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The financial advisor who uses a financial advisor

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  • q-school q-school 
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    Status: Physician
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    I don’t have any problem at all with being or using a financial advisor who gives good advice at a fair price. I would hope that forum members would adopt that philosophy. Those who think every person or every doc can and should be a DIYer just haven’t talked to enough of them yet. I think perhaps 20% of docs can do this themselves and Bill Bernstein thinks I’m off by an order of magnitude.

    All that said, I’m not sure I’d hire a financial advisor who felt like they needed one! I have met a few though.

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    i think the part we are struggling with is what is fair.

    🙂

     

    #164040 Reply
    Rogue Dad, M.D. Rogue Dad, M.D. 
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    All that said, I’m not sure I’d hire a financial advisor who felt like they needed one! I have met a few though.

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    I am a board certified pediatrician and peds ER doc and can and do handle quite a bit of our kids routine issues. However we still take them to a pediatrician of their own and even to my ER where they’ve seen colleagues of mine.

    It’s no different than any other profession.  Lawyers have their own lawyers. Mechanics don’t repair everything in their cars.  People with teaching degrees don’t  homeschool all their own kids.

    There’s something to be said for knowing yourself and your own limits.

    http://www.RogueDadMD.com

    An alt-brown look at medicine, money, faith, and family

    #164053 Reply
    Liked by jfoxcpacfp
    The White Coat Investor The White Coat Investor 
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    Status: Physician
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    Joined: 05/13/2011

    All that said, I’m not sure I’d hire a financial advisor who felt like they needed one! I have met a few though.

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    I am a board certified pediatrician and peds ER doc and can and do handle quite a bit of our kids routine issues. However we still take them to a pediatrician of their own and even to my ER where they’ve seen colleagues of mine.

    It’s no different than any other profession.  Lawyers have their own lawyers. Mechanics don’t repair everything in their cars.  People with teaching degrees don’t  homeschool all their own kids.

    There’s something to be said for knowing yourself and your own limits.

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    I’m not talking about some complex issue you need help with. I’m just talking about the day to day financial planning and investment management. Nothing wrong with consulting with somebody else about the complex stuff or a second opinion or whatever. Sure, I’d use another doc to take out my gallbladder, but I’m just fine treating my own subungual hematoma.

    Let me give you an example (using a different advisor than Anjali, but who I’ll leave nameless).

    This was a very successful, very competent advisor with a full practice in a large firm who was viewed as the investing expert in this firm but used one of the other advisors (and frankly a much less competent one) as his advisor. I think part of it was he liked to be able to tell doctors that even he used an advisor, but when I pinned him down on it (and told him I thought it was goofy) it seemed that he just wanted to remove the emotion from the process.

    I guess I think if you can’t even remove the emotion from your own investing process, how can I trust you to invest mine without emotion?

    Now, I’ll be the first to admit there’s a lot less emotion when it’s not your money, but it still seems a bit of a reach to me.

    YMMV.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #164064 Reply
    Liked by MPMD, beagler
    Avatar G 
    Participant
    Status: Physician, Small Business Owner
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    Joined: 01/08/2016
    Sure, I’d use another doc to take out my gallbladder, but I’m just fine treating my own subungual hematoma.

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    Well put.

    #164066 Reply
    The White Coat Investor The White Coat Investor 
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    Status: Physician
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    This makes perfect sense to me.  Just as a physician I wouldn’t treat myself or my family members. Too much emotion in it.

    A lawyer who represents himself has a fool for a client.  Etc.

     

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    How much emotion is there in writing for amoxicillin for an AOM? I think if something is very straightforward and within your specialty/scope of practice, it’s fine to treat family and friends. I set pretty strict limits though.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #164067 Reply
    The White Coat Investor The White Coat Investor 
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    Status: Physician
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    Joined: 05/13/2011

     

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    Sorry not trying to be defensive just writing quickly while doing other stuff.

    I think the biggest issue is the “I can’t” mindset most doctors have. You have to get past that first. Once people know they CAN and understand HOW only then do I think can they make a truly informed judgment regarding whether to use an advisor and how to choose one.

