Imagine, if you will, that you are presenting at Morbidity and Mortality (M&M) Conference, except that in this case, you are not discussing a patient care episode gone bad. You are presenting your own personal financial decisions.
For those who are not familiar with an M&M conference, it is usually one of the better meetings you attend during your time at an academic medical center. Sometimes it is like watching a traffic crash in slow motion. Except the person at fault in the accident is standing in front of a group of his peers trying to explain his rationale. All kinds of cases are presented but typically they consist of complications, unexpected deaths, and poor management decisions. These days the person responsible for the case is often deliberately obscured, but in the “good old days” it was just you in front of everyone whose professional opinion mattered to you trying to defend your care. Let's imagine this Financial M&M is like that.
Presenting doctor:
“At this point, my wife and I met with the financial advisor. He told me this whole life policy was even better than a Roth IRA because it came with a death benefit.”
Gruff attending in the back row:
“What is the likelihood that someone attempting to sell you a whole life policy is someone you should be taking financial advice from?”
Later in the meeting…..
Presenting doctor:
“At this point I calculated out the return on my portfolio for the previous 5 years and found it was 7.3%.”
Chief resident in the front row:
“Wasn't the return of the stock market over that five year period 12% a year? What was the average expense ratio of your portfolio?”
You get the picture. M&M meetings are great because they reinforce a few important things
- Although there are often multiple right ways to do something, there are definitely wrong ways to do it.
- Poor decisions have serious consequences.
- You should make every important decision with the thought in your mind that you may later have to justify this decision to a group of smart people. If you do so, you'll make better decisions.
A sign outside my local Edward Jones office. Obviously, I disagree.
My Trip to Arkansas
I had the pleasure of traveling to Arkansas a few months ago to meet with medical students, residents, and attendings. That's State #43 for me if you're keeping track at home. Although I returned home tired (as usual) it was a very enjoyable trip. I gave a presentation about getting that critical first year as an attending right (financially speaking) at General Surgery Grand Rounds. This immediately followed their M&M conference. I was really hoping the questions directed at me would be a lot easier than those directed at the chief residents presenting the M&M cases. Thankfully they were.
The night before I presented to a very unique MS4 class, the Business of Medicine, organized by surgeon Jason Mizell. 95 of the 160 MS4s at the University of Arkansas Medical Sciences enrolled in this optional class. I hope to see a class like this offered at every medical, dental, and law school in the country.
That evening, I had the pleasure to meet 20 or so young attendings at certified financial planner Sarah Catherine Gutierrez's house. She is an hourly-rate financial planner who has been advertising on the site for some time. When I first met her, she was charging just $75 an hour, a ridiculously low fee. The current fee of $200 an hour is still one of the lowest I've seen for this type of work. (By way of comparison, Allan Roth of the “Second Grader” fame charges $450 an hour.) Sarah's firm, Aptus Financial, sponsored my trip out there, paying my expenses and speaking fee. I hope Sarah's model catches on like wildfire, but fear it will go the way of the dodo. You see, most financial firms are in the business of gathering assets, not giving advice. If you can gather $1 Billion and earn 1% on it, then your firm earns $10 Million a year and will stay in business. But if you are only giving hourly advice, and referring elsewhere for investment management, then you never get those AUM fees, “the best passive income there is.” Like a physician, if you stop giving advice, the income stops coming in.
[Update prior to publication: Dr. Mizell and Mrs. Gutierrez have submitted a guest post about the Business of Medicine course. It'll run in a couple of months.]
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However, the services provided are pretty unique. Since she is so inexpensive, she has already done 250 financial plans in her short career. (Many asset-gathering type advisors may only do 50-100 in their entire career.) That gives her a knowledge and ability that is pretty rare. I get dozens of questions every day by email, blog comment and forum post. After just a little while, I had very good insight into the concerns, questions, and financial situations of physicians and their trainees.
