense of urgency to keep to a appointment schedule is the best feeling imaginable. While working, my blood pressure was clinically acceptable at 125/75, but post work it’s now 100/60. Listen to WCI and you’ll be on the road to early retirement. You’ll have time for the family, the gym, sports, mediation, yoga, travel, hobbies, philanthropy, etc.
By the way, let’s just get this out there as well – how good is the guidance in all these DIY books? The best ones, IMO, are from Bill Bernstein – The Intelligent Asset Allocator (which everyone complained was too complex for DIYers) and the watered down The Four Pillars of Investing (that he had to write cause no one could get through TIAA).
In TFPI, he’s basically trying to produce Vanguard allocations that match the DFA Balanced Strategies (that he mentions in The Intelligent Asset Allocator). How’d he do? The link below shows you the returns since 1999 (first full year of data) on the 60/40 Vanguard Sheltered Sam compared to the 60/40 DFA Normal Balanced Strategy. The difference in returns? +1% per year to the DFA allocation (see here:https://www.portfoliovisualizer.com/backtest-portfolio#analysisResults)
So let’s do the math, a simplified version of the Vanguard Advisor Alpha piece:
WHAT YOU GET
+1% to +2% because you’re more likely to have a growth-oriented stock/bond mix (as opposed to age in bonds) which has less longevity risk and greater wealth-transfer opportunity
+1% for implementing it using better asset class funds (see example above, add another 1% if you’re just comparing to total market index funds)
+1% to +2% for stay-the-course discipline
WHAT YOU PAY
0.5% to 1.0% per year.
For the average person (voracious reader of investment books or prolific internet forum contributor or not) – they’re likely to see 3% to 5% per year benefit over time and pay 0.5% to 1.0% per year, for a net of 2% to 4.5% per year.
But let’s say all of these estimates are wildly off, and the benefit is only 1% per year over time, so net of fees you come out in the same place. You (a) spend less time worrying about this stuff, and you’ll KNOW it’s being done right (b) have someone to stand if something happens to your family and your finances won’t be interrupted, (c) you’ll have someone training your children to carry the torch and keep them from making the mistakes you did (everyone does).
There’s literally no way this doesn’t make sense for almost all investors. But sadly, like many things in life, we wouldn’t know a good thing if it hit us in the face.
Those are wildly optimistic estimates.
I don’t buy that an advisor provides 1-2% of value a year by talking you into a more aggressive asset allocation. Maybe there’s someone that gets that much benefit out of that service, but that seems easy enough to do myself.
I don’t buy that DFA over the equivalent Vanguard fund will give you 1% a year. I say this as one who has looked at it seriously and who owns both DFA and Vanguard funds. My ongoing DFA vs Vanguard experiment in my 529s (Vanguard SV vs DFA SV) still has Vanguard in the lead. Yes, there’s probably some small benefit there in the very long term, but I don’t think it is even enough to pay for a 1% fee.
1-2% for stay the course discipline. Again, someone probably benefits from that. And that someone ought to hire an advisor. But I sure as heck am not going to get a tenth of that much benefit out of an advisor.
Then these reasons at the end:
1) Spend less time worrying – not the case for me. Now I have to worry about that guy screwing up or stealing my money or that I haven’t hired the right guy etc
2) Have someone already hired if something happens- Is it really that much better to be paying someone 1% a year than to have a simple written direction in your “death papers” that says “If I keel over, call Eric and have him manage the money”?
3) My kids aren’t going to learn from my advisor. They’re going to learn from me and my example. Advisors aren’t going to start meeting with your kids just to educate them for hours on end for no additional fees. Give me a break. Advisors do too little education as it is because if they’re not careful they’ll educate themselves right out of a job.
“if they’re not careful they’ll educate themselves right out of a job.”
I love it! I spend too much time “educating” my patients on certain health issues, but they still keep coming back, asking why their bodies don’t work the way they did when they were 30 now that they are 80! I’m waiting for the day that I’ll educate myself out of a job, but I think the insurances will put me out of business first.