    The single biggest thing I preach is they need to understand the advice and whether it’s good advice. If they can’t ubderstand it they have no way of knowing if they are receiving good advice or whether it’s worth the $.

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    I like this part.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #164068 Reply
    Rogue Dad, M.D. Rogue Dad, M.D. 
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    I guess I think if you can’t even remove the emotion from your own investing process, how can I trust you to invest mine without emotion?

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    I think the answer should be self-evident in almost every walk of life.  I’ve never once yelled at a pediatric patient in the ER who was being a brat.  Yet I’ve definitely done it at home. How can I be trusted in a code situation at work if I lose my cool trying to get my boys to wipe pee off the floor?

    The gallbladder analogy fails since I’m talking about something in your scope of practice.  If your father was having chest pain you could interpret his EKG to decide if it was a STEMI, but unless it’s stone cold NSR I would let someone else do it.

    It’s fundamentally different when it’s professional and not personal, in just about everything we do.

    http://www.RogueDadMD.com

    An alt-brown look at medicine, money, faith, and family

    #164069 Reply
    Liked by jfoxcpacfp
    Rogue Dad, M.D. Rogue Dad, M.D. 
    Participant
    Status: Physician
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    Joined: 03/07/2016
    How much emotion is there in writing for amoxicillin for an AOM? I think if something is very straightforward and within your specialty/scope of practice, it’s fine to treat family and friends. I set pretty strict limits though.

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    The biggest source of contention in most married people’s lives are their marriages, and the number one cause of contention is usually money.

    So if 2 people are married and have wildly divergent views on money, even if one of them knows how to manage finances “perfectly” (quotes are intentional given it’s subjective), they aren’t immune to the same forces that cause other people angst.

    http://www.RogueDadMD.com

    An alt-brown look at medicine, money, faith, and family

    #164070 Reply
    The White Coat Investor The White Coat Investor 
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    Status: Physician
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    Quality advisors who are willing to provide advice without asset management are very difficult to find, for obvious reasons Rogue alluded to in his comments at the bottom.  I wonder if this advisor routinely offers this service, or is doing it more as a favor.  I assume if I ever sought out such a professional it would have to be through virtual appointments.

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    I know for sure that Anjali’s prime focus is active financial planning and her niche is physicians (she is married to one). She and I have a lot in common (she’s also a CPA) and regularly bounce ideas off one another. It was her husband’s idea to look into planning because of the many hours required in her prior career as a CPA.

    Here is the thread in which she was harshly (and, imo, very unjustly) criticized for her business model. People mainly focused on her annual minimum of $10k for all the work she does.

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    I don’t think an advisor should get a pass when asked to justify their fees. Obviously, it should be done in a civil manner. But no advisor should be surprised to find that most of those hobbyists on an online investing forum think they charge too much. I mean, I wouldn’t pay $1K a year for a financial advisor and that’s a steal. The value just isn’t there FOR ME. That would be okay if it were only the hobbyists reading about the advisor on the forum since they aren’t really potential clients anyway. The problem comes in when a casual lurker reads the exchange years later after Googling the advisor’s name and assumes something is wrong or different about the advisor. That’s when the economic damage gets done and I get letters from attorneys about what is written on the forum.

    At any rate, I think it is a very reasonable question to ask

    “Joe down the street is willing to manage my money for $3K a year, but you want $10K. Why do you think you’re worth 3 times as much as Joe?”

    The entrepreneur in me totally understands why one would charge > $10K/client and especially why one would charge an AUM fee. A typical full-service advisor can really only handle 50-100 clients. If you’re only charging $3K a year, and have 33% overhead, you’re only making $100-200K. Why should you only make 10% of what other top quality, successful, experienced advisors are making? Besides, AUM fees are the best kind of passive income there is! (That’s a direct quote from an advisor, by the way.) In addition, the market dictates what the going rate is. “Just because there is someone out there willing to work for $5K a year doesn’t mean I only have to charge $5K a year. All I need to do is find 50-100 people willing to pay me $15K/year. I don’t need every client, I only need 50 of them to have a very successful practice. You can’t be all things to all people.”

    The physician advocate in me, however, feels a duty to tell my readers that there ARE advisors out there willing to work for $1-10K/year who do a knockout job that is at least as good as the vast majority of those advisors charging AUM fees or even flat fees over $10K.