Doing 250 financial plans in a short period of time does the same thing. We all have the same questions and once you know the answers, you can provide them very efficiently. So now plans that used to take 20 hours to prepare only take 2. But the best part is that the approach is not the usual “I'll give you a fish” but rather a “I'll teach you to fish.” You can bring in your laptop and she'll sit by you and show you how you can open an account at Vanguard and place your own trades. She also does “second opinions” on financial plans and portfolios provided by other advisors. As you might imagine, she gets to see a lot of very angry physicians in her office as she explains that they've been paying $20K+ a year to underperform a simple index fund portfolio. When we parted ways, I told her that she had no idea how much I want her model to be successful. There are other hourly rate advisors out there, the Garrett Network being the most famous. But there aren't very many that specialize in doctors. Rant over and back to the story.
So I sat down and we had a little “fireside chat” with these young doctors. Since they were all Sarah's clients, they didn't have any stupid questions. Those had all long since been answered. So we discussed the intricacies of finding happiness, entrepreneurship, and optimizing of our financial situations. I hope they all found it as inspiring as I did. I could have stayed up until midnight, although my voice probably wouldn't have held out that long.
I also had the opportunity to sit down with Financial Planner and oncologic surgeon Ralph Broadwater, MD, CFP, AIF. He bought me lunch after my presentation and took me to the airport. I was excited to talk with him because he is such a rare commodity. There are a fair number of docs who have become financial advisors. But there are precious few who still practice medicine. Obviously, given that I do this site on the side and still practice medicine as my main gig, we share an affinity there and I wanted to hear how he balanced his life. That was all very interesting to me, but probably not to you. What you might find interesting, however, and perhaps the most unusual thing about Ralph's firm, The Arkansas Financial Group, was their AUM fee structure. Most AUM fees start high and come down way too slowly. These guys do charge a reasonable quarterly financial planning fee, but their AUM fee looks like this:
- 0.90% on the first $125,000 of Managed and Advisory assets
- 0.65% on the next $125,000 of Managed and Advisory assets.
- 0.47% on the next $250,000 of Managed and Advisory assets
- 0.34% on the next $500,000 of Managed and Advisory assets
- 0.25% all assets in excess of $1,000,000
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Let me tell you what I like about this. First, they'll take you with no minimum. This is important for any physician focused advisory firm because when you most need the advice is when you don't have squat. Second, the fee, even on a tiny sum, never hits the “industry standard” 1%. Third, they spell out whether the reduced percentage applies to all the assets, or just the assets over the last threshold. Few advisors spell this out in their ADV2. Fourth, I love how rapidly the rate decreases. By the time you're over half a million bucks you're basically down to roboadvisor-like fees. On your first million, you're basically paying 48 basis points on your first million, then 25 basis points after that. That's going to be competitive with even the cheapest flat-fee advisors (and there aren't enough of those either.) At the time of this writing, our financial relationship consisted of lunch and a ride to the airport, but hopefully by the time of publication I'll be able to bring him on as an advertiser.
At any rate, a great big thank you to those who hosted me in Arkansas and to the hundreds of physicians and trainees who attended the three meetings. I know your time is valuable, and I hope I didn't waste a second of it.
What do you think? How would you like to be leading an M&M discussion about your finances? What do you think the future of hourly rate financial planners and lower cost asset managers is? How important is it to you that an advisor specializes in physicians? Comment below!
I like how you started the article out as an m&m. I am still not sold on getting a financial adviser… Even a cheap competent one costs more than my “free” time
Maybe. Depends on whether it is TV watching time or patient seeing time that is your “free” time.
Like the idea of a financial M&M.
Regarding sign, I presume the part you “disagree” with is walking into an Edward Jones office to rebalance rather than doing it yourself.
No, I disagree with the assertion that your investments shouldn’t stand still. The data is very clear. Just leaving your investments alone for years is a key principle behind investing successfully. The sign is preying on people’s fear that they’re losing money if they’re not actively doing something.