” So let’s do the math, a simplified version of the Vanguard Advisor Alpha piece:”
To be clear, here is what the Vanguard Advisor Alpha piece actually says (you can see a summary on my blog):
1. Asset allocation = 0 — you claim it adds 1-2%;
2. Better asset class funds = 0 — you claim it adds 1or 2%
3. Stay-the -course discipline (Vanguard calls it behavioral coaching) =1.5% — you claim 1-2%
Just got an email about these guys: https://www.learnvest.com/personal-financial-planning-program/
They’re kind of a mix of roboadvisor and live phone CFP advisor kind of like Vanguard’s 0.3% offering. But here’s the rub- the charge is $299 initially plus $19 a month ($228 a year.) I don’t know if they can stay open and profitable at that price, nor do I know just how good the advice is, but the entrance of this sort of thing on the market should be making the classic 1% of AUM priced advisor quiver in his boots. People will start wondering just why their advisor thinks he’s worth 100 times what these guys are.
Sorry, but my daughter (also a CFP) worked there until late last year. It was bought outright by Northwestern Mutual Life Insurance company https://www.investmentnews.com/article/20150325/FREE/150329948/northwestern-mutual-purchases-learnvest
My daughter left, seeing the writing on the wall. Sure enough, she is now told that the initial solution to every plan Learnvest “generates” is a whole life insurance policy.
There is no free lunch and this is sly and underhanded. Your quest to get quality fiduciary advice for almost free will be disappointing.
Sucks to hear that. I’ve been very unimpressed with NML over the years. I’m very disappointed to hear they own these guys.
Are the whole life policies that LearnVest push optimally designed policies with maximum PUAs? Just curious.
I think that any reasonably intelligent individual can spend a few hours reading any Bogleheadish book and grasp all the important concepts which I roughly define as: live within your means, save enough, pick a reasonable AA, use tax-advantaged accounts, keep fees low, and stay the course.)
It seems to me that the issue is really around staying the course (behavioral). Even if I had a financial advisor in 2008, but had the predisposition to panic, wouldn’t I just have fired the advisor and sold anyway?
We started working with an advisor prior to finding your site. At that time, we just started attending-ships and started a simple portfolio of index funds. When we joined the advisor firm, we had to sell much of that and pay the tax consequences, which I’m still not particular happy about and don’t think the difference in portfolio truly makes up the transaction cost. Now several years out, we are considering when to leave the advisor and do it our own, for all the reasons listed in this post.
Two questions stand out:
1) Do we get to keep the taxable DFA accounts started with our advisor (even if we cannot add further money into it) or are forced to sell it (and again take the tax/transaction hit)?
2) Was considering putting taxable money into a roboinvestor like Betterment afterwards, as I did not want to do the re-balancing, tax-loss harvesting etc myself. We have all the tax advantaged accounts (401, 457, backdoor IRA etc) and the advisor suggests that staying with the firm allows us to properly asset allocate with consideration of all of these accounts. rather than just in the taxable. Assuming we have reasonable asset allocation individually in the other account, how much difference in return would that really be? I’m doubtful it would be more than the 1% AUM.
Thanks for any input anyone provides!
MFH,
1) I’m not familiar with DFA, but I’ve done the same with a taxable account, housed at Schwab after I fired my FA. I remodeled the AA to my sensibilities. Remember, there is no such thing as a perfect AA ( unless you can predict the future markets). What works is to chose a reasonable AA and STICK WITH IT.
2) The robos are fabulous. They teach a model as you use it.
3) I think AA across accounts is overrated. Each account must be internally workable. You can NOT rebalance across taxable and nontaxable accounts anyway. Each must have a plan for readiness for withdrawal, rebalancing, and the taxables must be TLH. A current debate is whether bonds are no longer tax efficient, and if not, should they be in taxable or tax-protected.?
3) Sure you can. Why couldn’t you? Just do any selling you have to do in the tax protected account. More on bonds in taxable here:
https://www.whitecoatinvestor.com/asset-location-bonds-go-in-taxable/
You can use personal capital website to track your big portfolio
1) Typically yes but you can’t add new money to it.
2) Probably less than 1% but it isn’t zero. I think it best to maintain all assets aimed at one goal as one big account.