    The really tricky part comes in when your readers call you out on it.

    “Hey, you said I should only hire an advisor who charges me a four figure amount per year, but you have advertisers that charge more. What gives?”

    I don’t know how Rogue Dad deals with that issue, but it’s something I’ve wrestled with for a long time. Here are my four justifications/excuses:

    1) When I first started, I really didn’t know of/there weren’t many knowledgeable flat fee/hourly rate advisors who focused on physicians. This has changed a lot in the last five years, but initially I didn’t have very many people I could refer people to (and was asked for lots of referrals). I was happy to have a fee-only advisor that gave good advice and charged 1%/year or less.

    2) I expect and teach my readers to negotiate fees. Just because the listed fee is 1%, doesn’t mean you have to or should pay 1%, especially as your assets grow. Besides, for a $500K portfolio, a 1% AUM fee is only $5K/year, a very reasonable fee.

    3) The good low cost advisors fill quickly and stop taking new clients and paying for advertising. If they’re full, I can’t send them even more clients. Plus, it’s too much of a pain to vet advisors and maintain a list if you’re not getting paid for it.

    4) Sometimes the entrepreneur wins out over the advocate. I’m still running a for-profit business here. Rather than work for free, I’ve chosen to simply clearly disclose my conflicts of interest. If you’ll notice, every year in the state of the blog post I’ll list one of my conflicts of interest as “I am incentivized to refer you to a financial advisor when perhaps you could do this on your own.” Every one of the advisors on my recommended list has their fees listed. It should be very easy to see that some charge a lot more than others. The real benefit there IMHO is that it gives even the casual reader the knowledge of what typical advisory fees look like so they can recognize a good deal. I find it fascinating to see an occasional advisor not renew their listing there – “I’m not getting any business from it,” he might say. But he doesn’t seem to realize his fees are in the highest decile of the group. I mean, fees aren’t everything but they should definitely go into the equation.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #164074 Reply
    Rogue Dad, M.D. Rogue Dad, M.D. 
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    To answer WCIs question to me posed above, here is a very slightly edited version of what I emailed WCI on this:

    “I’m tired of advisors who present themselves as know it alls and think docs are all gullible. It’s nice to interact with an advisor who has a humble aspect to their professional work. I don’t think her post was intended as braggardly, quite the opposite. I think it opens her up to criticism that she could have completely avoided by not writing it. I think it’s that aspect that has me working with her. It’s a higher price than I will personally pay but similar to WCI, I do not want to pay ANYTHING.

    With Anjali her I have far less concern about someone getting misled and ripped off and more understanding of the nuances involved in financial planning beyond the spreadsheets.

    When I teach residents I’ve mentioned I actively recommend them to do what they can on their own. I don’t use that position to steer them to advisors (Anjali or others). But having lived the real downside of an advisor that overcharges and underdelivers and doesn’t want their advice questioned, it’s nice to find one where that’s less of a concern.

    http://www.RogueDadMD.com

    An alt-brown look at medicine, money, faith, and family

    #164094 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 1692
    Joined: 03/01/2018

    The Individual Investor would benefit more from investing all his money into a primary residence rather than investing in the market on his own.

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    You should have concluded “the average Individual Investor would benefit more from investing all his money into a primary residence rather than investing in the market on his own.”

    Further you should have concluded “the Individual Investor would benefit more from investing all his money into a broad index of US stocks rather than investing in the manner of the average Individual Investor.”

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #164137 Reply
    Liked by Hank
    Avatar beagler 
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    I can see how a good financial advisor could be very helpful to some.

    Flat fee only advisors have much less conflict of interest than anyone commisioned and may charge less than a % asset under management fee advisor (or could be more).

    The conflict of interest is that they need to convince you of their worth and utility on an ongoing basis. Perhaps the least conflicted advisors would “graduate” a substantial portion of their clients after a few years–“you don’t need me anymore, call if there is some big life change you want to analyze.”

    A financial advisor using another financial advisor can be part of their sales pitch. So the motivation needs to be discounted.

    Perhaps touting their “graduation” rate would better signal their true motivations.