I am not a fan either of the major financial advisory firms such as EJ. However, to be fair and intellectually honest, the bottom line statement in the sign is actually that investors should consider re-balancing–which I agree is a good strategy and understood you to support as well. (https://www.whitecoatinvestor.com/rebalancing-the-525-rule/). We often like to overlook that re-balancing is actually an active process even if the goal is to keep the overall portfolio allocations static. This is not “[j]ust leaving your investments alone for years” as you put it.
I think what they mean by “life not standing still” is that over time, the portfolio will deviate from the original portfolio allocations (if not using fixed allocation or target funds). However, perhaps I am giving them too much benefit of the doubt.
Well, I guess if someone hasn’t looked at their investments in 2 or 3 years, then yes, maybe they need to look and see if they need to rebalance. The difficulty and frequency of rebalancing a portfolio can be terribly overestimated if you haven’t looked at the data. The ideal rebalancing interval is likely greater than one year to take advantage of momentum.
what is quarterly fee on top of the AUM fee. I am dead against advisors but if someone is that stubborn not to learn, then there is no other choice but to hire an advisor as such
To me its of no significance if an advisor is a doc or if a cpa says he specializes with physicians
You got that right Ken. Even Vanguard’s low cost 0.3% fee for their financial advisor fees still adds app. Just an example:
1) A family investing $18k/yr getting 5% returns will be out $66k dollars 30 years
2) A family investing $53k/yr getting 5% returns will be out $195K over 30 years
This doesn’t even include the fees taken out after you retire.
I think a $200K+ is well worth taking 10 hours of my life now to learn to do this stuff and then 1-2 hours a year to manage it afterwards.
Sounds like you had a great trip to Arkansas. It’s amazing to me that $200 is still a pretty low rate, and I get that it’s much cheaper compared to an AUM fee for the vast majority of us.
What gets me is that $200 is more than most locums jobs in anesthesia pay, or at least the net for the physician after the agency collects their share.
The post title had me thinking this would be an actual reenactment or dramatization of a financial M&M. You could write a fun post highlighting your early mistakes, being ripped off, and have seasoned attendings (i.e. future you) raise his hand from the back of the room to set the young man straight.
Best,
-PoF
Well, if you wanted to make the big money you should have gone into financial advising instead of medicine. That has become very obvious to me over the last decade.
One upside to high AUM fees and a lack of hourly-rate planners is that not being able to find a good advisor convinced us to learn how to manage our own investments.
We met with four or five who all wanted to sell us whole life policies, annuities, and funds with 2% expense ratios, so instead we read your posts, MMM, and Bogleheads. Thanks for all the great advice.
considering whole life and 2% fees, WCI, MMM, and bogleheads have saved you well over $1million
how can the uneducated investor know if his advisor is advising his money wisely
To be educated enough to know if your adviser is doing right by you means you’re probably educated enough to just do it yourself. The time committeemen is minimal. I guess it works if you really don’t want to spend the time or for people to fearful to do it themselves.
Great question and a big problem. Even good advisors have a hard time answering that question.
“I hope Sarah’s model catches on like wildfire, but fear it will go the way of the dodo. You see, most financial firms are in the business of gathering assets, not giving advice. If you can gather $1 Billion and earn 1% on it, then your firm earns $10 Million a year and will stay in business. But if you are only giving hourly advice, and referring elsewhere for investment management, then you never get those AUM fees, “the best passive income there is.” Like a physician, if you stop giving advice, the income stops coming in.”
Or to put it another way, financial advisors must continue the con or they will have to work for a living. Why must physicians work for a living, but it is somehow inevitable that financial advisors must perpetuate the con? You seem to be resigned to and accepting of this state of affairs.
A financial advisor like Sarah can gross 300k/year billing 1500 hours. Yes, she will have to work hard to do this, and her gross will be nowhere near that of a successful AUM advisor. Is that bad? You are absolutely correct that if all financial advisors took her approach most would not survive — there are not enough billable hours to support the thousands of financial advisors in business today. So instead, we would have many fewer advisors; the competent would survive, and they would all actually have to work hard for a living. If that is ok for physicians, why not for FAs?