……….whether (low yielding) bonds are no longer tax Inefficient………..
i.e. bonds now as efficient as 2% yielding stocks.
l. choose AA model
2. USE modern portfolio theory to create portfolio
3. Rebalance portfolio
1 & 3 take NO BRAINS
JUST LEARN #2 and put your investing life on AUTO PILOT
I will add my two cents. I enjoy personal finance and investing but many people do not. These people have no idea what you are talking about when you mention asset allocation or modern portfolio theory.
I have been investing since 1989. I used a broker for many years. I really think this was the only way I knew of to invest when I started. The cost of investing and the wealth of info available online now is simply astounding.
1. You will make mistakes. We all do. You can make them and still wind up ok.
2. Tax laws and investment products change. Try to keep up with this. This blog will help you.
3. Just save the money. Even if you invest it unwisely at first you can correct it later. If you spend it, it is gone.
4. Ignore your friends who tell you about the killing they made in triple negative reverse mortgage etfs or some other ridiculously complex product.
5. Try to find a friend or work mate who thinks about money like you do! This may be hard. You may have to find a poster on this site and read their comments along with WCI. Good Luck!
my 2 cents:
personal finance and investing for retirement is actually quite simple for someone who graduated medical school. Anyone who tries to tell you otherwise is either lazy and hasn’t tried to learn (and therefore deserves to pay AUM fees), or biased and has a vested interest in selling you a financial “product.”
Thanks to WCI for making practical personal finance advice free and simple.
if you do not know what asset allocation means, start reading
modern portfolio theory is just a way of saying to own a diversified portfolio of index funds across all the asset classes or most
The suggestion that anyone who doesn’t DIY is lazy or deserves to pay exorbitant fees is a false dichotomy. If someone has a running toilet they can go to you tube and learn to DIY a seal replacement, or they can hire a plumber. I wouldn’t call the guy who hires a plumber lazy and deserving of paying exorbitant fees. He simply decides that the fee is acceptable and better than the hassle of DIY. Unfortunately when it comes to DIY financial planning, we often have the equivalent of fixing your own toilet or doling out $2000 to fix the seal (a half hour job).
My recommendation for all those doctors using or considering using a financial advisor (WCI suggests this is the majority) is to tell their FA or prospective FA that they are unwilling to pay anything but hourly-based fully transparent fees rather than % of AUM. Initially this approach might be limited to those doctors who are not close to or at retirement, when DIY is much simpler. Such doctors must be fully prepared to undertake simplistic DIY in the event the FA refuses. Many of the above comments describe how easy this is, and they are right, particularly in the accumulation years. Folks, the problem is the % AUM fee. You people are in an ideal position to start a movement for change to reasonable hourly based fees.
WCI, I know that you have posted one (or many) articles on how you came up with your own personal financial plan as a resident and have posted a version of the plan. Can you give a link to that article, I would love to take a look at it again. I am early in my career and have only met with one potential FA, each time I see him the only thing he wants to talk about is a whole life policy. Needless to say at this point I am leaning towards DIY.
https://www.whitecoatinvestor.com/evolution-of-the-white-coat-investors-portfolio/
https://www.whitecoatinvestor.com/qa-on-my-portfolio/
https://www.whitecoatinvestor.com/how-to-write-an-investing-personal-statement/
Hope these will help.
Thanks, the third link was what I was looking for, the Investing Personal Statement. I am going to try and put one together. Thanks again.
That doesn’t sound like an advisor. It sounds like an insurance agent.
I managed to make it all the way through the comments and while I may not have anything valuable to add I do have a few questions:
It seems the conversations keeps boiling down to portfolio management. I’m about 3 years out of residency. I feel like I live within my means, I’m saving at a good clip, I max my 401k and IRAs for me and spouse and then have some money left to save. I’m comfortable with a moderate to high risk target fund or package of index funds and I don’t worry much about getting advice from an FA or broker or agent when it comes to AA. So what everyone seems to agree on is that anyone can manage their portfolio, but my needs for financial planning go beyond that. My perceived need is more about tax efficiency, other useful savings/investment vehicles, structuring business ownership, understanding how to pace my spending, knowing how much I need for retirement. This is where I feel like I need a long term financial plan and so far the online help I’ve found hasn’t been as comprehensive as I would like.
