This is a loose transcript of an interview with Michael George, President and CEO of FPL Capital Management (aka www.financialplanning.com) on 19 December 2011. This is part two. You can find part one here.
Disclosure: FPL is a paid advertiser on this blog (see that blue ad on the left.) This is not a paid-for post and my financial relationship with this firm consists only of the purchase of the mentioned ad. I get no commission if you visit their site from my blog or become their client. I have strict requirements for privately-placed advertisements on this blog (basically if I can’t wholeheartedly endorse a firm, I don’t accept ads from them.) Read more about my financial conflicts of interest here.
Do you find clients are uncomfortable with a financial planner they can’t sit down across the table from? Does it bother you?
No, I don't think this is an issue. Probably 80% of our clients don't meet with us face to face. Of course, if it is an issue for them they just don't call us, they find someone in their town to go see. The people who call us are knowledgeable and sophisticated enough to know that even if we’re out of town it isn’t a problem. Millions of investors invest at Vanguard but don't live in Valley Forge.
It doesn't bother me a bit. In fact, I think clients are more comfortable when they can sit at their desk in their home office with their papers and their computer in front of them. We do offer video conferencing, and many of our clients come see us when they're in New Orleans.
What percentage of your business is physicians?
A minority, probably 20%.
Do you feel a financial adviser needs to “specialize” in doctors to give the best advice to them?
I think that’s a marketing ploy. There are some unique nuances to every profession. For example, the own occupation disability insurance is pretty unique to doctors, but other than that there isn't a whole lot of difference between docs and other similar professionals. The asset management is pretty much all the same.
What advice do you have for a doctor looking for a financial planner?
You need to make sure the advisor is fee-only, that's very important. I would also make sure they emphasize passive strategies to avoid sub-par returns. They also need to be reasonably priced. Insist on performance reports. A lot of people have no idea how they’re doing compared to benchmark indices. If more people knew how they were doing, they’d be more aware of what they’re paying.
What advice do you have for a physician do-it-yourselfer?
Go to fplcapital.com/model-folios/, look at our models. They’re free on the website. You don’t need to use us. You can replicate these models on your own using ETFs. They’re quite diverse and well-structured to float along the efficient frontier. A lot of people just follow our models. They can assess their risk tolerance by looking at our historical returns. Embrace passive investing and be very methodical. Stick to it. Don’t allow yourself to be side tracked by some of the things you hear in the media of what’s hot and what’s not. Stick with value-oriented and dividend yield kinds of strategies. Be diversified. Keep costs low. You don’t have to go with the very cheapest alternative out there, you just don’t want to be in something that’s overly expensive. You don't need to go to Vanguard to save 5 basis points if there is a slightly more expensive ETF that is a little more ideal for the portfolio. Don’t be too penny-wise and pound-foolish.
What’s the biggest mistake you see physicians making with their finances?
My brother is a surgeon and so I'm involved with him and a number of his physician friends. I find the biggest issue is that they're very eager to get involved in different types of partnerships to make money in a surgery center, hospital, ambulatory care facility, or urgent care. A lot of the guys who are packaging these deals are out there to really screw the doctors. They want to get all the control, they want the doctors to put up the money and take the risk and liability. The general partners on these deals always want to be in control. I’ve seen 25 deals presented to doctors and every single one of them was not a good deal for the doctors. I finally saw one 2 weeks ago put together by a plastics guy which is actually equitable because he went out of his way to structure this to give the doctors a fair shake. But a lot of times it’s somebody partnering up with a doctor who wants to extract all the management fees out of the deal and the doc is the one sitting on the liability.
If you see a partnership agreement and you don’t like it sit down with the other docs and go over it with your own attorney, change it, and then go back. They need the docs in these deals because they’re the ones bringing in the money. They have more ability to capitulate than doctors think. Doctors always think the deal is cut in stone. Corporate documents can be amended.
Be very cautious of limited partnerships. Doctors are tired of getting screwed by medicare and insurance companies and they’re trying to figure out how to be efficient and optimize things. They’re anxious to get into these special deals because they’re grossly underpaid. It’s not fair that the guys who sell medical devices make more than doctors. Docs should be making good money but they have to be careful.
If you are in these deals, try to own the land. The real estate is sometimes the best part. At least if the business goes sour you can lease the facility to another group of younger doctors.
Do you sell insurance? Who do you send your clients to to buy life and disability insurance?
No, we don't sell it. We refer business to a life insurance guy and a disability insurance guy. Or we advise them to simply use an online service such as Select Quote for term insurance.
We do occasionally use a variable annuity, particularly if the client is already in a high-cost one. A new company (Jefferson National) is offering a low cost VA with a flat annual fee of $240 a year, but sold only through advisors. We use a no-load platform through Ameritas for the investments and can use DFA funds. We don’t mark it up.
Is there ever a place for cash-value life insurance for a physician? Who should consider that?
We don’t recommend it. If you can meet your needs with term insurance you should. If you feel you need an insurance product for asset protection issues a variable annuity can fill that need.
I see you use some PIMCO funds with your clients. What do you think of Bill Gross’s mistaken call this year on bonds?
You can’t win them all. That’s why it’s important to be diversified. Bill Gross still has a fantastic record.
Thank you to Michael George for the interview.