I suppose we should give kudos to Ralph for being more reasonable than the typical 1% AUM advisor, but his clients will still be paying many multiples of Sarah’s clients for basically the same financial planning AND investment advice. After the initial planning year(s), he will be charging the 2.5m client about 10k annually compared to Sarah’s approximate $500/yr. How does this make sense?
it does not make any sense
befuddling why docs cannot take time to learn how simple investing is really is; a 5th grader can learn this stuff
I like the idea of Financial M&M but this post seems like an advertisement for specific advisers. Aptus Financial does seem like a good deal if you’re looking for an adviser, Arkansas Financial Group not so much, even if they’re cheaper than other AUM advisers.
Agreed. This is contradictory to the message of this blog. While I understand some doctor’s can use FA, isn’t the whole point of the blog to not be giving exorbitant management fees, but put it and forget it (index fund) which any body can easily do?
Seems fishy/advertisey.
Lyn
I’m sure that anyone on this blog is capable of doing their own financial planning, but many are right to choose not to do so. I could learn to do repairs and maintenance on my car, but no thanks. The only problem is the fees. Aptus type fees would be perfect for most. Percentage of AUM fees are excessive, and 1% of AUM fees for HNWI are exorbitant.
Sometimes talking about specific companies is useful, even if it comes across as advertising because I had nice things to say about them. You can take any post I ever wrote that mentions Vanguard the same way.
What I hope is that readers will take a look at these two particular advisors, and then look at their current advisor and wonder if maybe they’re being ripped off.
Is this the prelude to the launch of “White Coat Investor Financial Planning Services”? (In all seriousness, you should do this now.)
No. Not interested. For lots of reasons. First, I’d have to quit doing this. Second, to live with myself I’d have to have a practice like Sarah’s and that doesn’t pay that great. I’d make more money practicing medicine. Third, I like medicine better. Fourth, if I open another business, it will be with the goal of PASSIVE income. I’m really not interested in another job. I’ve already got two and they’re interfering with my ability to go climbing. 🙂 Fifth, it’s a lot more fun to help thousands of DIYers than to hold the hand of 50 people who want a “money guy.” There are lots of good advisors out there. They’re not cheap and they’re a tiny percentage of those who call themselves financial advisors. But if that’s what you want, it shouldn’t be too hard to find one.
M&M case 1)
32 y.o. Anesthesiology attending with $300k in loans and no emergency reserve presents at the Maserati dealership…
(A good friend of mine, not me, of course. Doing much better now!)
The friend is doing much better, or you are? I want to hear more about this friend. Did he buy the maserati?
He bought the car. Has had a lot of fun with it including lots of girlfriends. He’s saving plenty nowadays. He makes fun of my 10 year old Outback but I’ve got more in the bank.
I really, really hope that the MDA is contributing a lot to *some* retirement fund. Or investing in something.
At least 3 months of emergency expenses is what most financial planners recommend. Maybe it’s a used maserati? 🙂
It’s really not that hard. Live a middle-class lifestyle for a few years (50,000 gross for a family) like most people in America, buy stuff on sale, max out your retirement accounts, and invest in low-cost index mutual funds. (for the vast majority of people)
And if you are so inclined you can pick individual stocks after reading a LOT of personal finance books from Buffet, Graham, the Motley Fool, and only in companies that you know very well.
I hear a lot of different emergency fund “rules of thumb”. Some people say 3 months of salary , some people say 3 months of expenses. I.e. If you make 360,000 per year and spend 120,000 a year, then you would either have an emergency fund of either 90k or 30k. 90k seems like an inconceivable amount to be just sitting around getting very little interest in a very liquid account. Where I am with my life I have about 10k emergency fund since as long as I am working … There is nothing that will need more than 10k cash (ac on my house, car etc,) … And I leave it in my checking account to avoid cash flow issues realisticly I could have a much smaller buffer since credit is so easily available but the 10k has the added bonus of avoiding cash flow issues… I know this was a bit of a tangent… Ps where is the best place to store your 90k emergency fund?
Let’s throw the rule of thumb away and decide what really fits your situation.