David, you pretty much nailed it.
I agree the bang for your buck is in the financial planning, not the investment management. But what most advisors, even fee-only advisors, want to do is manage assets. That’s how they make the most money for the least effort. Tricky thing isn’t it?
So are there ANY fee only advisors you recommend WCI for financial planning and not investment management?
Recommended firms are listed here:
https://www.whitecoatinvestor.com/financial-advisors/
It’s not clear to me what you’re asking. Are you looking for a firm that will do financial planning with you for a fee? Or are you looking for a firm I would recommend for financial planning but would not recommend for investment management?
I’d recommend Allan Roth. He’s definately one of the good guys.
https://www.forbes.com/sites/baldwin/2016/04/20/save-52000-on-financial-advice/?utm_source=followingweekly&utm_medium=email&utm_campaign=20160425#1adea7d5a41b
Allan’s a great guy. Unfortunately, he’s a very well-known great guy. So he’s pretty swamped. And he charges like it- $500 an hour. He has no need or desire to advertise either with all the free advertising he gets from folks like Grant, his books, and his many articles. The problem is he can’t service a large number of WCI readers due to simple capacity issues. So I can’t just tell everyone “Go see Allan!” If I did that, he’d be charging $900 an hour next year and at a certain point, you can get just as good of advice at $200-250 an hour as at $500 an hour.
I agree. My comment was a little bit tongue in cheek. It was such a good article about him!
Yeah, everyone should read that article. Allan charges $450/hr, but I’m sure he would agree that there are many competent advisors who charge half that. So for all of you who would like the assistance of a financial advisor, and who are in the accumulation phase of your careers, how about it? If each of you would insist on hourly based fees, or be prepared to DIY if the advisor refuses (this blog should have convinced you that you can DIY), it might well go a long way to starting a movement from the ubiquitous exorbitant percentage of AUM fees to reasonable hourly based fees.
I really enjoyed the article and it makes so much sense, especially the idea that you only need to focus on what applies to you. I am a single, 62 year old woman who plans to retire in a couple of years (not a doctor…a former CPA now working in technology). BTW, having been a CPA did not ensure I was intelligent about investments, and I’ve learned most of it from reading blogs online. I wish I had learned much earlier, but like many people I didn’t think about my investments much until after 50 when I began realizing how close retirement was getting! Anyway, there is nothing complicated about my needs really, other than the uncertainty about lifespan, future expense, etc. that everyone has. I truly believe that the reasons investors panic and sell at the wrong time has more to do with education than emotions…if they really understood things, it would be obvious that selling at a low point in the market is not the thing to do! Therefore I don’t think it takes an iron will to stay the course if you have an appropriate asset allocation and understand the basics. I enjoy learning about these things so for me it is a no-brainer to DIY. I used a robo advisor for awhile, but even that level of fees seemed way too much for what I got. I also think DIY is so easy that almost anyone would benefit with a minimal amount of effort (less than finding the advisor as WCI says) during the accumulation phase. I think some professional advice near & during early retirement may be valuable to some people though…determining the optimal time to take social security, as well as planning withdrawals in a way so as to minimize taxes, safeguard a minimum income, and importantly determining when to retire by forecasting projected cash flows, among other things. Those are the things that I think could be beneficial to many, but only by paying for those planning services (hourly) when needed, not by paying 1% of AUM all along! Thanks WCI for the blog…I enjoy it and learn a lot!
No advisor can do better than a Robo-investor like Clink or Wisebabyan. If you are going to gamble on the stock market, don’t compound the lunacy by paying some advisor thousands a year. The best plan is to buy CDs with any extra money and relax.