    Perhaps discussing what they did during the 2008-9 with their personal investments would be useful. Yes less emotions with our money than theirs, but if a financial advisor wasn’t able to do as they teach, then I’d have less confidence. Better just to learn from Hatton.

    Lastly, if you think you might sell during a 50% 1-2 year recession by all means use a financial advisor or better go with a moderate stock/bond allocation. But that 2 year 50% bottom could actually be the start of a 5-10 year depression in which case I doubt the financial advisor saying “stay the course” is gonna help you much if you didn’t already have the internal fortitude.

     

    Solo Internist, Midwest

    #164147 Reply
    Avatar Steven Podnos MD CFP 
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    Status: Physician, Financial Advisor
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    Joined: 09/21/2017

    Coming at this as both a physician and fee only planner-this thread has some great points made.  Many of the participants in this forum are well educated in financial matters-but with a strong emphasis on the investment side.  And indeed, any finance or financial planning professional should admit that investments are the easiest part of financial planning.   I have no confidence that any particular general asset allocation will do “better” than another over a long period of time-i.e. what Vanguard suggests, vs. Betterment, vs. my allocation, etc.  Meb Faber has done some great work in his book “Global Asset Allocation” on this topic.

     

    So, choosing an asset allocation is the easy part.

    Sticking too it may not be so easy, and may be a large part of a financial planner’s worth.  I spent most of 2008-2010 holding hands and reassuring clients that selling was a mistake and that they would be “ok”.  Conversely, avoiding bad investments can be of great value.  I have sorted through hundreds of investment ideas and pitches for physician (and other clients), finding them almost always a bad idea.  Sometimes a bad investment can be as simple as too expensive a house or office.

    Many families need some behavioral support to reduce spending (perhaps the most dangerous threat to retirement success).

    I have yet once in fifteen years to encounter a young physician family with enough life insurance (and we use level term only in almost every circumstance).  Less often, but commonly the same is true for disability insurance.

    We find many families that have aspects of their property titling or business dealings that greatly expose their life savings to creditors in a lawsuit.  The solution is often simple, but wasn’t done until someone asked about it.

    Many of our families just don’t want to worry about financial issues and are very happy to pay someone to take care of them.

    Even after initial planning is done, for some families we find new challenges arising that need expertise for the best solutions.

    Information is readily available with a search engine.  Knowledge is available with time and education.  Wisdom comes from both information and knowledge, but also experience and an immersion in a field.   How many of your peers will do the work to have the wisdom to manage their own financial affairs correctly (and again, I’m not talking about investments alone)?

    #164171 Reply
    Avatar ajm184 
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    Status: Other Professional
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    Joined: 07/14/2017
    The Individual Investor at 2.6%

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    Would like to see a link to this article.  Financial research touting ‘The Individual Investor’ as an asset class is wrong on so many levels.  Guessing this research is not counting the like of Vanguard/Fidelity as ‘The Individual Investor’.

    #164194 Reply
    Avatar Tim 
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    Status: Accountant
    Posts: 1392
    Joined: 09/18/2018

    “I can tell you I spend a significant amount of time telling people how to evaluate an advisor if they choose to work with one.”

    Please do. In healthcare a patient typically sees a PCP, licenses and training can be verified and are easily understood by the public. Then, if needed, referrals to a specialist. Again, licenses and training aren’t difficult.
    Legally and ethically, compensation in the form of commissions and kickbacks are forbidden. Repeat business doesn’t impact the compensation.

    For advisors, repeat business and compensation determines failure or success.

    1) The quality or focus of an advisor is difficult to communicate.
    2) The discussion has focused on fee structures, rather than the type of advisor needed.
    3) Most advisors focus on a target market, with services intended to be attractive to the target.
    4) MBA, CPA, CFP, CFA, RIA, FINRA, Series 6, 7, 63, 65, 23, 72, 4 are not easily understood. It makes it difficult to understand the primary and secondary services being offered. One runs the risk creating fees for services unused and little of value.
    5) Anne mentioned an emotional need to have an impartial objective source review either a plan or choices. She finds three “advisors “, how does she evaluate the services offered and the qualifications and vet the advisor? Her needs may be completely different than the colleagues that provided the referrals.

    #164211 Reply

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