Basically you want an emergency fund that could sustain X months of living expenses if something bad happens. As physicians our jobs are relatively very secure, but our bodies are not.
Many disability policies wait 3 months before starting to pay out therefor I think you need a minimum of 3 months expenses in case you get hurt.
Many physicians who bill their patients have collections that are a few weeks if not months delayed and that garuantees another paycheck so for them 2 months expenses might be enough.
At the end of the day you want to have enough cash available to sleep well at night and make sure you can cover basic emergencies without having to sell equities or borrow.
Many will recommend putting your emergency fund into a high yield savings account. No, it won’t grow much, but that money must be easily available when/if that emergency hits.
For most docs, emergency fund should be expenses until disability would kick in.
Yeah you guys have much much bigger lifestyles than mine. 25% of 50,000 is 12,500. (For people of my ilk)
Yes, I would consider disability insurance to satisfy the emergency funs requirement.
I agree that it’s not just the actual months of emergency fund coverage but the total amount in your fund.
3-6 months of expenses. So $30-60K is the typical recommendation. $10K is a little on the low side. I’d working on bumping that up over the next few months or years. But keep in mind you may have some other money immediately available too like a taxable account or Roth IRA contributions etc.
Yup… I Have credit card debt so other than matching 401k, all other investments or spending is on hold. When I do get extra $$$ Before the end of the year I will pump it into a Ira / 401k, then next year slowly build up emergency by siphoning off a small amount from my main account, but even with that I won’t put more than 5 or maybe 10k into the emergency fund per year so probably 3-5 years to fully fund the 30k. I’m too far behind in investing to make it a priority .., I guess at that point 30k will only be a small part of my portfolio so it won’t matter if it’s low interest
You don’t need an emergency fund if you have credit card debt. You already had the emergency without an emergency fund. Pay off your debt, then build an emergency fund, then invest.
Yes I agree for the most part …there are some times when cash flow reasons make it easier to just keep some $ on hand to move around if needed … Out side of the 10k I try to run a bit lean on the accounts … So when bills become due I can be flexible (especially with dr expenses that always seem to be unpredictable when your new)
We keep our emergency fund (and our planned cash expenditures including college soon) in laddered CDs with our bank. Every 1-3 months another matures and we spend or renew (and make sure there are no large gaps in the coming years). Could start small (if $1500 a month is small for you, scale up or down accordingly) with buying 3 $500 CDs with 3,6,12 mo maturities every month instead of putting that in taxable mutual fund accounts and then putting them into 1,2,3 etc year CDs of $1000 and on up if you haven’t used the money over a year plus. CUt back once you have a month’s expenses maturing every month or two, or if the early redemption cost is negligible just keep that 3-6 months in that ladder and pay the penalty if you need to tap it.
Yea, the ones you know well, like Enron and WorldCom.
I like the Business of Medicine class idea for the med students and residents. Perhaps consider developing a Dave Ramsey like course and then many readers on this blog can and will likely enjoy delivering these courses to the Med school and residencies near us…
Now that I’ve given serious consideration to.
with a steady income why an emergency fund
stay fully invested with liquid investments
leaving 50-90k in an account earning zilch???
Glad to hear you had a good stay in Little Rock. I was pretty bummed about not being able to attend the presentation due to work. The college of pharmacy offers a somewhat similar elective during P3 year on personal finance which is also quite popular – I’d say that probably 70-80 of our class of 120 took it. Of course, I didn’t really learn much during it – following WCI/reading the book taught me basically everything the class covered – but it was good to see that much interest from my classmates.
Glad to hear about that class and the interest in it.
I love it. I’m a big fan of trying to understand everything and questioning whether a particular way is the best way to go about it.
I think the future of financial advisors is going to die away. Yes, it will exist, but it will be significantly less than it is today. FinTech is really small right now but so were ATMs and snack dispensers. People thought that they will never trust a machine enough to count correct change / money but people have changed their way of thinking because it’s more efficient and easier. FinTech is going to make it easier to manage money and face to face wealth advising could be diminishing..