I have read and admired your blog for a couple years now, and this blog post is a good example of why. I am a fee-only financial advisor and have a suggestion for a possible source of more advisors that might make it onto your “approved” list. I am a member of a relatively new planning network called XY Planning Network. We are all fee-only, focus on planning (not just money management), many if not all of us offer a retainer service (i.e., fixed rate), many of us have narrowly defined niches and I personally know at least a few who specialize in doctors and pharmacists, and many (most?) of us subscribe to a passive investment philosophy. You might find a few advisors in our network that would be a good fit for your readers.
Yes, this week I’ve also had people suggest the NAPFA site and the DFA site to search for fee-only planners.
some of those comments are simply to scare physicians to go and look for a financial advisor (atlast it seems to me!). if a physician is good enough to be a physician, with very little time invested to personal finance, he/she can do much better than most who goes with advisors. Anyways, in life, as personal finance goes, the biggest decisions are made when we make a decision on what field of medicine to specialize and thus income, where to live and most importantly how much to save. As long as a physician is saving between 25-30% of his/her income regularly and using index funds to invest it, with very little personal finance education will do great. Read “Budgets are for Rookies” at the what coat investor page to see the most important decisions to stay ahead. do not make simple individual investing a rocket science! I followed The white coat Investor’s rule and with little time spent on educating myself has passed the mark of a million in my portofilio! few in this particular comment are “fox in a sheep clothing”! buyer be aware! stick with Jim’s advise and you will do great! again no one cares about your money than you!!
Just had a friend who went down the whole life salesman route say that “I should tell his dad that the stock market is a better place to make money than life insurance, since he lost tens of thousands there.” His dad cost himself unbelievable amounts of money by bailing out at the bottom and then foregoing investment gains from never getting back in. Even a 1.3% a year Merrill Lynch adviser would have been well worth the expense. With a lot of people the choice isn’t between self directed investor in index funds or variable annuities with a commission based adviser, but no plan and a financial adviser who doesn’t do enough to earn the 1% fee but pays for it anyway based on what the person would do left to their own devices.
Seven years after residency you are “a millionaire.” I think I’ve strayed into the wrong neighborhood here. I recall a neighbor of mine commenting about his poor salary – which was twice mine – actually twice plus a bit. He was an MD. I am a Ph.D. That was almost thirty years ago.
The medical profession has a very, very distorted idea of finances. Seven years into a career and you’ve saved over a million dollars. Well, I’m worth more than a million too, but this is after working for almost thirty years.
My son and his fiancee are struggling with a mentally ill parent who has less than ten thousands dollars in savings after working for over fifty years and living like a pauper.
I will leave the neighborhood at this point.
Thanks for stopping by.
As you know or will probably soon learn, 95% of personal finance and investing is the same for everyone. 4% is different for high earners. 1% is different for docs. We spend a lot of time around here on that 5%, but we still spend plenty of time on the 95%. Hopefully you’ll find something useful to you, but I make no apologies for writing primarily for my target audience, which is high-income professionals, particularly those wearing the white coat (i.e. physicians and dentists.) Does that mean we spend a lot of time on first world problems? Absolutely. But try finding the solutions to those problems in other places and you’ll soon find your way back here.
Your comment seems to suggest that high earners and wealthy people shouldn’t pay attention to their finances nor try to optimize them. I disagree.
I have to admit that I’m not that financially savvy when it comes to personal investing, managing my own 401 (k) or thinking ahead when it comes to personal finance. For now, the only thing I know is the state I live in now (to the best of my knowledge in which I could be wrong) possibly has no restrictions on the number of individual IRA accounts a person can open. And I do know that $10,000 in an IRA for 20 years is automatically $1 million tax free. But the other finance stuff I’m quite stuck on stupid about.
Perhaps i’ll visit your blogs more often so i have a general understanding about making good financial decisions in the near future. Thank you for this blog. 🙂
You can have as many IRAs as you want, but can only put a total of $5,500 ($6,500 if 50+) into them in any given year.
There’s nothing automatic about investing returns. $10K in an IRA with no additional contributions growing to $1M requires annualized returns of 26%, which is obviously pretty unlikely.
That’s interesting to know. I met someone years ago that told me otherwise. I know times have changed and so has the way of doing things in business and finance. Thanks for letting me know because I do seek to learn more about personal finance. 🙂